Related provisions for GENPRU 1.2.1
1 - 20 of 35 items.
This section also implements minimum EC standards for the composition of capital resources required to be held by a BIPRU firm. In particular it implements Articles 56 – 61, Articles 63 – 64, Article 66 and Articles 120 – 122 of the Banking Consolidation Directive (2006/48/EC) and Articles 12 – 16, Article 17 (in part), Article 22(1)(c) (in part) and paragraphs 13 - 15 of Part B of Annex VII of the Capital Adequacy Directive (2006/49/EC).
This table belongs to GENPRU 2.2.5 G
Topic |
Location of text |
Application and purpose of the rules in this section |
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BIPRU firms that only have simple types of capital resources (simple capital issuers) |
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Principles underlying the definition of capital resources |
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Which method of calculating capital resources applies to which type of firm |
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Purpose of the limits on the use of different forms of capital |
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Use of higher tier capital in lower tiers |
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Calculation of capital resources for insurers |
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Limits on the use of different forms of capital for insurer (capital resources gearing rules for insurer) |
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Calculation of capital resources for banks |
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Calculation of capital resources for building societies |
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Limits on the use of different forms of capital for banks and building societies (certain types of capital resources cannot be used for certain purposes) |
GENPRU 2.2.42 R8 to GENPRU 2.2.45 R; GENPRU 2.2.47 R to GENPRU 2.2.48 R 8 |
Limits on the use of different forms of capital for banks and building societies (capital resources gearing rules) |
GENPRU 2.2.29 R to GENPRU 2.2.31 G; GENPRU 2.2.46 R; GENPRU 2.2.49 R |
Calculation of capital resources for BIPRU investment firms |
GENPRU 2.2.20 G to GENPRU 2.2.21 G; GENPRU 2 Annex 4 to GENPRU 2 Annex 6 |
Limits on the use of different forms of capital for BIPRU investment firms (certain types of capital resources cannot be used for certain purposes) |
GENPRU 2.2.42 R to GENPRU 2.2.45 R; GENPRU 2.2.47 R to GENPRU 2.2.48 R |
Limits on the use of different forms of capital for BIPRU investment firms (capital resources gearing rules) |
GENPRU 2.2.29 R to GENPRU 2.2.31 G; GENPRU 2.2.46 R; GENPRU 2.2.50 R |
Example of how the capital resources calculation for BIPRU firms works |
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Capital used to meet the base capital resources requirement for BIPRU firms |
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Tier one capital instruments: general |
GENPRU 2.2.9 G to GENPRU 2.2.10 G; GENPRU 2.2.62 R to GENPRU 2.2.69 G; GENPRU 2.2.80 R to GENPRU 2.2.82 G |
Core tier one capital: profit and loss account and other reserves: material applicable to all firms |
GENPRU 2.2.85 R; GENPRU 2.2.87 R to GENPRU 2.2.89 G; GENPRU 2.2.91 G |
Core tier one capital: profit and loss account and other reserves: material specific to BIPRU firms |
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Core tier one capital: provisions relating to partnerships and limited liability partnerships |
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Core tier one capital: share premium account |
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Core tier one capital: externally verified interim net profits |
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Core tier one capital: valuation differences and fund for future appropriations for insurer |
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Tier one capital: perpetual non-cumulative preference shares |
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Innovative tier one capital (excluding issues through SPVs) |
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Innovative tier one capital (issues through SPVs) |
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Tier one capital: conversion ratio |
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Tier one capital: requirement to have sufficient unissued stock |
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Deductions from tier one capital resources |
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Deductions from tier one capital resources and tier two capital resources |
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Deductions from total capital resources |
GENPRU 2.2.14 G to GENPRU 2.2.16 G; GENPRU 2.2.250 R to GENPRU 2.2.265 R |
The effect of swaps |
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Redemption of tier one instruments |
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Redemption of tier two instruments |
GENPRU 2.2.172 R to GENPRU 2.2.174 R; GENPRU 2.2.177 R to GENPRU 2.2.178 R (upper tier two instruments); GENPRU 2.2.194 R to GENPRU 2.2.197 G (lower tier two instruments) |
Non-standard capital instruments |
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Standard form documentation for subordinated debt |
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Public sector guarantees |
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Other capital resources for insurers: unpaid share capital or unpaid initial funds and calls for supplementary contributions |
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Additional requirements for insurer carrying on with-profits insurance business |
Parts of this section are irrelevant to a BIPRU firm whose capital resources consist of straightforward capital instruments. Therefore the FSA's Personal handbooks facility available on its website allows a BIPRU firm to screen out those parts of this section that are not relevant to a simple capital issuer.2
Tier one capital typically has the following characteristics:(1) it is able to absorb losses;(2) it is permanent;(3) it ranks for repayment upon winding up, administration or similar procedure after all other debts and liabilities; and(4) it has no fixed costs, that is, there is no inescapable obligation to pay dividends or interest.
