GENPRU 3.1 Application

GENPRU 3.1.1RRP

1

  1. (1)

    Unless otherwise stated,8 GENPRU 3.1 applies to every firm that is a member of a financial conglomerate other than:

    1. (a)

      [deleted]10

    2. (b)

      [deleted]10

    3. (c)

      [deleted]10

    4. (d)

      an ICVC;8

    5. (e)

      a bank;8

    6. (f)

      a designated investment firm; and8

    7. (g)

      an insurer.8

  2. (1A)

    GENPRU 3.1 (except GENPRU 3.1.5R to GENPRU 3.1.12G10) applies to each of the following firms that is a member of a financial conglomerate:8

    1. (a)

      a bank;8

    2. (b)

      a designated investment firm; and8

    3. (c)

      an insurer that is a “UK Solvency II firm” as defined in the PRA Rulebook: Glossary.8

  3. (2)

    GENPRU 3.1 does not apply to a firm with respect to a financial conglomerate of which it is a member if the interest of the financial conglomerate in that firm is no more than a participation.

  4. (3)

    GENPRU 3.1.25 R (Capital adequacy requirements: high level requirement), and GENPRU 3.1.35 R (Risk concentration and intra group transactions: the main rule) do not apply with respect to a third-country financial conglomerate.

    5

Purpose

GENPRU 3.1.2G

GENPRU 3.1 implemented requirements in11 the Financial Groups Directive. However, material on the following topics is to be found elsewhere in the Handbook as follows:

10
  1. (1)

    further material on third-country financial conglomerates can be found in GENPRU 3.2;

  2. (2)

    SUP 15.9 contains notification rules for members of financial conglomerates;

  3. (3)

    material on reporting obligations can be found in SUP 16.12.32 R and SUP 16.12.33 R2; and

    2
  4. (4)

    material on systems and controls in financial conglomerates can be found in SYSC 12.

GENPRU 3.1.2AG

11GENPRU 3.1 has been amended to reflect the introduction of a new prudential regime for MiFID investment firms (MIFIDPRU). This new regime streamlines and simplifies the prudential requirements for MIFIDPRU investment firms. It refocuses prudential requirements and expectations away from the risks a firm faces to also consider, and look to mitigate, the potential for harm these firms can pose to consumers and markets. If a financial conglomerate for which the FCA is the coordinator considers the amendments to GENPRU 3.1 do not appropriately reflect the risks and potential harms to which its activities give rise, it should contact the FCA to discuss how the rules could be modified to do so.

Introduction: identifying a financial conglomerate

GENPRU 3.1.3GRP

  1. (1)

    In general the process in (2) to (8) applies for identifying financial conglomerates.

  2. (2)

    The relevant competent authority that has10 authorised regulated entities should try to identify any consolidation group that is a financial conglomerate. If a competent authority is of the opinion that a regulated entity authorised by that competent authority is a member of a consolidation group which may be a financial conglomerate it should communicate its view to the other competent authority10.

  3. (3)

    A competent authority may start (as described in (2)) the process of deciding whether a group is a financial conglomerate even if it would not be the coordinator.

  4. (4)

    A member of a group may also start that process by notifying one of the competent authorities that have authorised group members that its group may be a financial conglomerate, for example by notification under SUP 15.9.

  5. (5)

    If a group member gives a notification in accordance with (4), that does not automatically mean that the group should be treated as a financial conglomerate. The process described in (6) to (9) still applies.

  6. (6)

    The competent authority that would be coordinator will take the lead in establishing whether a group is a financial conglomerate once the process has been started as described in (2) and (3).

  7. (7)

    The process of establishing whether a group is a financial conglomerate will normally involve discussions between the financial conglomerate and the competent authorities concerned.

  8. (8)

    A financial conglomerate should be notified by its coordinator that it has been identified as a financial conglomerate and of the appointment of the coordinator. The notification should be given to the parent undertaking at the head of the group or, in the absence of a parent undertaking, the regulated entity with the largest balance sheet total in the most important financial sector. That notification does not of itself make a group into a financial conglomerate; whether or not a group is a financial conglomerate is governed by the definition of financial conglomerate as set out in GENPRU 3.1.

