ELM 7.5 Calculation of capital adequacy on a consolidated basis

A firm's EEA group risk own funds are calculated as follows:

1. (1)

   the own funds of members of the EEA consolidated group are consolidated using the principles that apply to preparing consolidated accounts under the Companies Act 1985 where applicable, otherwise the Companies Act 2006,2 and in accordance with accounting principles generally accepted in the United Kingdom;

2. (2)

   for these purposes the own funds of a person to whom ELM 2.4.2 R does not apply are calculated as if it did apply;

3. (3)

   the adjustments provided for in article 651 of the Banking Consolidation Directive apply (if required by the Banking Consolidation Directive), in accordance with (1);

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4. (4)

   the deductions specified in ELM 2.4.2 R must be recalculated at the level of the EEA consolidated group;

5. (5)

   the deduction at stage (F) of the calculation in ELM 2.4.2 R does not apply to material holdings held by members of the EEA consolidated group in another member;

6. (6)

   the limits in ELM 2.4.18 R and ELM 2.4.19 R (Limits on components of own funds) must be applied;

7. (7)

   minority interests are not included; and

8. (8)

   own funds of members of the EEA consolidated group other than the person at its head are only included if they represent capital that is freely transferable to other members of the EEA consolidated group.

A firm's EEA group risk own funds requirement is calculated by way of consolidation using the principles that apply to preparing consolidated accounts under the Companies Act 1985 where applicable, otherwise the Companies Act 20062 as follows:

1. (1)

   the rules for calculating a firm's own funds requirement must be applied to the firm's EEA consolidated group as if it were a single firm subject to the ELM financial rules;

2. (2)

   the consolidation must be in accordance with accounting principles generally accepted in the United Kingdom.

All items included in the calculation of a firm's EEA group risk own funds and EEA group risk own funds requirement must be included in full, even though the member of the EEA consolidated group concerned is not a wholly owned subsidiary undertaking of the undertaking at the head of the EEA consolidated group.

A firm's EEA group risk own funds and EEA group risk own funds requirement must be calculated in a way that is not contrary to the Banking Consolidation Directive as applied by the E-Money Directive. The other rules in ELM 7.5 are subject to this rule.

A firm's UK group risk own funds and UK group risk own funds requirement are calculated in the same way as its EEA group risk own funds and EEA group risk own funds requirement except that references to its UK consolidated group are substituted for references to its EEA consolidated group.