Subject to PRU 8.1.3 R to PRU 8.1.5 R, PRU 8.1 applies to each of the following which is a member of a group:

1. (1)

   a firm that falls into any of the following categories:

   1. (a)

      a regulated entity;

   2. (b)

      a bank, ELMI or building society;

   3. (c)

      an insurer;

   4. (d)

      an own account dealer;

   5. (e)

      a matched principal broker;

   6. (f)

      a UCITS investment firm; and

   7. (g)

      a broker/manager or an arranger that satisfies the following conditions:

      1. (i)

         it is an ISD investment firm; and

      2. (ii)

         it is not an exempt CAD firm;

2. (2)

   a UCITS firm, but only if its group contains a firm falling into (1); and

3. (3)

   the Society.

Except as set out in PRU 8.1.5 R, PRU 8.1 applies with respect to different types of group as follows:

1. (1)

   PRU 8.1.9 R and PRU 8.1.11 R apply with respect to all groups, including FSA regulated EEA financial conglomerates, other financial conglomerates and groups dealt with in PRU 8.1.14 R and PRU 8.1.15 R;

2. (2)

   the additional requirements set out in PRU 8.1.12 R and PRU 8.1.13 R only apply with respect to FSA regulated EEA financial conglomerates; and

3. (3)

   the additional requirements set out in PRU 8.1.14 R and PRU 8.1.15 R only apply with respect to groups of the kind dealt with by whichever of those rules apply.

PRU 8.1 does not apply to:

1. (1)

   an incoming EEA firm; or

2. (2)

   an incoming Treaty firm; or

3. (3)

   a UCITS qualifier; or

4. (4)

   an ICVC.

A venture capital firm that would otherwise be included in PRU 8.1.1 R (1)(d) to PRU 8.1.1 R (1)(g) is excluded from those rules if it is not an ISD investment firm.

1. (1)

   This rule applies to:

   1. (a)

      PRU 8.1.9 R (2);

   2. (b)

      PRU 8.1.11 R (1), so far as it relates to PRU 8.1.9 R (2);

   3. (c)

      PRU 8.1.11 R (2); and

   4. (d)

      PRU 8.1.12 R to PRU 8.1.14 R.

2. (2)

   The rules referred to in (1):

   1. (a)

      only apply with respect to a financial conglomerate if it is an FSA regulated EEA financial conglomerate;

   2. (b)

      (so far as they apply with respect to a group that is not a financial conglomerate) do not apply with respect to a group for which a competent authority in another EEA state is lead regulator;

   3. (c)

      (so far as they apply with respect to a financial conglomerate) do 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. (d)

      (so far as they apply with respect to other groups) do not apply to a firm with respect to a group of which it is a member if the only relationship of the kind set out in paragraph (3) of the definition of group between it and the other members of the group is nothing more than a participation; and

   5. (e)

      do not apply with respect to a third-country group.

A firm must:

1. (1)

   have adequate, sound and appropriate risk management processes and internal control mechanisms for the purpose of assessing and managing its own exposure to group risk, including sound administrative and accounting procedures; and

2. (2)

   ensure that its group has adequate, sound and appropriate risk management processes and internal control mechanisms at the level of the group, including sound administrative and accounting procedures.

The internal control mechanisms referred to in PRU 8.1.9 R must include:

1. (1)

   mechanisms that are adequate for the purpose of producing any data and information which would be relevant for the purpose of monitoring compliance with any prudential requirements (including any reporting requirements and any requirements relating to capital adequacy, solvency and large exposures):

   1. (a)

      to which the firm is subject with respect to its membership of a group; or

   2. (b)

      that apply to or with respect to that group or part of it; and

2. (2)

   mechanisms that are adequate to monitor funding within the group.

Where PRU 8.1 applies with respect to a financial conglomerate, the risk management processes referred to in PRU 8.1.9 R (2) must include:

1. (1)

   sound governance and management processes, which must include the approval and periodic review by the appropriate managing bodies within the financial conglomerate of the strategies and policies of the financial conglomerate in respect of all the risks assumed by the financial conglomerate, such review and approval being carried out at the level of the financial conglomerate;

2. (2)

   adequate capital adequacy policies at the level of the financial conglomerate, one of the purposes of which must be to anticipate the impact of the business strategy of the financial conglomerate on its risk profile and on the capital adequacy requirements to which it and its members are subject;

3. (3)

   adequate procedures for the purpose of ensuring that the risk monitoring systems of the financial conglomerate and its members are well integrated into their organisation; and

4. (4)

   adequate procedures for the purpose of ensuring that the systems and controls of the members of the financial conglomerate are consistent and that the risks can be measured, monitored and controlled at the level of the financial conglomerate.