  9. (9)

    GENPRU 3 Annex 3 is a questionnaire (together with its explanatory notes) that the FCA8 asks groups that may be financial conglomerates to fill out in order to decide whether or not they are.

  10. (10)

    If a mixed financial holding company is subject to equivalent provisions under the UK prudential sectoral legislation10 in relation to the banking and investment services sector8 and under GENPRU 3 (Cross sector groups) and the FCA8 is the coordinator, the FCA8 may, on application by a firm and after consulting the other competent authority10 responsible for the supervision of subsidiaries, disapply such provisions of the UK prudential sectoral legislation10 in relation to the banking and investment services sector8 with regard to the mixed financial holding company and apply only the relevant provisions of GENPRU 3 to the mixed financial holding company.5

GENPRU 3.1.3AGRP

6If a mixed financial holding company is subject to equivalent provisions under this Chapter and under UK prudential sectoral legislation10 in relation to the insurance sector 10and the FCA is the coordinator, the FCA may, on application by the firm10, disapply such provisions of the UK prudential sectoral legislation10 with regard to that undertaking which are considered by the FCA as equivalent to those applying to the firm under GENPRU 3.1.

[Note: article 120(2) of CRD]

Introduction: The role of other competent authorities

GENPRU 3.1.4GRP

A lead supervisor (called the coordinator) is appointed for each financial conglomerate. The definition of coordinator in the Financial Groups Directive Regulations10 describes the criteria for deciding which competent authority is appointed as coordinator. 10

[Note: Article 10 and 11 of the Financial Groups Directive]10

Definition of financial conglomerate: basic definition

GENPRU 3.1.5RRP

A financial conglomerate means a consolidation group that is identified as a financial conglomerate in accordance with the decision tree in GENPRU 3 Annex 4.

Definition of financial conglomerate: sub-groups

GENPRU 3.1.6RRP

A consolidation group is not prevented from being a financial conglomerate because it is part of a wider:

  1. (1)

    consolidation group; or

  2. (2)

    financial conglomerate; or

  3. (3)

    group of persons linked in some other way.

Definition of financial conglomerate: the financial sectors: general

GENPRU 3.1.7RRP

For the purpose of the definition of financial conglomerate, there are two financial sectors as follows:

  1. (1)

    the banking sector and the investment services sector, taken together; and

  2. (2)

    the insurance sector.

GENPRU 3.1.8RRP

  1. (1)

    This rule applies for the purpose of the definition of financial conglomerate and the financial conglomerate definition decision tree.

  2. (1A)

    [deleted]11

    8
  3. (2)

    Any mixed financial holding company is considered to be outside the overall financial sector for the purpose of the tests set out in the boxes titled Threshold Test 1, Threshold Test 2 and Threshold Test 3 in the financial conglomerate definition decision tree.

  4. (3)

    Determining whether the tests set out in the boxes titled Threshold Test 2 and Threshold Test 3 in the financial conglomerate definition decision tree are passed is based on considering the consolidated and/or aggregated activities of the members of the consolidation group within the insurance sector and the consolidated and/or aggregated activities of the members of the consolidation group within the banking sector and the investment services sector.

Definition of financial conglomerate: adjustment of the percentages

GENPRU 3.1.9RRP

Once a financial conglomerate has become a financial conglomerate and subject to supervision in accordance with this chapter10, the figures in the financial conglomerate definition decision tree are altered as follows:

  1. (1)

    the figure of 40% in the box titled Threshold Test 1 is replaced by 35%;

  2. (2)

    the figure of 10% in the box titled Threshold Test 2 is replaced by 8%; and

  3. (3)

    the figure of six billion Euro in the box titled Threshold Test 3 is replaced by five billion Euro.

GENPRU 3.1.10RRP

The alteration in GENPRU 3.1.9 R only applies to a financial conglomerate during the period that:

  1. (1)

    begins when the financial conglomerate would otherwise have stopped being a financial conglomerate because it does not meet one of the unaltered thresholds referred to in GENPRU 3.1.9 R; and

  2. (2)

    covers the three years following that date.

