IFPRU 8.2 Large Exposures

This section applies to an IFPRU investment firm, unless it is an exempt IFPRU commodities firm to which article 493 of the UK CRR2 applies.

This section does not apply to a FCAconsolidation group on the basis of its consolidated situation if the group only contains limited activity firms or limited licence firms.

A firm with a non-core large exposures grouppermission may (in line with that permission) exempt, from the application of article 395(1) of the EU CRR (Limits to large exposures), exposures, including participations or other kinds of holdings, incurred by a firm to:

1. (1)

   its parent undertaking; or

2. (2)

   other subsidiary undertakings of that parent undertaking; or

3. (3)

   its own subsidiary undertakings;

in so far as those undertakings are covered by the supervision on a consolidated basis to which the firm itself is subject, in accordance with the EU CRR, the UK legislation that implemented the Financial Groups Directive1 or with equivalent standards in force in a third country; exposures that do not meet these criteria, whether or not exempted from article 395(1), shall be treated as exposures to a third party.

[Note: article 400(2) of the EU CRR]

A firm may only make use of the non-core large exposure group exemption where the following conditions are met:

1. (1)

   the total amount of the non-trading book exposures from the firm to its non-core large exposures group does not exceed 100% of the firm'seligible capital; or

   (if the firm has a core UK grouppermission) the total amount of non-trading book exposures from its core UK group (including the firm) to its non-core large exposures group does not exceed 100% of the core UK groupeligible capital;

2. (2)

   the total amount of trading book exposures from the firm to its non-core large exposures group does not exceed 500% of the firm's eligible capital; or

   (if the firm has a core UK grouppermission) the total amount of trading bookexposures from its core UK group (including the firm) to its non-core large exposures group does not exceed 500% of the core UK groupeligible capital;

3. (3)

   (if the firm has a core UK grouppermission) it gives the FCA prior written notice if it intends to concentrate its intra-group exposure to a particular member of its non-core large exposures group in excess of 25% of core UK groupeligible capital.

   The written notice must contain the following:

   1. (a)

      an explanation of how the firm will ensure that it will still meet the condition in (1) on a continuing basis;

   2. (b)

      details of the counterparty, the size of the exposure and the expected duration of the exposure; and

   3. (c)

      an explanation of the reason for the exposure;

4. (4)

   if the firm stops concentrating its intra-group exposure to a particular member of its non-core large exposures group in excess of 25% of core UK groupeligible capital, it gives the FCA prior written notice as set out in (3) if it intends to start to do so again; and

5. (5)

   the firm submits FSA018 under SUP 16.12 (Integrated regulatory reporting) as applicable to it.

[Note: article 400(2)(c) of the UK CRR2]

A firm may calculate limits in IFPRU 8.2.7 R after taking into account the effect of credit risk mitigation in line with articles 399 to 403 of the UK CRR2.

For the purposes of the conditions in IFPRU 8.2.7 R, a firm must calculate core UK groupeligible capital in line with the deduction and aggregation method in IFPRU 8.2.10 R.

1. (1)

   Core UK groupeligible capital is equal to the sum of the following amounts for each member of the core UK group and the firm (the sub-group):

   1. (a)

      for ultimate parent undertaking of the sub-group, the amount calculated in line with article 6 of the UK CRR2 (or other prudential requirements that apply);

   2. (b)

      for any other member of the sub-group, the amount calculated in line with article 6 of the UK CRR2 (or other prudential requirements that apply) less the book value of the sub-group's holdings of capital instruments in that member, to the extent not already deducted in calculations in line with article 6 of the UK CRR2 (or other prudential requirements that apply) for:

      1. (i)

         the ultimate parent undertaking of the sub-group; or

      2. (ii)

         any other member of the sub-group.

   3. (c)

      The deduction in (1)(b) must be carried out separately for each type of capital instrument eligible as own funds.

A firm must immediately notify the FCA in writing if it becomes aware that any exposure that it has treated as exempt under IFPRU 8.2.6 R or any counterparty that it has been treating as a member of its non-core large exposures group has ceased to meet the conditions for application of the treatment in this section.

A firm may only make use of the exemptions provided in this section where the following conditions are met:

1. (1)

   the specific nature of the exposure, the counterparty or the relationship between the firm and the counterparty eliminate or reduce the risk of the exposure; and

2. (2)

   any remaining concentration risk can be addressed by other equally effective means, such as the arrangements, processes and mechanisms in IFPRU 2.2.22R1 (Concentration risk).

[Note: article 400(3) of the UK CRR2]