Where PRU 8.1 applies with respect to a financial conglomerate, the internal control mechanisms referred to in PRU 8.1.9 R (2) must include:

1. (1)

   mechanisms that are adequate to identify and measure all material risks incurred by members of the financial conglomerate and appropriately relate capital in the financial conglomerate to risks; and

2. (2)

   sound reporting and accounting procedures for the purpose of identifying, measuring, monitoring and controlling intra-group transactions and risk concentrations.

In the case of a firm that:

1. (1)

   is a credit institution or investment firm; and

2. (2)

   has a mixed-activity holding company as a parent undertaking;

the risk management processes and internal control mechanisms referred to in PRU 8.1.9 R must include sound reporting and accounting procedures and other mechanisms that are adequate to identify, measure, monitor and control transactions between the firm's parent undertaking mixed-activity holding company and any of the mixed-activity holding company's subsidiary undertakings.

In the case of an insurer that has a mixed-activity insurance holding company as a parent undertaking, the risk management processes and internal control mechanisms referred to in PRU 8.1.9 R must include sound reporting and accounting procedures and other mechanisms that are adequate to identify, measure, monitor and control transactions between the firm's parent undertaking mixed-activity insurance holding company and any of the mixed-activity insurance holding company's subsidiary undertakings.

PRU 8.3 applies to an insurer that is:

1. (1)

   a participating insurance undertaking; or

2. (2)

   a member of an insurance group (which is not a participating insurance undertaking).

PRU 8.3 does not apply to:

1. (1)

   a non-directive friendly society; or

2. (2)

   a Swiss general insurer; or

3. (3)

   an EEA-deposit insurer; or

4. (4)

   an incoming EEA firm; or

5. (5)

   an incoming Treaty firm.

A firm must on a regular basis calculate the group capital resources (GCR) and group capital resources requirement (GCRR) of each undertaking referred to in PRU 8.3.17 R.

Where a firm is the undertaking referred to in PRU 8.3.17 R (1)(c) or PRU 8.3.17 R (2), it must maintain at all times tier one capital resources and tier two capital resources of such an amount that its group capital resources are equal to or exceed its group capital resources requirement.

A firm that is both:

1. (1)

   a composite firm; and

2. (2)

   an undertaking referred to in PRU 8.3.17 R (1)(c) or PRU 8.3.17 R (2);

must comply with PRU 8.3.9 R separately in respect of its long-term insurance business and its general insurance business.

For the purposes of PRU 8.3.10 R, a firm must include in the calculation of the group capital resources and group capital resources requirement of its long-term insurance business the regulated related undertakings and ancillary services undertakings that are long-term insurance assets.

The undertakings referred to in PRU 8.3.8 R, PRU 8.3.9 R, PRU 8.3.10 R and PRU 8.3.15 Rare:

1. (1)

   for any firm that is not within (2), each of the following:

   1. (a)

      its ultimate insurance parent undertaking;

   2. (b)

      its ultimate EEA insurance parent undertaking (if different); and

   3. (c)

      the firm itself, if it is a participating insurance undertaking; and

2. (2)

   the firm itself, where the firm is a participating insurance undertaking and is:

   1. (a)

      a pure reinsurer; or

   2. (b)

      a non-EEA insurer; or

   3. (c)

      a friendly society.

If the competent authority in an EEA State other than the United Kingdom has agreed to be the competent authority responsible for exercising supplementary supervision of an insurance group of which a firm is a member under Article 4(2) of the Insurance Groups Directive, the firm may prepare the calculations required under PRU 8.3.8 R in relation to the ultimate EEA insurance parent undertaking in accordance with the requirements of supplementary supervision in that EEA State.

Where the ultimate insurance parent undertaking of a firm has its head office in a non-EEA State, the firm may:

1. (1)

   calculate the group capital resources and the group capital resources requirement of its ultimate insurance parent undertaking in accordance with accounting practice applicable for the purposes of the regulation of insurance undertakings in the state or territory of the head office of the ultimate insurance parent undertaking adapted as necessary to apply the general principles set out in Annex I (1) paragraphs B, C and D of the Insurance Groups Directive; and

2. (2)

   elect (see PRU 8.3.26 R) to carry out the calculation referred to in (1) in accordance with the accounting consolidation method set out in Annex I (3) of the Insurance Groups Directive.