Tier two capital includes forms of capital that do not meet the requirements for permanency and absence of fixed servicing costs that apply to tier one capital. Tier two capital includes, for example:(1) capital which is perpetual (that is, has no fixed term) but cumulative (that is, servicing costs cannot be waived at the issuer's option, although they may be deferred – for example, cumulative preference shares); only perpetual capital instruments may be included in upper tier
This table belongs to GENPRU 2.2.17 R
Type of firm |
Location of rules |
Remarks |
BIPRU investment firm without an investment firm consolidation waiver |
GENPRU 2 Annex 4 (Deducts material holdings) |
Applies to a BIPRU investment firm not using GENPRU 2 Annex 5 or GENPRU 2 Annex 6 |
BIPRU investment firm without an investment firm consolidation waiver |
GENPRU 2 Annex 5 (Deducts illiquid assets) |
A BIPRU investment firm must give one Month's prior notice to the FSA before starting to use or stopping using this method |
BIPRU investment firm with an investment firm consolidation waiver |
GENPRU 2 Annex 6 (Deducts illiquid assets and material holdings) |
A firm with an investment firm consolidation waiver must use this method. No other BIPRU investment firm may use it. |
GENPRU 2.2.19 R sets out three different methods of calculating capital resources for BIPRU investment firms. The differences between the three methods relate to whether and how material holdings and illiquid assets are deducted when calculating capital resources. The method depends on whether a firm has an investment firm consolidation waiver. If a firm does have such a waiver, it should deduct illiquid assets, own groupmaterial holdings and certain contingent liabilities. If
The purpose of the requirement in GENPRU 2.2.29 R is to ensure that at least 50% of the firm'stier one capital resources (net of tier one capital deductions) is met by core tier one capital which provides maximum loss absorbency on a going concern basis to protect the firm from insolvency. Although a perpetual non-cumulative preference share or a PIBS is in legal form a share, it behaves in many ways like a perpetual fixed interest debt instrument. Within the 50% limit on non-core
Tier one capital and tier two capital are the only type of capital resources that a BIPRU firm may use for the purpose of meeting:(1) the credit risk capital component;(2) the operational risk capital requirement;(3) the counterparty risk capital component; and(4) the base capital resources requirement.
GENPRU 2.2.44 R (and the capital resources gearing rules that relate to it) also applies for the purposes of any other requirement in the Handbook for which it is necessary to calculate the capital resources of a BIPRU firm, except for the purposes described in GENPRU 2.2.47 R and except as may otherwise be stated in the relevant part of the Handbook.
For the purpose of GENPRU 2.2.44 R:(1) the amount of the items which may be included in a BIPRU firm'stier two capital resources must not exceed the amount calculated at stage F of the calculation in the capital resources table (Total tier one capital after deductions); and(2) the amount of the items which may be included in a BIPRU firm'slower tier two capital resources must not exceed 50% of the amount calculated at stage F of the calculation in the capital resources table.
For the purposes of meeting:(1) the market risk capital requirement; (2) the concentration risk capital component; and(3) the fixed overheads requirement (where applicable);a BIPRU firm may only use the following parts of its capital resources:(4) tier one capital to the extent that it is not required to meet the requirements in GENPRU 2.2.44 R (GENPRU 2.2.48 R explains how to calculate how much tier one capital is required to meet the requirements in GENPRU 2.2.44 R);(5) tier
For the purpose of meeting the requirements in GENPRU 2.2.47R (1) to GENPRU 2.2.47R (3) and subject to GENPRU 2.2.50 R, a BIPRU firm must not include any item in either:(1) its tier two capital resources falling within GENPRU 2.2.47R (6) (excess tier two capital); or(2) its upper tier three capital resources;to the extent that the sum of (1) and (2) would exceed 250% of the amount resulting from the following calculation:(3) calculate the amount at stage F of the calculation in
This table belongs to GENPRU 2.2.51 G
Description of the stage of the capital resources calculation |
Stage in the capital resources table |
Amount (£) |
Total tier one capital after deductions (excluding innovative tier one instruments – see GENPRU 2.2.53 G) |
Stage F |
80 |
Total tier two capital (including innovative tier one instruments– see GENPRU 2.2.53 G) |
Stage K |
80 |
Deductions |
Stage M |
(20) |
Total tier one capital and tier two capital after deductions |
Stage N |
140 |
Upper tier three capital (this example assumes the firm has no lower tier three capital (trading book profits)) |
Stage Q |
50 |
Total capital resources |
Stage T |
190 |
This table belongs to GENPRU 2.2.55 G
Description of the stage of the capital resources calculation |
Stage in the capital resources table |
Amount (£) |
Total tier one capital and tier two capital after deductions |
Stage N |
140 |
Credit, operational, and counterparty1 risk requirement |