Definition of financial conglomerate: balance sheet totals

GENPRU 3.1.11RRP

The calculations referred to in the financial conglomerate definition decision tree regarding the balance sheet must be made on the basis of the aggregated balance sheet total of the members of the consolidation group, according to their annual accounts. For the purposes of this calculation, undertakings in which a participation is held must be taken into account as regards the amount of their balance sheet total corresponding to the aggregated proportional share held by the consolidation group. However, where consolidated accounts are available, they must be used instead of aggregated accounts.

Definition of financial conglomerate: solvency requirement

GENPRU 3.1.12RRP

The solvency and capital adequacy requirements referred to in the financial conglomerate definition decision tree must be calculated in accordance with the provisions of the relevant sectoral rules.

Definition of financial conglomerate: discretionary changes to the definition

GENPRU 3.1.13GRP

Regulation 16 to 20, 21 and 24 of the financial groups directive regulations10 allow competent authorities, on a case by case basis, to:

  1. (1)

    change the definition of financial conglomerate and the obligations applying with respect to a financial conglomerate (which would include, where the appropriate regulator would be the coordinator under GENPRU 3.1.3G (6), permitting firms to apply, on an annual basis and subject to publication and notification to the competent authority10, for a group of which it is a member not to be regarded as a financial conglomerate on the basis of regulation 16 of the financial groups directive regulations (10for a group that, in terms of the tests in GENPRU 3 Annex 4, does not meet Threshold Test 2 but meets Threshold Test 3) or regulation 17 of the financial groups directive regulations10 (for a group that, in terms of the tests in GENPRU 3 Annex 4, meets Threshold Test 2 but not Threshold Test 3)5;

  2. (2)

    apply the scheme in the financial groups directive regulations to UK regulated entities10 in specified kinds of group structures that do not come within the definition of financial conglomerate; and

  3. (3)

    exclude a particular entity in the scope of capital adequacy requirements that apply with respect to a financial conglomerate.

Capital adequacy requirements: introduction

GENPRU 3.1.14GRP

The capital adequacy provisions of GENPRU 3.1 are designed to be applied to financial conglomerates.

GENPRU 3.1.15GRP

GENPRU 3.1.25 R is a high level capital adequacy rule. It applies whether or not the FCA8 is the coordinator of the financial conglomerate concerned.

GENPRU 3.1.16GRP

4GENPRU 3.1.29 R4 to GENPRU 3.1.31 R and GENPRU 3 Annex 1 apply10 the detailed capital adequacy requirements that correspond with10 the Financial Groups Directive. They only deal with a financial conglomerate for which the FCA8 is the coordinator. If another competent authority is coordinator of a financial conglomerate, those rules do not apply with respect to that financial conglomerate and instead that coordinator will be responsible for implementing those detailed requirements.

GENPRU 3.1.17GRP

Annex I of the Financial Groups Directive laid10 down three5 methods for calculating capital adequacy at the level of a financial conglomerate. Those three5 methods are as follows:

55
  1. (1)

    Method 1 calculates capital adequacy using accounting consolidation. It is set out in 11GENPRU 3.1.29 R to GENPRU 3.1.31 R and Part 1 of GENPRU 3 Annex 1.

  2. (2)

    Method 2 calculates capital adequacy using a deduction and aggregation approach. It is set out in 11 GENPRU 3.1.29 R to GENPRU 3.1.31 R and Part 2 of GENPRU 3 Annex 1.

  3. (3)

    [deleted]5

    5
  4. (4)

    Method 35 consists of a combination of Methods 1 and 25 10 and would be implemented by means of a requirement.5

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GENPRU 3.1.18G

[deleted]5

GENPRU 3.1.19GRP

Paragraph 5.7 of GENPRU 3 Annex 1 (Capital adequacy calculations for financial conglomerates) deals with a case in which there are no capital ties between entities in a financial conglomerate. In particular, the FCA8 , after consultation with the other competent authority10 and in accordance with this chapter10, will determine which proportional share of a solvency deficit in such an entity will have to be taken into account, bearing in mind the liability to which the existing relationship gives rise.