A firm may elect to use the calculation method referred to in PRU 8.3.25 R (2) if it has made the election by written notice to the FSA in a way that complies with the requirements for written notice in SUP 15.7.

PRU 8.3.15 R does not apply in respect of the group capital resources of a firm's ultimate insurance parent undertaking if that ultimate insurance parent undertaking has its head office in a non-EEA State.

Subject to PRU 8.3.30 R and PRU 8.3.31 R, when calculating group capital resources and the group capital resources requirement of an undertaking in PRU 8.3.17 R, a firm must take only the relevant proportion of the following items ("calculation items") into account:

1. (1)

   the solo capital resources of a regulated related undertaking;

2. (2)

   the assets of a regulated related undertaking which are required to be deducted as part of the calculation of group capital resources; and

3. (3)

   the individual capital resources requirement of a regulated related undertaking.

In PRU 8.3.28 R, the relevant proportion is either:

1. (1)

   the proportion of the total number of issued shares in the regulated related undertaking held, directly or indirectly, by the undertaking in PRU 8.3.17 R; or

2. (2)

   where a consolidation Article 12(1) relationship exists between related undertakings within the insurance group, such proportion as the FSA determines in accordance with Article 28(5) of the Financial Groups Directive and Regulation 15 of the Financial Groups Directive Regulations.

Where the undertaking in PRU 8.3.17 R is a firm, if the individual capital resources requirement of a regulated related undertaking that is a subsidiary undertaking and not an insurer exceeds the solo capital resources of that undertaking less the amount calculated in PRU 8.3.74 R (3) (if any), the full amount of the calculation items of that regulated related undertaking less the amount in PRU 8.3.74 R (3) must be taken into account in the calculation of group capital resources and the group capital resources requirement.

Except where PRU 8.3.30 R applies, if the individual capital resources requirement of a regulated related undertaking that is a subsidiary undertaking of the undertaking in PRU 8.3.17 R exceeds its solo capital resources, the full amount of the calculation items of that regulated related undertaking must be taken into account in the calculation of group capital resources and the group capital resources requirement.

For the purposes of PRU 8.3.10 R, where a composite firm that is an undertaking in PRU 8.3.17 R (1)(c) or (2):

1. (1)

   holds directly or indirectly shares in a regulated related undertaking; and

2. (2)

   the shares in (1) are held partly by its long-term insurance business and partly by its general insurance business;

3. (3)

   the relevant proportion of the calculation items calculated in accordance with PRU 8.3.29 R, subject to PRU 8.3.30 R and PRU 8.3.31 R, must be allocated between the long-term and general insurance business in proportion to their respective holdings, directly or indirectly, in the shares in that regulated related undertaking.

Subject to PRU 8.3.23 R and PRU 8.3.25 R, a firm must calculate the group capital resources requirement of an undertaking in PRU 8.3.17 R as the sum of the individual capital resources requirement of that undertaking and the individual capital resources requirement of each of its regulated related undertakings.

For the purposes of PRU 8.3, an individual capital resources requirement is:

1. (1)

   in respect of an insurer that is not within (2):

   1. (a)

      its capital resources requirement calculated in accordance with PRU 2.1; less

   2. (b)

      where the capital resources requirements of both the insurer and its insurance parent undertaking that is an insurer include with-profits insurance capital components, any element of double-counting that may arise from the aggregation of the individual capital resources requirements for the purposes of PRU 8.3.33 R;

2. (2)

   in respect of an insurer that is either a pure reinsurer or whose main business otherwise consists of reinsurance, and whose head office is in the United Kingdom, the capital resources requirement that would apply to the firm in accordance with PRU 2.1 if its insurance business was not restricted to reinsurance;

3. (3)

   in respect of an insurance undertaking that is not within (1) or (2) and whose main business is reinsurance and whose head office is in a designated State or territory, either:

   1. (a)

      the proxy capital resources requirement that would apply to it if, in connection with its reinsurance activities, the permissions on the basis of which that proxy capital resources requirement is calculated were permissions to carry on insurance business that is not restricted to reinsurance; or

   2. (b)

      the solo capital resources requirement that would apply to it if, in connection with its reinsurance activities, the insurance undertaking were a regulated insurance entity whose insurance business is not restricted to reinsurance for the purposes of calculating the solo capital resources requirement in accordance with the relevant sectoral rules of the designated State or territory;