(100) |
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Tier one capital and tier two capital available to meet market risk requirement |
40 |
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Stage Q |
50 |
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Total capital available to meet market risk requirement |
90 |
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Market risk requirement |
(90) |
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Market risk requirement met subject to meeting gearing limit set out in GENPRU 2.2.49 R – see GENPRU 2.2.57 G |
A firm may not include a capital instrument in its tier one capital resources, unless its contractual terms are such that:(1) (if it is redeemable other than in circumstances set out in GENPRU 2.2.64R (3)(a) (redemption on a winding up)) it is redeemable only at the option of the firm; and(2) the firm cannot exercise that redemption right:(a) before the fifth anniversary of its date of issue;(b) unless it has given notice to the FSA in accordance with GENPRU 2.2.74 R; and(c)
Permanent share capital means an item of capital which (in addition to satisfying GENPRU 2.2.64 R) meets the following conditions:(1) it is:(a) an ordinary share; or(b) a members' contribution; or(c) part of the initial fund of a mutual; (2) any coupon on it is not cumulative, the firm is under no obligation to pay a coupon in any circumstances and the firm has the right to choose the amount of any coupon that it pays; and(3) the terms upon which it is issued do not permit redemption
(1) Negative amounts, including any interim net losses (but in the case of a BIPRU investment firm, only material interim net losses), must be deducted from profit and loss account and other reserves.(2) For these purposes material interim net losses mean unaudited interim losses arising from a firm'strading book and non-trading book business which exceed 10% of the sum of its capital resources calculated at stages A (Core tier one capital) and B (Perpetual non-cumulative preference
(1) This rule applies to trading book valuation adjustments or reserves referred to in GENPRU 1.3.29 R to GENPRU 1.3.35 G (Valuation adjustments and reserves). It applies to a BIPRU firm.(2) When valuation adjustments or reserves give rise to losses of the current financial year, a firm must treat them in accordance with GENPRU 2.2.85 R.(3) Valuation adjustments or reserves which exceed those made under the accounting framework to which a firm is subject must be treated in accordance
Eligible partnership capital means a partners' account:(1) into which capital contributed by the partners is paid; and(2) from which under the terms of the partnership agreement an amount representing capital may be withdrawn by a partner only if:(a) he ceases to be a partner and an equal amount is transferred to another such account by his former partners or any person replacing him as their partner; or2(b) the partnership is wound up or2 otherwise dissolved; or22(c) the BIPRU
Eligible LLP members' capital means a members' account:(1) into which capital contributed by the members is paid; and(2) from which under the terms of the limited liability partnership agreement an amount representing capital may be withdrawn by a member only if:(a) he ceases to be a member and an equal amount is transferred to another such account by his former fellow members or any person replacing him as a member; 2(b) the limited liability partnership is wound up or2 otherwise
A BIPRU firm that is a partnership or a limited liability partnership may not include eligible partnership capital or eligible LLP members' capital in its tier one capital resources unless (in addition to GENPRU 2.2.62 R (General conditions relating to tier one capital)) it complies with GENPRU 2.2.83R (2) (Coupons should not be cumulative or mandatory). However GENPRU 2.2.64R (3) (Redemption) is replaced by GENPRU 2.2.93 R or GENPRU 2.2.94 R.
Without prejudice to GENPRU 2.2.62 R (Tier one capital: General), the item other reserves (which forms part of the item profit and loss and other reserves) applies to a BIPRU firm that is a partnership or a limited liability partnership to the extent the reserves correspond to reserves that are eligible for inclusion as other reserves in the case of a BIPRU firm that is incorporated under the Companies Act 1985 or the Companies (Northern Ireland) Order 1986.
A BIPRU firm which is a partnership or limited liability partnership must deduct at stage E of the calculation in the capital resources table (Deductions from tier one capital) the amount by which the aggregate of the amounts withdrawn by its partners or members exceeds the profits of that firm. Amounts of eligible partnership capital or eligible LLP members' capital repaid in accordance with GENPRU 2.2.93 R or GENPRU 2.2.94 R are not included in this calculation.
A firm may not include an innovative tier one instrument, unless it is a preference share, in its tier one capital resources unless it has obtained a properly reasoned independent legal opinion from an appropriately qualified individual confirming that the criteria in GENPRU 2.2.64R (6) (Loss absorption) and GENPRU 2.2.80 R to GENPRU 2.2.81 R (Loss absorption) are met.
