ELM 7.8 Summary of consolidation rules

The rules in this chapter are in addition to the other rules about own funds in ELM.

If a firm is not part of a group, ELM 7 does not apply.

Broadly speaking, ELM 7.3.1 R to ELM 7.3.2A R apply the consolidation rules in BIPRU 8 to an ELMI.2

If an ELMI is a member of a group that has another member in it subject to BIPRU 8, then ELM 7.3.1 R applies BIPRU 8 to the ELMI in the same way as it applies to the other firm.2

ELM 7.3.2 R and ELM 7.3.2A R say that where ELM 7.3.1 R does not apply, BIPRU 8 applies to the ELMI if there is a full credit institution or investment firm in the group. If the ELMI is part of an EEA consolidated group of which the FSA is the lead regulator, BIPRU 8 applies to that EEA consolidated group. If the ELMI is not part of such a group or another EEA competent authority is lead regulator for the EEA consolidated group, then BIPRU 8 applies to the UK consolidated group of the ELMI.2

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 GENPRU 3.12 apply. If a firm is part of a third-country group, the provisions of GENPRU 3.22 apply.