4. (4)

   in respect of an insurance undertaking that is not within (1) to (3) and whose main business is reinsurance, the proxy capital resources requirement that would apply to it if, in connection with its reinsurance activities, the permissions on the basis of which that proxy capital resources requirement is calculated were permissions to carry on insurance business that is not restricted to reinsurance;

5. (5)

   in respect of an EEA insurer, the equivalent of the capital resources requirement as calculated in accordance with the applicable requirements in its Home State;

6. (6)

   in respect of an insurance undertaking that is not within (1) to (5) and whose head office is in a designated State or territory, either:

   1. (a)

      the solo capital resources requirement applicable to it in that designated State or territory; or

   2. (b)

      its proxy capital resources requirement;

7. (7)

   in respect of an insurance undertaking that is not within (1) to (6), its proxy capital resources requirement;

8. (8)

   in respect of a regulated entity with its head office in the EEA (excluding an insurance undertaking), its solo capital resources requirement calculated in accordance with the sectoral rules for the financial sector applicable to it in the EEA State in which it has its head office;

9. (9)

   in respect of a regulated entity not within (8) (excluding an insurance undertaking), its solo capital resources requirement;

10. (10)

    in respect of an asset management company, the solo capital resources requirement that would apply to it if, in connection with its activities, it were treated as an investment firm for the purposes of calculating the solo capital resources requirement;

11. (11)

    in respect of a financial institution that is not a regulated entity (including a financial holding company), the solo capital resources requirement that would apply to it if, in connection with its activities, it were treated as being within the banking sector; and

12. (12)

    in respect of an insurance holding company, zero.

For the purposes of PRU 8.3.8 R and subject to PRU 8.3.23 R and PRU 8.3.25 R, a firm must calculate the group capital resources of an undertaking in PRU 8.3.17 R in accordance with the table in PRU 8.3.43 R, subject to the limits in PRU 8.3.45 R.

For the purposes of PRU 8.3, the following expressions when used in relation to either an undertaking in PRU 8.3.17 R or a regulated related undertaking which is not subject to PRU 2.2.14 R, are to be construed as if that undertaking were required to calculate its capital resources in accordance with PRU 2.2.14 R, but with such adjustments being made to secure that the undertaking's calculation of its solo capital resources complies with the relevant sectoral rules applicable to it:

1. (1)

   tier one capital resources;

2. (2)

   tier two capital resources;

3. (3)

   upper tier two capital resources;

4. (4)

   lower tier two capital resources;

5. (5)

   innovative tier one capital resources; and

6. (6)

   core tier one capital.

For the purposes of PRU 8.3.37 R, the sectoral rules applicable to:

1. (1)

   an insurance holding company are the sectoral rules that would apply to it if, in connection with its activities, it were treated as an insurer;

2. (2)

   an asset management company are the sectoral rules that would apply to it if, in connection with its activities, it were treated as an investment firm; and

3. (3)

   subject to PRU 8.3.39 R, a financial institution, that is not a regulated entity, are the sectoral rules that would apply to it if, in connection with its activities, it were treated as being within the banking sector.

Where a financial institution, that is not a regulated entity, has invested in tier one capital or tier two capital issued by a parent undertaking that is:

1. (1)

   an insurance holding company; or

2. (2)

   an insurer;

the sectoral rules that apply to that financial institution are the sectoral rules for the insurance sector.

For the purposes of PRU 8.3.36 R, the capital resources of a financial institution within PRU 8.3.39 R that can be included in the calculations in PRU 8.3.48 R (2), PRU 8.3.50 R (2), PRU 8.3.53 R (2), PRU 8.3.55 R (2) and PRU 8.3.57 R (2) are:

1. (1)

   the issued tier one capital or tier two capital of that financial institution held, directly or indirectly, by its parent undertaking referred to in PRU 8.3.39 R; and

2. (2)

   the lower of:

   1. (a)

      the tier one capital or tier two capital issued by the parent undertaking referred to in PRU 8.3.39 R pursuant to the investment by the financial institution; and

   2. (b)

      the tier one capital or tier two capital issued by the financial institution to raise funds for its investment in the capital resources of the parent undertaking referred to in (a).

1. (1)

   In calculating group capital resources, a firm must exclude the restricted assets of a regulated related undertaking except insofar as those assets are available to meet the individual capital resources requirement of that regulated related undertaking.