(1) GENPRU 2.2.123 R - GENPRU 2.2.137 R apply to capital of a firm if:(a) either or both of the conditions in (2) are satisfied; and(b) any of the SPVs referred to in (2) is a subsidiary undertaking of the firm.(2) The conditions referred to in (1) are:(a) that capital is issued to an SPV; or(b) the subscription for the capital issued by the firm is funded directly or indirectly by an SPV.(3) A BIPRU firm may not include capital coming within this rule in its capital resources
The SPV referred to in GENPRU 2.2.124R (2)(a) must satisfy the following conditions:(1) it is controlled by the firm and may not operate independently of the firm;(2) the rights of investors in the SPV who do not belong to the group of the BIPRU firm in question are not such as to affect the ability of the firm to control the SPV; and(3) all or virtually all of its exposures (calculated by reference to the amount) consist of exposures to the firm or to that firm'sgroup.
An SPV could take the form of a limited partnership. In such an arrangement, holders of a capital instrument issued by the SPV which do not belong to the group of the BIPRU firm in question should have no right to participate in the management of the partnership, whether under the partnership's constitutional documents or the transaction documents. In general, this means that they should be treated as limited partners. It is expected that the general partner, having control of
(1) A firm may not include in its tier one capital resources a tier one instrument that is or may be subject to a step-up that does not meet the definition of moderate in the press release of the Basle Committee on Banking Supervision of 27th October 1998 called "Instruments eligible for inclusion in Tier 1 capital".(2) For the purpose of (1) the words in that press release "than, at national supervisory discretion, either" are replaced by "than the higher of the following two
(1) This rule applies to a BIPRU firm.(2) A BIPRU firm must, in relation to equities held in the available-for-sale financial assets category:(a) deduct any net losses at stage E of the calculation in the capital resources table (Deductions from tier one capital); and(b) include any net gains (after deduction of deferred tax) in revaluation reserves at stage G of the calculation in the capital resources table (Upper tier two capital).(3) A BIPRU firm must include any net gains,
A BIPRU firm which adopts the standardised approach to credit risk may include general/collective provisions in its tier two capital resources only if:(1) they are freely available to the firm;(2) their existence is disclosed in internal accounting records; and(3) their amount is determined by the management of the firm, verified by independent auditors and notified to the FSA.
A BIPRU firm calculating risk weighted exposure amounts under the IRB approach may include in its upper tier two capital resources positive amounts resulting from the calculation in BIPRU 4.3.8 R (Treatment of expected loss amounts), up to 0.6% of the risk weighted exposure amounts calculated under that approach.
A BIPRU firm calculating risk weighted exposure amounts under the IRB approach may not include in its capital resources value adjustments and provisions included in the calculation in BIPRU 4.3.8 R (Treatment of expected loss amounts under the IRB approach for trading bookexposures) or value adjustments and provisions for exposures that would otherwise have been eligible for inclusion in general/collective provisions other than in accordance with GENPRU 2.2.190 R.
If a BIPRU firm calculates risk weighted exposure amounts under the IRB approach for the purposes of BIPRU 14 (Capital requirements for settlement and counterparty risk) it must not include valuation adjustments referred to in BIPRU 14.2.18 R (1) (Treatment of expected loss amounts) in its capital resources except in accordance with that rule.
A material holding is:(1) a BIPRU firm's holdings of shares and any other interest in the capital of an individual credit institution or financial institution (held in the non-trading book or the trading book or both) exceeding 10% of the share capital of the issuer, and, where this is the case, any holdings of subordinated debt of the same issuer are also included as a material holding; the full amount of the holding is a material holding; or(2) a BIPRU firm's holdings of shares,
A material insurance holding means the holdings of a BIPRU firm of items of the type set out in GENPRU 2.2.213 R in any:(1) insurance undertaking; or(2) insurance holding company;that fulfils one of the following conditions:(3) it is a subsidiary undertaking of that firm; or(4) that firm holds a participation in it.
A BIPRU firm must deduct at stage M of the calculation in the capital resources table (Deductions from the totals of tier one and two) any reciprocal cross-holdings. However a BIPRU firm must not deduct such holdings to the extent that they fall to be deducted at Part 1 of stage M of the calculation in the capital resources table (Deductions for material holdings, qualifying holdings and certain other items).
A reciprocal cross-holding means a holding of the BIPRU firm of shares, any other interest in the capital, and subordinated debt, whether in the trading or non-trading book, in:(1) a credit institution; or(2) a financial institution;that satisfies the following conditions:(3) the holding is the subject of an agreement or arrangement between the BIPRU firm and either the issuer of the instrument in question or a member of a group to which the issuer belongs;(4) under the terms
A BIPRU firm calculating risk weighted exposure amounts under the IRB approach must deduct:(1) any negative amounts arising from the calculation in BIPRU 4.3.8 R (Treatment of expected loss amounts); and(2) any expected loss amounts2 calculated in accordance with BIPRU 4.7.12 R (Expected loss amounts under the simple risk weight approach to calculating risk weighted exposure amounts for exposures belonging to the equity exposureIRB exposure class) or BIPRU 4.7.17 R (Expected loss
A BIPRU firm calculating risk weighted exposure amounts under the IRB approach or the standardised approach to credit risk must deduct from its capital resources the exposure amount of securitisation positions which receive a risk weight of 1250% under BIPRU 9 (Securitisation), unless the firm includes the securitisation positions in its calculation of risk weighted exposure amounts (see BIPRU 9.10 (Reduction in risk-weighted exposure amounts)).