GENPRU 3.1.20G

  1. (1)

    [deleted]5

    5
  2. (2)

    [deleted]5

    5
GENPRU 3.1.21GRP

The5 method to be applied may be5 decided by the coordinator after consultation with the other competent authority10 and the financial conglomerate itself. Where the FCA8 acts as coordinator, the financial conglomerate itself may choose which of Method 1 or Method 2 10it will apply, unless the firm is subject to a requirement obliging the firm to apply a particular method.5

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GENPRU 3.1.22G

[deleted]5

5
GENPRU 3.1.23G

[deleted]5

5
GENPRU 3.1.24G

[deleted]5

5

Capital adequacy requirements: high level requirement

GENPRU 3.1.25RRP

  1. (1)

    A firm that is a member of a financial conglomerate must at all times have capital resources of such an amount and type that results in the capital resources of the financial conglomerate taken as a whole being adequate.

  2. (2)

    This rule does not apply with respect to any financial conglomerate until notification has been made that it has been identified as a financial conglomerate as contemplated by regulation 2 of the Financial Groups Directive Regulations.10

GENPRU 3.1.26R

[deleted]5

GENPRU 3.1.27R

[deleted]5

GENPRU 3.1.28R

  1. (1)

    [deleted]5

    5
  2. (2)

    [deleted]5

    5

5Capital adequacy requirements: application of Method 1 or 2

GENPRU 3.1.29RRP

If,5 with respect to a firm and a financial conglomerate of which it is a member, this rule applies under GENPRU 3.1.29A R5 to the firm with respect to that financial conglomerate as described in GENPRU 3.1.30 R, the firm must at all times have capital resources of an amount and type that ensures that the conglomerate capital resources of that financial conglomerate at all times equal or exceed its conglomerate capital resources requirement.

5
GENPRU 3.1.29ARRP

5GENPRU 3.1.29 R applies to a firm with respect to the financial conglomerate of which it is a member if notification has been made in accordance with regulation 2 of the Financial Groups Directive Regulations that the financial conglomerate is a financial conglomerate and that the FCA8 is coordinator of that financial conglomerate.

5Capital adequacy requirements: use of requirement to apply Method 1 or 2 for calculating capital adequacy

GENPRU 3.1.30RRP

If GENPRU 3.1.29 R (application of Method 1 or 210) applies to a firm with respect to the financial conglomerate of which it is a member, then with respect to the firm and the financial conglomerate:

5
  1. (1)

    the definitions of conglomerate capital resources and conglomerate capital resources requirement that apply for the purposes of that rule are the ones from whichever of Part 1 or Part 2 of GENPRU 3 Annex 1 the firm has indicated to the FCA8 it will apply, unless the firm is subject to a requirement obliging the firm to apply a specific part of GENPRU 3 Annex 1, in which case GENPRU 3.1.31 R will apply; and5

    5
  2. (2)

    the firm must indicate to the FCA8 in advance which Part of GENPRU 3 Annex 1 the firm intends to apply.5

    5
5
GENPRU 3.1.31RRP

If GENPRU 3.1.29 R (application of Method 1 or 210) applies to a firm with respect to a financial conglomerate of which it is a member, and the firm is subject to a requirement obliging the firm to apply a specific part of GENPRU 3 Annex 1,5 the definitions of conglomerate capital resources and conglomerate capital resources requirement that apply for the purposes of that rule are the ones from whichever of Part 1 or5 Part 2 of GENPRU 3 Annex 1 is specified in the requirement.

55555

Risk concentration and intra-group transactions: introduction

GENPRU 3.1.32GRP

GENPRU 3.1.35 R implements requirements that correspond to10 Article 7(4) and Article 8(4) of the Financial Groups Directive10 that where a financial conglomerate is headed by a mixed financial holding company, the sectoral rules regarding risk concentration and intra-group transactions of the most important financial sector in the financial conglomerate, if any, shall apply to that sector as a whole, including the mixed financial holding company.

GENPRU 3.1.33GRP

The FCA10 may, on a case by case basis, require the application10 at the level of the financial conglomerate of10 the provisions of the sectoral rules on risk concentrations and intra-group transactions.