2. (2)

   In (1), "restricted assets" means assets of a regulated related undertaking which are subject to a legal restriction or other requirement having the effect that those assets cannot be transferred or otherwise made available to another regulated related undertaking for the purposes of meeting its individual capital resources requirement without causing a breach of that legal restriction or requirement.

1. (1)

   For the purposes of PRU 8.3.9 R, PRU 8.3.10 R and PRU 8.3.15 R, a firm must ensure that at all times its tier one capital resources and tier two capital resources are of such an amount that the group capital resources of the undertaking in PRU 8.3.17 R comply with the following limits:

   1. (a)

      (P - Q) > ½ (R - S);

   2. (b)

      (P - Q + T - W) > ¾ (R - S);

   3. (c)

      V > ½ P;

   4. (d)

      Q < 15% of P;

   5. (e)

      T < P; and

   6. (f)

      W < ½ P

2. (2)

   For the purposes of PRU 8.3.9 R and PRU 8.3.10 R, a firm must ensure that at all times its tier one capital resources and tier two capital resources are of such an amount that its group capital resources comply with the following limit:

   (P - Q + T) > 1/3 X + (R - S - U - X).

3. (3)

   For the purposes of (1) and (2):

   1. (a)

      P is the total group tier one capital of the undertaking in PRU 8.3.17 R;

   2. (b)

      Q is the sum of the innovative tier one capital resources calculated in accordance with PRU 8.3.53 R;

   3. (c)

      R is the group capital resources requirement of the undertaking in PRU 8.3.17 R;

   4. (d)

      S is the sum of all the with-profits insurance capital components of an undertaking in PRU 8.3.17 R that is an insurer and each of its regulated related undertakings that is an insurer;

   5. (e)

      T is the total group tier two capital of the undertaking in PRU 8.3.17 R;

   6. (f)

      U is the sum of all the resilience capital requirements of an undertaking in PRU 8.3.17 R that is an insurer and each of its regulated related undertakings that is an insurer;

   7. (g)

      V is the sum of all the core tier one capital calculated in accordance with PRU 8.3.55 R;

   8. (h)

      W is the sum of the lower tier two capital resources calculated in accordance with PRU 8.3.57 R; and

   9. (i)

      X is the MCR of the firm less its resilience capital requirement, if any.

For the purposes of PRU 8.3.10 R, a firm must ensure that the tier one capital resources and tier two capital resources of each of its long-term insurance business and its general insurance business are of such an amount that the group capital resources of each its long-term insurance business and its general insurance business comply with the limits in PRU 8.3.45 R separately for each type of business.

For the purposes of PRU 8.3.43 R, the total group tier one capital of an undertaking in PRU 8.3.17 R is the sum of:

1. (1)

   the tier one capital resources of the undertaking in PRU 8.3.17 R; and

2. (2)

   subject to PRU 8.3.40 R, the tier one capital resources of each of the related undertakings of that undertaking that is a regulated related undertaking after the deduction in PRU 8.3.49 R.

The deduction referred to in PRU 8.3.48 R is the sum of:

1. (1)

   the book value of the investment by the undertaking in PRU 8.3.17 R in the tier one capital resources of each of its related undertakings that is a regulated related undertaking; and

2. (2)

   the book value of the investments by related undertakings of the undertaking in PRU 8.3.17 R in the tier one capital resources of the undertaking in PRU 8.3.17 R and each of its related undertakings that is a regulated related undertaking.

For the purposes of PRU 8.3.43 R, the total group tier two capital of an undertaking in PRU 8.3.17 R is the sum of:

1. (1)

   the upper tier two capital resources and the lower tier two capital resources of that undertaking; and

2. (2)

   subject to PRU 8.3.40 R, the upper tier two capital resources and the lower tier two capital resources of each of the related undertakings of that undertaking that is a regulated related undertaking after the deduction in PRU 8.3.51 R.

The deduction referred to in PRU 8.3.50 R is the sum of:

1. (1)

   the book value of the investments by the undertaking in PRU 8.3.17 R in the upper tier two capital resources and the lower tier two capital resources of each of its related undertakings that is a regulated related undertaking; and

2. (2)

   the book value of the investments by related undertakings of the undertaking in PRU 8.3.17 R in the upper tier two capital resources and the lower tier two capital resources of the undertaking in PRU 8.3.17 R and each of its related undertakings that is a regulated related undertaking.