(1) The treatment in the capital resources table of the deductions in GENPRU 2.2.238 R only has effect for the purpose of the capital resources gearing rules.(2) In other cases (3) and (4) apply.(3) A BIPRU firm making the deductions described in GENPRU 2.2.238 R must deduct 50% of the total amount of those deductions at stage E (Deductions from tier one capital) and 50% at stage J (Deductions from tier two capital) of the calculation in the capital resources table after the application
The alternative calculation in GENPRU 2.2.239R (3) to (4) is only relevant to BIPRU 11 (Pillar 3 disclosures) and certain reporting requirements under SUP. However the deduction of material holdings at Part 2 of stage E of the capital resources table in the case of a BIPRU investment firm with an investment firm consolidation waiver has effect for all purposes.
A BIPRU firm may include subordinated debt in its upper tier three capital resources only if:(1) it has an original maturity of at least two years or is subject to at least two years' notice of repayment; and(2) payment of interest or principal is permitted only if, after that payment, the firm'scapital resources would be not less than its capital resources requirement.
A BIPRU firm's net interim trading book profits mean its net trading book profits adjusted as follows:(1) they are net of any foreseeable charges or dividends and less net losses on its other business; and(2) a firm must not take into account items that have already been included in the calculation of capital resources as part of the calculation of the following items:(a) interim net profits (see stage (A) of the capital resources table); or(b) interim net losses or material interim
The standard market risk PRR rules apply for establishing what is a net position and the amount and value of that position for the purposes of GENPRU 2.2.264 R, ignoring rules which would otherwise exclude such positions from BIPRU 7.2 (Interest rate PRR) or BIPRU 7.3 (Equity PRR and basic interest rate PRR for equity derivatives) on the basis that they are to be deducted from a bank or building society'scapital resources, or for any other reason.
Principle 4 requires a firm to maintain adequate financial resources. GENPRU 2 sets out provisions that deal specifically with the adequacy of that part of a firm's financial resources that consists of capital resources. The adequacy of a firm'scapital resources needs to be assessed both by that firm and the FSA. Through its rules, the FSA sets minimum capital resources requirements for firms. It also reviews a firm's own assessment of its capital needs, and the processes and
This section sets capital resources requirements for a firm. GENPRU 2.2 (Capital resources) sets out how, for the purpose of meeting capital resources requirements, the amounts or values of capital, assets and liabilities are to be determined. More detailed rules relating to capital, assets and liabilities are set out in GENPRU 1.3 (Valuation) and, for an insurer, INSPRU and, for a BIPRU firm, BIPRU.
For the purposes of GENPRU 2.1.9 R, a firm should have systems in place to enable it to be certain whether it has adequate capital resources to comply with GENPRU 2.1.13 R and the main BIPRU firm Pillar 1 rules (as applicable) at all times. This does not necessarily mean that a firm needs to measure the precise amount of its capital resources and its CRR on a daily basis. A firm should, however, be able to demonstrate the adequacy of its capital resources at any particular time
The purpose of the base capital resources requirement for a BIPRU firm is to act as a minimum capital requirement or floor. It has been written as a separate requirement as there are restrictions in GENPRU 2.2 (Capital resources) on the types of capital that a BIPRU firm may use to meet the base capital resources requirement which do not apply to some other parts of the capital requirement calculation. In order to preserve the base capital resources requirement's role as a floor
Table: Calculation of the variable capital requirement for a BIPRU firm
This table belongs to GENPRU 2.1.40 R
Firm category |
Capital requirement |
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the sum of the following: |
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(1) |
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(2) |
the market risk capital requirement; and |
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(3) |
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the sum of the following: |
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(1) |
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(2) |
the market risk capital requirement; and |
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(3) |
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BIPRU limited licence firm (including UCITS investment firm) |
the higher of (1) and (2): |
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(1) |
the sum of: |
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(a) |
the credit risk capital requirement; and |
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(b) |
the market risk capital requirement; and |
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(2) |
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This table belongs to GENPRU 2.1.47 R
Firm category |
Amount: Currency equivalent of |
€5 million |
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The higher of €1 million and £1 million |
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€730,000 |
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€125,000 |
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€50,000 |
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The amount specified in UPRU 2.1.2 R (1) (Financial resources requirement). However the capital that a firm must hold in respect of that requirement is as defined by GENPRU and not as specified in that rule. The reference in that rule to initial capital does not therefore apply. |
(1) A BIPRU firm must calculate its market risk capital requirement as the sum of:(a) the interest rate PRR (including the basic interest rate PRR for equity derivatives set out in BIPRU 7.3 (Equity PRR and basic interest rate PRR for equity derivatives));(b) the equity PRR;(c) the commodity PRR;(d) the foreign currency PRR;(e) the option PRR; and(f) the collective investment undertaking PRR.(2) Any amount calculated under BIPRU 7.1.9 R - BIPRU 7.1.13 R (Instruments for which
For the purpose of GENPRU 2.1.53 R, and subject to GENPRU 2.1.55 R to GENPRU 2.1.57 R,a BIPRU investment firm's relevant fixed expenditure is the amount described as total expenditure in its most recent audited annual report and accounts, less the following items (if they are included within such expenditure):(1) staff bonuses, except to the extent that they are guaranteed;(2) employees' and directors' shares in profits, except to the extent that they are guaranteed;(3) other
(1) In the case of a BIPRU firm, this section implements Article 74 of the Banking Consolidation Directive, Article 64(4) of the Banking Consolidation Directive (Own funds) and Article 33 and Part B of Annex VII of the Capital Adequacy Directive.(2) In the case of an insurer, GENPRU 1.3.4 R implements the requirements of Articles 23.3(viii) and 24.2(iv) of the Consolidated Life Directive.
