GENPRU 3.1 Application

1

1. (1)

   GENPRU 3.1 applies to every firm that is a member of a financial conglomerate other than:

   1. (a)

      an incoming EEA firm;

   2. (b)

      an incoming Treaty firm;

   3. (c)

      a UCITS qualifier; and

   4. (d)

      an ICVC.

2. (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.

3. (3)

   GENPRU 3.1.25 R (Capital adequacy requirements: high level requirement), GENPRU 3.1.26 R (Capital adequacy requirements: application of Method 4 from Annex I of the Financial Groups Directive), GENPRU 3.1.29 R (Capital adequacy requirements: application of Methods 1, 2 or 3 from Annex I of the Financial Groups Directive) 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.

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.

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.

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.

1. (1)

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

2. (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.

3. (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.

Once a financial conglomerate has become a financial conglomerate and subject to supervision in accordance with the Financial Groups Directive, 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.

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.

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.

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.

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 Article 4(2) of the Financial Groups Directive.

If this rule applies under GENPRU 3.1.27 R to a firm with respect to a financial conglomerate of which it is a member, the firm must at all times have capital resources of an amount and type:

1. (1)

   that ensure that the financial conglomerate has capital resources of an amount and type that comply with the rules applicable with respect to that financial conglomerate under Part 4 of GENPRU 3 Annex 1 (as modified by that annex); and

2. (2)

   that as a result ensure that the firm complies with those rules (as so modified) with respect to that financial conglomerate.

GENPRU 3.1.26 R applies to a firm with respect to a financial conglomerate of which it is a member if one of the following conditions is satisfied:

1. (1)

   the condition in GENPRU 3.1.28 R is satisfied; or

2. (2)

   this rule is applied to the firm with respect to that financial conglomerate as described in GENPRU 3.1.30 R.

1. (1)

   The condition in this rule is satisfied for the purpose of GENPRU 3.1.27R (1) with respect to a firm and a financial conglomerate of which it is a member (with the result that GENPRU 3.1.26 R automatically applies to that firm) if:

   1. (a)

      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 FSA is coordinator of that financial conglomerate;

   2. (b)

      the financial conglomerate is not part of a wider FSA regulated EEA financial conglomerate;

   3. (c)

      the financial conglomerate is not an FSA regulated EEA financial conglomerate under another rule or under paragraph (b) of the definition of FSA regulated EEA financial conglomerate (application of supplementary supervision through a firm's Part IV permission);

   4. (d)

      one of the following conditions is satisfied:

      1. (i)

         the financial conglomerate is headed by a regulated entity that is a UK domestic firm; or

      2. (ii)

         the only relevant competent authority for that financial conglomerate is the FSA;

   5. (e)

      this rule is not disapplied under paragraph 5.7 of GENPRU 3 Annex 1 (No capital ties); and

   6. (f)

      the financial conglomerate meets the condition set out in the box titled Threshold Test 2 (10% average of balance sheet and solvency requirements) in the financial conglomerate definition decision tree.

2. (2)

   Once GENPRU 3.1.26 R applies to a firm with respect to a financial conglomerate of which it is a member under GENPRU 3.1.27R (1), (1)(f) ceases to apply with respect to that financial conglomerate. Therefore the fact that the financial conglomerate subsequently ceases to meet the condition in (1)(f) does not mean that the condition in this rule is not satisfied.

If with respect to a firm and a financial conglomerate of which it is a member, this rule is applied 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.

With respect to a firm and a financial conglomerate of which it is a member:

1. (1)

   GENPRU 3.1.26 R (Method 4 from Annex I of the Financial Groups Directive) is applied to the firm with respect to that financial conglomerate for the purposes of GENPRU 3.1.27R (2); or

2. (2)

   GENPRU 3.1.29 R (Methods 1 to 3 from Annex I of the Financial Groups Directive) is applied to the firm with respect to that financial conglomerate;

if the firm's Part IV permission contains a requirement obliging the firm to comply with GENPRU 3.1.26 R or, as the case may be, GENPRU 3.1.29 R.

If GENPRU 3.1.29 R (Methods 1-3 from Annex I of the Financial Groups Directive) applies to a firm with respect to a financial conglomerate of which it is a member, 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, Part 2 or Part 3 of GENPRU 3 Annex 1 is specified in the requirement referred to in GENPRU 3.1.30 R.

GENPRU 3.1.35 R applies to a firm with respect to a financial conglomerate of which it is a member if:

1. (1)

   the condition in Articles 7(4) and 8(4) of the Financial Groups Directive is satisfied (the financial conglomerate is headed by a mixed financial holding company); and

2. (2)

   that financial conglomerate is an FSA regulated EEA financial conglomerate.

Afirm 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 FSA's sectoral rules for these purposes are those identified in the table in GENPRU 3.1.36 R.

1. (1)

   Where the rules for the banking and investment services sector are being applied, a mixed financial holding company must be treated as being a financial holding company.

2. (2)

   Where the rules for the insurance sector are being applied, a mixed financial holding company must be treated as being an insurance holding company.

1. (1)

   This rule applies for the purposes of the definitions of:

   1. (a)

      aconcentration risk group counterparty; and

   2. (b)

      a consolidation concentration risk group counterparty;

   as they apply for the purposes of the rules for the banking and investment services sector as applied by GENPRU 3.1.36 R.

2. (2)

   For the purposes of BIPRU 3.2.27 R (1)(a) and (b) (as they apply to the definition in GENPRU 3.1.38R (1)(a)), the conditions are also satisfied if the counterparty and the firm are included within the scope of consolidated supervision on a full basis with respect to the same financial conglomerate under GENPRU 3.1 or the relevant implementation measures in another EEA State for the Financial Groups Directive.

3. (3)

   Subject to (4), for the purposes of BIPRU 8.9.11R (3) (as it applies to the definition in GENPRU 3.1.38R (1)(b)), the conditions are also satisfied if the counterparty and the firm are included within the scope of consolidated supervision on a full basis with respect to the same financial conglomerate under GENPRU 3.1 or the relevant implementation measures in another EEA State for the Financial Groups Directive.

4. (4)

   BIPRU 8.9.11R (3)(a) does not apply.

1. (1)

   In accordance with Article 30 of the Financial Groups Directive (Asset management companies), this rule deals with the inclusion of an asset management company that is a member of a financial conglomerate in the scope of regulation of financial conglomerates. This rule does not apply to the definition of financial conglomerate.

2. (2)

   An asset management company is in the overall financial sector and is a regulated entity for the purpose of:

   1. (a)

      GENPRU 3.1.26 R 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 Handbook relating to the supervision of financial conglomerates.

3. (3)

   In the case of a financial conglomerate for which the FSA is the coordinator, all asset management companies must be allocated to one financial sector for the purposes in (2), being either the investment services sector or the insurance sector. But if that choice has not been made in accordance with (4) and notified to the FSA in accordance with (4)(d), an asset management company must be allocated to the investment services sector.

4. (4)

   The choice in (3):

   1. (a)

      must be made by the undertaking in the financial conglomerate holding the position referred to in Article 4(2) of the Financial Groups Directive (group member to whom notice must be given that the group has been found to be a financial conglomerate);

   2. (b)

      applies to all asset management companies that are members of the financial conglomerate from time to time;

   3. (c)

      cannot be changed; and

   4. (d)

      must be notified to the FSA as soon as reasonably practicable after the notification in (4)(a).

5. (5)

   This rule applies even if:

   1. (a)

      a UCITS management company is a BIPRU investment firm; or

   2. (b)

      an asset management company is an investment firm.