For the purposes of PRU 8.3.45R (3)(b), the innovative tier one capital resources is the sum of:

1. (1)

   the innovative tier one capital resources of the undertaking in PRU 8.3.17 R; and

2. (2)

   subject to PRU 8.3.40 R, the innovative tier one capital resources of each of the related undertakings of that undertaking that is a regulated related undertaking after the deduction in PRU 8.3.54 R.

The deduction referred to in PRU 8.3.53 R is the sum of:

1. (1)

   the book value of the investments by the undertaking in PRU 8.3.17 R in the innovative tier one capital resources of each of its related undertakings that is a regulated related undertaking; and

2. (2)

   the book value of the investments by related undertakings of the undertaking in PRU 8.3.17 R in the innovative tier one capital resources of the undertaking in PRU 8.3.17 R and each of its related undertakings that is a regulated related undertaking.

For the purposes of PRU 8.3.45R (3)(g), the core tier one capital is the sum of:

1. (1)

   the core tier one capital of the undertaking of PRU 8.3.17 R; and

2. (2)

   subject to PRU 8.3.40 R, the core tier one capital of each of the related undertakings of that undertaking that is a regulated related undertaking after the deduction in PRU 8.3.56 R.

The deduction referred to in PRU 8.3.55 R is the sum of:

1. (1)

   the book value of the investments by the undertaking in PRU 8.3.17 R in the core tier one capital of each of its related undertakings that is a regulated related undertaking; and

2. (2)

   the book value of the investments by related undertakings of the undertaking in PRU 8.3.17 R in the core tier one capital of the undertaking in PRU 8.3.17 R and each of its related undertakings that is a regulated related undertaking.

For the purposes of PRU 8.3.45R (3)(h), the lower tier two capital resources is the sum of:

1. (1)

   the lower tier two capital resources of the undertaking in PRU 8.3.17 R; and

2. (2)

   subject to PRU 8.3.40 R, the lower tier two capital resources of each of the related undertakings of that undertaking that is a regulated related undertaking after the deduction in PRU 8.3.58 R.

The deduction referred to in PRU 8.3.57 R is the sum of:

1. (1)

   the book value of the investments by the undertaking in PRU 8.3.17 R in the lower tier two capital resources of each of its related undertakings that is a regulated related undertaking; and

2. (2)

   the book value of the investments by related undertakings of the undertaking in PRU 8.3.17 R in the lower tier two capital resources of the undertaking in PRU 8.3.17 R and each of its related undertakings that is a regulated related undertaking.

For the purpose of PRU 8.3.43 R, a firm must deduct from the group capital resources before deduction (calculated at stage C in the table in PRU 8.3.43 R) of the undertaking in PRU 8.3.17 R, the value of all assets of the undertaking in PRU 8.3.17 R and each of its regulated related undertakings that are not admissible assets as set out in PRU 8.3.60 R.

For the purposes of PRU 8.3.59 R, an asset is not an admissible asset if:

1. (1)

   in respect of a regulated related undertaking or undertaking in PRU 8.3.17 R that is an insurer, it is not an admissible asset as listed in PRU 2 Annex 1R;

2. (2)

   in respect of a regulated related undertaking or undertaking in PRU 8.3.17 R that is not an insurer, it is an asset of the undertaking that is not admissible for the purpose of calculating that undertaking's solo capital resources in accordance with the sectoral rules applicable to it.

For the purposes of PRU 8.3.60 R (2), the sectoral rules applicable to:

1. (1)

   an asset management company are the sectoral rules that would apply to it if, in connection with its activities, it were treated as an investment firm; and

2. (2)

   a financial institution that is not a regulated entity are the sectoral rules that would apply to it if, in connection with its activities, it were treated as being within the banking sector.

For the purposes of PRU 8.3.43 R, a firm must deduct from the group capital resources before deduction (calculated at stage C in the table in PRU 8.3.43 R) of an undertaking in PRU 8.3.17 R, the sum of the value of the direct or indirect investments by the undertaking in PRU 8.3.17 R in each of its related undertakings which is an ancillary services undertaking, calculated in accordance with PRU 8.3.63 R.

The value of an investment in an undertaking referred to in PRU 8.3.62 R is the higher of the book value of the direct or indirect investment by the undertaking in PRU 8.3.17 R and the notional capital resources requirement of that undertaking.

For the purposes of PRU 8.3.63 R, the notional capital resources requirement is:

1. (1)

   for an ancillary insurance services undertaking, zero;

2. (2)

   for any other ancillary services undertaking, the capital resources requirement that would apply to that undertaking, if it were a regulated related undertaking, in accordance with the sectoral rules applicable to a regulated related undertaking whose activities are closest in nature and scope to the activities of that undertaking.