Except where a rule in GENPRU, BIPRU or INSPRU makes different provision, GENPRU 1.3.4 R applies whenever a rule in GENPRU, BIPRU or INSPRU refers to the value or amount of an asset, liability, exposure, equity or income statement item, including:(1) whether, and when, to recognise or de-recognise an asset or liability;(2) the amount at which to value an asset, liability, exposure, equity or income statement item; and(3) which description to place on an asset, liability, exposure,
In particular, unless an exception applies, GENPRU 1.3.4 R should be applied for the purposes of GENPRU, BIPRU or INSPRU to determine how to account for:(1) netting of amounts due to or from the firm;(2) the securitisation of assets and liabilities (see also GENPRU 1.3.7 G);(3) leased tangible assets;(4) assets transferred or received under a sale and repurchase3 or stock lending transaction; and(5) assets transferred or received by way of initial or variation margin under a derivative
(1) Except to the extent that GENPRU, BIPRU or INSPRU provide for another method of valuation, GENPRU 1.3.14 R to GENPRU 1.3.34 R (Marking to market, Marking to model, Independent price verification, Adjustments or reserves) apply:(a) for the purposes set out in GENPRU 1.3.41 R;(b) for the purposes set out in GENPRU 1.3.39 R; and(c) to any balance sheet position measured at market value or fair value.(2) A firm must establish and maintain systems and controls sufficient to provide
Wherever possible, a firm must use mark to market in order to measure the value of the investments and positions to which this rule applies under GENPRU 1.3.13 R and GENPRU 1.3.38 R to GENPRU 1.3.41 R. Marking to market is valuation (on at least a daily basis in the case of the trading book positions of a BIPRU firm) at readily available close out prices from independent sources.
Where marking to market is not possible, a firm must use mark to model in order to measure the value of the investments and positions to which this rule applies under GENPRU 1.3.13 R and GENPRU 1.3.38 R to GENPRU 1.3.41 R. Marking to model is any valuation which has to be benchmarked, extrapolated or otherwise calculated from a market input. GENPRU 1.3.18 R to GENPRU 1.3.25 R apply when marking to model.
When the model used is developed by the firm, that model must be:(1) based on appropriate assumptions which have been assessed and challenged by suitably qualified parties independent of the development process;(2) independently tested, including validation of the mathematics, assumptions, and software implementation; and(3) (in the case of a BIPRU firm) developed or approved independently of the front office.
In the case of the trading book positions of a BIPRU firm, while daily marking to market may be performed by dealers, verification of market prices and model inputs must be performed by a unit independent of the dealing room, at least monthly (or, depending on the nature of the market/trading activity, more frequently).
(1) This paragraph sets out the requirements referred to in GENPRU 1.3.30 R and GENPRU 1.3.32 R.(2) A firm must consider the following adjustments or reserves: unearned credit spreads, close-out costs, operational risks, early termination, investing and funding costs, future administrative costs and, where appropriate, model risk.(3) A firm must consider several factors when determining whether a valuation reserve is necessary for less liquid positions. These factors include the
Adjustments to accounting values(1) For the purposes of GENPRU and BIPRU, the adjustments in (2) and (3) apply to values calculated pursuant to GENPRU 1.3.4 R in addition to those required by GENPRU 1.3.9 R to GENPRU 1.3.10 R.(2) A BIPRU firm must not recognise either:(a) the fair value reserves related to gains or losses on cash flow hedges of financial instruments measured at amortised cost; or(b) any unrealised gains or losses on debt instruments held in the available-for-sale
A BIPRUfirm must operate through effective systems the ongoing administration and monitoring of its various credit risk-bearing portfolios and exposures, including for identifying and managing problem credits and for making adequate value adjustments and provisions.[Note: annex V paragraph 4 of the Banking Consolidation Directive]
The documentation maintained by a BIPRUfirm under SYSC 4.1.3 R should include its policy for credit risk, including its risk appetite and provisioning policy and should describe how it measures, monitors and controls that risk. This should include descriptions of the systems used to ensure that the policy is correctly implemented.