8

[Note: Article 7(3), Article 8(3) and Annex II of the Financial Groups Directive]10

Risk concentration and intra-group transactions: application

GENPRU 3.1.34RRP

GENPRU 3.1.35 R applies to a firm with respect to a financial conglomerate of which it is a member if the financial conglomerate is headed by a mixed financial holding company.10

Risk concentration and intra group transactions: the main rule

GENPRU 3.1.35RRP

Subject to GENPRU 3.1.35AR, a 11firm must ensure that the sectoral rules regarding risk concentration and intra-group transactions of the most important financial sector in the financial conglomerate referred to in GENPRU 3.1.34 R are complied with with respect to that financial sector as a whole, including the mixed financial holding company. The sectoral rules for these purposes are those identified in the table in GENPRU 3.1.36 R.

4
GENPRU 3.1.35AR

Risk concentration and intra-group transactions: Table of applicable sectoral rules

GENPRU 3.1.36RRP

Table: application of sectoral rules

This table belongs to GENPRU 3.1.35 R

The most important financial sector

Applicable sectoral rules

Risk concentration

Intra-group transactions

Banking and investment services sector

11For the Banking sector

11Part Four of the UK CRR

3444

11The UK CRR and the PRA Rulebook

43444

11For the investment services sector

MIFIDPRU 5

SYSC 12.1.12R

Insurance sector

PRA Rulebook7: Solvency II Firms Group Supervision 16.18

7

PRA Rulebook: Solvency II Firms: Groups: 16.28

7

Note

Any waiver, approval or permission8 granted to a member of the financial conglomerate, on an individual 11or consolidated basis, shall not apply in respect of the financial conglomerate for the purposes of GENPRU 3.1.36 R. For this purpose, “permission” refers to a consent, approval or agreement conferred on the appropriate regulator as competent authority11.

9898
GENPRU 3.1.37R

[deleted]8

GENPRU 3.1.38R

  1. (1) 4

    [deleted]4

    4
  2. (2)

    [deleted]4

    434444344
  3. (3)

    [deleted]3

    3
  4. (4)

    [deleted]3

    3

The financial sectors: asset management companies and alternative investment fund managers5

GENPRU 3.1.39RRP

  1. (1)

    10This rule deals with the inclusion of an asset management company or an alternative investment fund manager5 that is a member of a financial conglomerate in the scope of regulation of financial conglomerates.

    [Note: Articles 30 and 30a of the Financial Groups Directive]10

    55555
  2. (2)

    An asset management company or an alternative investment fund manager5 is in the overall financial sector and is a regulated entity for the purpose of:

    1. (a)

      5GENPRU 3.1.29 R5 to GENPRU 3.1.36 R;

    2. (b)

      GENPRU 3 Annex 1 (Capital adequacy calculations for financial conglomerates) and GENPRU 3 Annex 2 (Prudential rules for third country groups); and

    3. (c)

      any other provision of the Handbook8 relating to the supervision of financial conglomerates.

      4
  3. (3)

    Save in the circumstances in (5), in 11 the case of a financial conglomerate for which the FCA8 is the coordinator, all asset management companies and all alternative investment fund managers5 must, for the purposes in (2), 11 be allocated to either the MIFIDPRU investment services sector11 or the insurance sector. But if that choice has not been made in accordance with (4) and notified to the FCA8 in accordance with (4)(d), an asset management company or an alternative investment fund manager5 must be allocated to the MIFIDPRU investment services sector11.

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  4. (4)

    The choice in (3):

    1. (a)

      must be made by the undertaking in the financial conglomerate that is:10

      1. (i)

        the parent undertaking at the head of the group or, 10

      2. (ii)

        in the absence of a parent undertaking, the undertaking that is deemed to be the parent undertaking in accordance with the rules in MIFIDPRU 2.411;

        10
    2. (b)

      applies to all asset management companies and all alternative investment fund managers5 that are members of the financial conglomerate from time to time;

    3. (c)

      cannot be changed; and

    4. (d)

      must be notified to the FCA8 as soon as reasonably practicable11.

      [Note: Article 4(2) of the Financial Groups Directive]10

  5. (5)

    Where a UCITS management company or an asset management company is an investment firm it must be allocated to the MIFIDPRU investment services sector.11

    1. (a)

      [deleted]11

      44
    2. (b)

      [deleted]11

      4