Where the undertaking in PRU 8.3.17 R is a participating insurance undertaking, the firm must, for the purposes of PRU 8.3.43 R, deduct from its group capital resources before deduction (calculated at stage C in the table in PRU 8.3.43 R) the sum of the ineligible surplus capital of each of its regulated related undertakings that is an insurance undertaking, calculated in accordance with PRU 8.3.67 R.

1. (1)

   For the purposes of PRU 8.3.65 R, the ineligible surplus capital of a regulated related undertaking that is an insurance undertaking is calculated by deducting B from A where:

   1. (a)

      A is the regulatory surplus value of that insurance undertaking less any restricted assets of the insurance undertaking that have been excluded under PRU 8.3.41 R; and

   2. (b)

      B is the transferable capital of that undertaking.

2. (2)

   If A minus B is negative, the ineligible surplus capital is zero.

For the purposes of PRU 8.3.67 R (1)(b), the transferable capital is calculated by deducting the sum of the following from the tier one capital resources of the regulated related undertaking that is an insurance undertaking:

1. (1)

   any restricted assets of that insurance undertaking that have been excluded under PRU 8.3.41 R;

2. (2)

   any tier one capital resources of that insurance undertaking that have been allocated towards meeting the individual capital resources requirement of its long-term insurance business; and

3. (3)

   the higher of:

   1. (a)

      50% of the individual capital resources requirement of the general insurance business of that insurance undertaking; and

   2. (b)

      the individual capital resources requirement of the general insurance business of that insurance undertaking less the difference between E and F where:

      1. (i)

         E is its tier two capital resources; and

      2. (ii)

         F is the amount of its tier two capital resources that have been allocated towards meeting the individual capital resources requirement of its long-term insurance business.

Where the undertaking in PRU 8.3.17 R is a participating insurance undertaking, the firm must deduct from its group capital resources before deduction (calculated at stage C in the table in PRU 8.3.43 R) the assets in excess of market risk and counterparty exposure limits calculated in accordance with PRU 8.3.74 R.

The firm (A) must, subject to PRU 8.3.73 R, include in the calculation in PRU 8.3.74 R each related undertaking (B) that is:

1. (1)

   a regulated related undertaking that is a subsidiary undertaking; or

2. (2)

   a related undertaking where the firm has elected to value the shares held in that undertaking by the firm in accordance with PRU 1.3.35 R for the purposes of calculating the tier one capital resources of the firm.

The related undertakings in PRU 8.3.72 R need only be included in the calculation in PRU 8.3.74 R if:

1. (1)

   where B is a regulated related undertaking, the solo capital resources of that undertaking exceed its individual capital resources requirement; or

2. (2)

   where B is an undertaking in PRU 8.3.72 R (2), its assets that fall within one or more of the categories in PRU 2 Annex 1R exceed its accounting liabilities.

A's assets in excess of the market risk and counterparty exposure limits are calculated as follows:

1. (1)

   Subject to (2), a firm must apply the market risk and counterparty exposure limits in PRU 3.2.22 R (3) to:

   1. (a)

      where B is an insurer, the admissible assets of B;

   2. (b)

      where B is a regulated related undertaking that is not an insurer, the assets of that undertaking less those assets identified in PRU 8.3.60 R (2) as not being admissible assets.

2. (2)

   The market risk and counterparty exposure limits do not need to be applied to an undertaking in PRU 8.3.72 R (2).

3. (3)

   Where the assets of B in PRU 8.3.74 R (1) exceed the limits in PRU 3.2.22 R (3), the assets of B in excess of the limits must be deducted by the firm from B's solo capital resources for the purposes of PRU 8.3.30 R.

4. (4)

   After the application of (1) and (2), the surplus assets of B are aggregated with the admissible assets of A, where the surplus assets of B are:

   1. (a)

      where B is a firm, the admissible assets of B that represent the amount by which the capital resources of B exceed its capital resources requirement, subject to PRU 8.3.77 R, and limited to the amount of transferable capital calculated in accordance with PRU 8.3.68 R;

   2. (b)

      where B is a regulated related undertaking that is not a firm, the assets of the undertaking in PRU 8.3.74 R (1)(b) that represent the amount by which the solo capital resources of B exceed its individual capital resources requirement and, where B is an insurance undertaking that is not a firm, limited to the amount of transferable capital calculated in accordance with PRU 8.3.68 R; and

   3. (c)

      where B is an undertaking in PRU 8.3.72 R (2), the assets of the undertaking which represent those assets that fall within one or more of the categories in PRU 2 Annex 1R which exceed its accounting liabilities.