A BIPRUfirm must implement policies and processes to evaluate and manage the exposure to operational risk, including to low-frequency high severity events. Without prejudice to the definition of operational risk, BIPRUfirms must articulate what constitutes operational risk for the purposes of those policies and procedures.[Note: annex V paragraph 12 of the Banking Consolidation Directive]
The FSA will not grant an investment firm consolidation waiver unless:(1) the UK consolidation group or non-EEA sub-group meets the conditions for being a CAD Article 22 group;(2) the FSA is satisfied that each BIPRU firm in the UK consolidation group or non-EEA sub-group will be able to meet its capital requirements using the calculation of capital resources in GENPRU 2 Annex 6 (Capital resources table for a BIPRU investment firm with a waiver from consolidated supervision);
(1) A CAD Article 22 group means a UK consolidation group or non-EEA sub-group that meets the conditions in this rule.(2) There must be no bank, building society or credit institution in the UK consolidation group or non-EEA sub-group .(3) Each CAD investment firm in the UK consolidation group or non-EEA sub-group which is an EEA firm must use the definition of own funds given in the CRD implementation measure of its EEA State for Article 16 of the Capital Adequacy Directive.(4)
GENPRU 2.2 (Capital resources) says that a BIPRU investment firm with an investment firm consolidation waiver should calculate its capital resources on a solo basis using GENPRU 2 Annex 6 (Capital resources table for a BIPRU investment firm with a waiver from consolidated supervision). GENPRU 2 Annex 6 requires a BIPRU investment firm to deduct contingent liabilities in favour of other members of the UK consolidation group or non-EEA sub-group. Therefore BIPRU 8.4.9R (5)(b) only
The solo notional capital resources requirement as referred to in BIPRU 8.4.11R (1) is calculated in the same way as:(1) (if each CAD investment firm in the UK consolidation group or non-EEA sub-group is a limited licence firm) the capital resources requirement for a BIPRU limited licence firm; or(2) (in any other case) the capital resources requirement for a BIPRU limited activity firm.
(1) A BIPRU firm that is a subsidiary undertaking of a BIPRU firm or of a financial holding company must apply the requirements laid down in GENPRU 1.2 (Adequacy of financial resources), the main BIPRU firm Pillar 1 rules (but not the base capital resources requirement) and BIPRU 10 (Concentration risk requirements) on a sub-consolidated basis if the BIPRU firm, or the parent undertaking where it is a financial holding company, have a third country banking or investment services
If more than one BIPRU firm is a direct or indirect parent undertaking in accordance with BIPRU 8.3.7G (2)(a) then the sub-groups of each of 1them are all potential non-EEA sub-groups. This is illustrated in example three in BIPRU 8 Annex 3 (Examples of how to identify a non-EEA sub-group), where the sub-group of UK bank 1 and the sub-group of UK bank 2 are potential non-EEA sub-groups.
The firm should then identify each undertaking in the firm'sUK consolidation group that satisfies the following conditions:(1) it is an institution, financial institution or asset management company whose head office is outside the EEA (a third country investment services undertaking);(2) one of the following applies:(a) it is a subsidiary undertaking of a financial holding company in that UK consolidation group; or(b) a financial holding company in that UK consolidation group
None of the following is a BIPRU firm and each of the following is excluded from each of the categories of BIPRU investment firm listed in BIPRU 1.1.6 R (3) to BIPRU 1.1.6R (5) and BIPRU 1.1.18 R (2) to (4):(1) an incoming EEA firm;(2) an incoming Treaty firm;(3) any other overseas firm;(4) an ELMI;(5) an insurer; and(6) an ICVC.
(1) This paragraph applies to an undertaking that would be a third country BIPRU firm if it were authorised under the Act.(2) Except in exceptional circumstances, it is the FSA's policy that it will not give an overseas applicant a Part IV permission unless the FSA is satisfied that the applicant will be subject to prudential regulation by its home state regulatory body that is broadly equivalent to that provided for in the Handbook and the applicable EEA prudential sectoral legislation.
