ELM 7.8 Summary of consolidation rules
ELM 7.3.1 R says that if the firm is part of a group that is subject to consolidated supervision under IPRU(BANK), IPRU(BSOC) or IPRU(INV), consolidated supervision of the firm will also be carried out under those rules.
ELM 7.3.2 R says, broadly, that if ELM 7.3.1 R does not apply but the firm is part of a group with a full credit institution or investment firm as a member, the bank consolidation rule applies. This means that the firm will be subject to the consolidation requirements for banks. These can be found in chapter CS of IPRU(BANK) (consolidated supervision).
Generally, the guidance in IPRU(BANK) says that if a firm is part of a group subject to lead supervision under the EU banking or investment services Directives by a competent authority in another EEA State, consolidated supervision in accordance with the detailed quantitative guidance in IPRU(BANK) does not apply at the level of the EEA group. Instead it applies at the level of the UK sub-group.
ELM 7.3.3 R or ELM 7.3.4 R applies if there are no full credit institutions or investment firms in the EEA group. ELM 7 sets out a special regime for firms in such groups. This assesses capital adequacy by applying the ongoing own funds requirement in ELM 2.5.1 R at the level of the group. If one of those rules apply, the large exposure requirements in ELM 3.5 are also applied at the level of the UK consolidated group or EEA consolidated group.
If the ELM financial rules do not capture adequately the risks that arise because of a firm's membership of its group, of the effect which membership may have on the firm or of the risks that may arise because of the firm's connection with any person, the FSA may impose a requirement that has the effect of taking those other persons into account for the purpose of the prudential supervision of the firm. For example, ELM 7.3.3 R or ELM 7.3.4 R (and the corresponding provisions of ELM 7.6) could be extended beyond the UK consolidated group or EEA consolidated group.
The definitions of EEA financial parent undertaking and UK financial parent undertaking require that the parent undertaking concerned should be the highest relevant parent undertaking in the firm's group. In some cases there may be more than one person who could be such a parent undertaking but for that provision but it is not possible to say that one of them is the highest. The result may be that the firm does not have an EEA financial parent undertaking or UK financial parent undertaking. In such a case, the FSA will generally seek to add a requirement to the firm's permission that will apply the relevant provisions in ELM 7 in a suitably adapted form.
1If a firm is linked to other financial services undertakings by a consolidation Article 12(1) relationship, the FSA will determine how to apply the provisions of this chapter.
1If a firm is part of a financial conglomerate, the provisions of PRU 8.4 apply. If a firm is part of a third-country group, the provisions of PRU 8.5 apply.