5. (5)

   The market risk and counterparty exposure limits are then applied to the aggregate of A's admissible assets and the surplus assets in PRU 8.3.74 R (4).

The firm (A) must then deduct the amount by which the admissible assets aggregated in accordance with PRU 8.3.74 R (5) exceed the market risk and counterparty exposure limits from A's group capital resources before deduction (calculated at stage C in the table in PRU 8.3.43 R) in accordance with PRU 8.3.70 R.

In relation to any of its regulated related undertakings that is not an insurer, A may modify the calculation in PRU 8.3.74 R by:

1. (1)

   omitting the calculation in PRU 8.3.74 R (1) and (3); and

2. (2)

   aggregating all of the assets of B identified in PRU 8.3.74 R (1)(b) as admissible assets with the admissible assets of A in PRU 8.3.74 R (4).

The admissible assets of either A or B that are part of a long-term insurance fund of A or B are excluded for the purposes of the calculation in PRU 8.3.74 R except insofar as those assets are available to meet the liabilities and capital resources requirement of that long-term insurance fund.

If B is itself either a participating insurance undertaking or an insurance parent undertaking, the admissible assets of B for the purposes of PRU 8.3.74 R (1) must be calculated as in PRU 8.3.75 R but as if B were A.

1. (1)

   PRU 8.4 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)

   PRU 8.4 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)

   PRU 8.4.25 R (Capital adequacy requirements: high level requirement), PRU 8.4.26 R (Capital adequacy requirements: application of Method 4 from Annex I of the Financial Groups Directive), PRU 8.4.29 R (Capital adequacy requirements: application of Methods 1, 2 or 3 from Annex I of the Financial Groups Directive) and PRU 8.4.35 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 PRU 8 Ann 3G G.

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 PRU 8.4.9 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 PRU 8.4.9 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)

   1A 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.

1If this rule applies under PRU 8.4.27 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 PRU 8 Ann 1R G (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.

1 PRU 8.4.26 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 PRU 8.4.28 R is satisfied; or

2. (2)

   this rule is applied to the firm with respect to that financial conglomerate as described in PRU 8.4.30 R.

1. (1)

   1The condition in this rule is satisfied for the purpose of PRU 8.4.27 R (1) with respect to a firm and a financial conglomerate of which it is a member (with the result that PRU 8.4.26 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 5.5 of PRU 8 Ann 1R G (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 PRU 8.4.26 R applies to a firm with respect to a financial conglomerate of which it is a member under PRU 8.4.27 R (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.

1If 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 PRU 8.4.30 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.

1With respect to a firm and a financial conglomerate of which it is a member:

1. (1)

   PRU 8.4.26 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 PRU 8.4.27 R (2); or

2. (2)

   PRU 8.4.29 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 PRU 8.4.26 R or, as the case may be, PRU 8.4.29 R.

1If PRU 8.4.29 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 PRU 8 Ann 1R G is specified in the requirement referred to in PRU 8.4.30 R.

1 PRU 8.4.35 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.

1A firm 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 PRU 8.4.34 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 PRU 8.4.36 R.

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)

      PRU 8.4.26 R to PRU 8.4.36 R;

   2. (b)

      PRU 8 Ann 1R G (Capital adequacy calculations for financial conglomerates) and PRU 8 Ann 2R (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).

PRU 8.5 applies to every firm that is a member of a third-country group. But it does not apply to:

1. (1)

   an incoming EEA firm; or

2. (2)

   an incoming Treaty firm; or

3. (3)

   a UCITS qualifier; or

4. (4)

   an ICVC.

1 If the Part IV permission of a firm contains a requirement obliging it to comply with this rule with respect to a third-country financial conglomerate of which it is a member, it must comply, with respect to that third-country financial conglomerate, with the rules in Part 1 of PRU 8 Ann 2R, as adjusted by Part 3 of that annex.

1 If the Part IV permission of a firm contains a requirement obliging it to comply with this rule with respect to a third-country banking and investment group of which it is a member, it must comply, with respect to that third-country banking and investment group, with the rules in Part 2 of PRU 8 Ann 2R, as adjusted by Part 3 of that annex.