(1) Dealing on own account means (for the purpose of GENPRU and BIPRU) the service of dealing in any financial instruments for own account as referred to in point 2 of Section A of theAnnex to the ISD, subject to (2) and (3).(2) In accordance with Article5(2) of the Capital Adequacy Directive (Definition of dealing on own account), a CAD investment firm that executes investors' orders for financial instruments and holds such financial instruments for its own account does not for
In the case of a bank or building society this section implements Article 123 and (in part) Annex XI of the Banking Consolidation Directive. In the case of a BIPRU investment firm this section implements Article 34 of the Capital Adequacy Directive so far as that Article applies Article 123 of the Banking Consolidation Directive.
This section also has rules requiring a firm to carry out appropriate stress tests and scenario analyses for the risks it has previously identified and to establish the amount of financial resources needed in each of the circumstances and events considered in carrying out the stress tests and scenario analyses.
(1) This rule amplifies some of the obligations in the overall Pillar 2 rule.(2) In the case of a BIPRU firm the processes, strategies and systems relating to concentration risk must include those necessary to ensure compliance with BIPRU 10 (Concentration risk requirements).(3) As part of its obligations in respect of market risk, a BIPRU firm must consider whether the value adjustments and provisions taken for positions and portfolios in the trading book enable the firm to sell
(1) As part of its obligation under the overall Pillar 2 rule, a firm must, for each of the major sources of risk identified in accordance with GENPRU 1.2.30R (2), carry out stress tests and scenario analyses that are appropriate to the nature of those major sources of risk, as part of which the firm must:(a) take reasonable steps to identify an appropriate range of realistic adverse circumstances and events in which the risk identified crystallises; and(b) estimate the financial
Where a firm assesses the adequacy of its CRR in its particular circumstances in accordance with BIPRU 2.2 (Internal capital adequacy standards) and INSPRU 7.1 (Individual capital assessment) as a basis for deciding what financial resources are adequate, it should include this in the documentation produced in accordance with GENPRU 1.2.60 R.
The time horizon over which stress tests and scenario analysisshould be carried out shoulddepend on the maturity and liquidity of the positions stressed. For example, for the market risk arising from the holding of investments, this shoulddepend upon:(1) the extent to which there is a regular, open and transparent market in those assets, which would allow fluctuations in the value of the investment to be more readily and quickly identified; and(2) the extent to which the market
A firm must include only the following types of undertaking in a UK consolidation group or non-EEA sub-group for the purposes of this chapter:(1) a BIPRU firm;(2) an institution;(3) a financial institution;(4) an asset management company;(5) a financial holding company; and(6) an ancillary services undertaking.
A firm may, having first notified the FSA in writing in accordance with SUP 15.7 (Form and method of notification), exclude an institution, asset management company, financial institution or ancillary services undertaking that is a subsidiary undertaking in, or an undertaking in which a participation is held by, the UK consolidation group or non-EEA sub-group if the balance sheet total of that undertaking is less than the smaller of the following two amounts:(1) 10 million Euros;(2)
Article 73(1) of the Banking Consolidation Directive allows the FSA to decide to exclude an institution, financial institution, asset management company or ancillary services undertaking that is a subsidiary undertaking in, or an undertaking in which a participation is held by, the UK consolidation group or non-EEA sub-group for the purposes of this chapter in the following circumstances:(1) where the head office of the undertaking concerned is situated in a country outside the
A firm that has a solo consolidation waiver must incorporate in the calculation of its requirements under the main BIPRU firm Pillar 1 rulesand BIPRU 10 (Concentration risk requirement) each subsidiary undertaking to which the solo consolidation waiver applies. This does not apply to the base capital resources requirement.
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 GENPRU 3 Annex 2, as adjusted by Part 3 of that annex.
(1) A firm may only treat an exposure as exempt under BIPRU 3.2.25 R (Zero risk-weighting for intra-group exposures) as applied on a consolidated basis if the member of the UK consolidation group or non-EEA sub-group that has the exposure:(a) is a BIPRU firm and that exposure is exempt under BIPRU 3.2.25 R as it applies to that BIPRU firm on a solo basis; or(b) meets the conditions in BIPRU 3.2.25 R (1)(d) (Condition relating to establishment in the UK) and that exposure would
A firm may not apply the second method in BIPRU 8.7.13R (3) (accounting consolidation for the whole group) or apply accounting consolidation to parts of its UK consolidation group or non-EEA sub-group under method three as described in BIPRU 8.7.13R (4)(a) for the purposes of the calculation of the consolidated market risk requirement unless the group or sub-group and the undertakings in that group or sub-group satisfy the conditions in this rule. Instead the firm must use the
1This chapter applies to:(1) a BIPRU firm that is a member of a UK consolidation group;(2) a BIPRU firm that is a member of a non-EEA sub-group;(3) an ELMI that is a member of a UK consolidation group or non-EEA sub-group if that group includes a BIPRU firm; and(4) a firm that is not a BIPRU firm and is a parent financial holding company in a Member State in a UK consolidation group.