Related provisions for SYSC 7.1.1

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SYSC 12.1.8RRP
A firm must:(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) 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.
SYSC 12.1.9GRP
For the purposes of SYSC 12.1.8 R, the question of whether the risk management processes and internal control mechanisms are adequate, sound and appropriate should be judged in the light of the nature, scale and complexity of the group's business and of the risks that the group bears. Unless the firm is a Solvency II firm, risk 12management processes must include the stress testing and scenario analysis required by GENPRU 1.2.42 R and GENPRU 1.2.49R (1)(b).124
SYSC 12.1.11RRP
Where this section applies with respect to a financial conglomerate, the risk management processes referred to in SYSC 12.1.8R (2) or, for a Solvency II firm, the risk management system referred to in the PRA Rulebook: Solvency II firms: Conditions Governing Business, rule 3,12 must include:(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
SYSC 12.1.12RRP
Where this section applies with respect to a financial conglomerate, the internal control mechanisms referred to in SYSC 12.1.8R (2) or, for a Solvency II firm, the internal control system referred to in the PRA Rulebook: Solvency II firms: Conditions Governing Business, rule 3,12 must include:(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
SYSC 12.1.15RRP
In the case of a firm that:(1) is aCRRfirm; and810(2) has a mixed-activity holding company as a parent undertaking;the risk management processes and internal control mechanisms referred to in SYSC 12.1.8 R must include sound reporting and accounting procedures and other mechanisms that are adequate to identify, measure, monitor and control transactions between the firm'sparent undertakingmixed-activity holding company and any of the mixed-activity holding company'ssubsidiary
SYSC 12.1.18GRP
Assessment of the adequacy of a group's systems and controls required by this section will form part of the appropriate regulator's risk management process.
SYSC 12.1.20GRP
In some cases the management of the systems and controls used to address the risks described in SYSC 12.1.8R (1) may be organised on a group-wide basis. If the firm is not carrying out those functions itself, it should delegate them to the group members that are carrying them out. However, this does not relieve the firm of responsibility for complying with its obligations under SYSC 12.1.8R (1). A firm cannot absolve itself of such a responsibility by claiming that any breach
SYSC 3.2.6RRP
A firm must take reasonable care to establish and maintain effective systems and controls for compliance with applicable requirements and standards under the regulatory system and for countering the risk that the firm might be used to further financial crime.
SYSC 3.2.6ARRP
5A firm must ensure that these systems and controls:(1) enable it to identify, assess, monitor and manage money laundering risk; and(2) are comprehensive and proportionate to the nature, scale and complexity of its activities.
SYSC 3.2.6BGRP
5"Money laundering risk" is the risk that a firm may be used to further money laundering. Failure by a firm to manage this risk effectively will increase the risk to society of crime and terrorism.
SYSC 3.2.6FGRP
5In identifying its money laundering risk and in establishing the nature of these systems and controls, a firm should consider a range of factors, including:(1) its customer, product and activity profiles;(2) its distribution channels;(3) the complexity and volume of its transactions;(4) its processes and systems; and(5) its operating environment.
SYSC 3.2.6GGRP
5A firm should ensure that the systems and controls include:(1) appropriate training for its employees in relation to money laundering;(2) appropriate provision of information to its governing body and senior management, including a report at least annually by that firm'smoney laundering reporting officer (MLRO) on the operation and effectiveness of those systems and controls;(3) appropriate documentation of its risk management policies and risk profile in relation to money laundering,
SYSC 3.2.6KGRP
14The FCA provides guidance on steps that a firm can take to reduce the risk that it might be used to further financial crime in FC (Financial crime: a guide for firms).
SYSC 3.2.10GRP
(1) Depending on the nature, scale and complexity of its business, it may be appropriate for a firm to have a separate risk assessment function responsible for assessing the risks that the firm faces and advising the governing body and senior managers on them.(2) The organisation and responsibilities of a risk assessment function should be documented. The function should be adequately resourced and staffed by an appropriate number of competent staff who are sufficiently independent
SYSC 3.2.11AGRP
(1) 25A firm's arrangements should be such as to furnish its governing body with the information it needs to play its part in identifying, measuring, managing and controlling risks of regulatory concern. Three factors will be the relevance, reliability and timeliness of that information.(2) Risks of regulatory concern are those risks which relate to the fair treatment of the firm'scustomers, to the protection of consumers, to effective competition and to the integrity of the UK
SYSC 3.2.17GRP
A firm should plan its business appropriately so that it is able to identify, measure, manage and control risks of regulatory concern (see SYSC 3.2.11 G (2)). In some firms, depending on the nature, scale and complexity of their business, it may be appropriate to have business plans or strategy plans documented and updated on a regular basis to take account of changes in the business environment.
BIPRU 9.3.1RRP
(1) Where significant credit risk associated with securitised exposures has been transferred from the originator in accordance with the terms of BIPRU 9.4 or BIPRU 9.5, that originator may:(a) in the case of a traditional securitisation, exclude from its calculation of risk weighted exposure amounts and, as relevant, expected loss amounts, the exposures which it has securitised; and(b) in the case of a synthetic securitisation, calculate risk weighted exposure amounts and, as
BIPRU 9.3.7RRP
1Significant credit risk will be considered to have been transferred for originators in the following cases:(1) the risk weighted exposure amounts of the mezzanine securitisation positions held by the originator in the securitisation do not exceed 50% of the risk weighted exposure amounts of all mezzanine securitisation positions existing in this securitisation;(2) where there are no mezzanine securitisation positions in a given securitisation and the originator can demonstrate
BIPRU 9.3.8RRP
1An originator must notify the appropriate regulator that it is relying on the deemed transfer of significant credit risk under BIPRU 9.3.7R within a reasonable period before or after a relevant transfer, not being later than one month after the date of the transfer. The notification must include the following information: (1) the risk weighted exposure amount of the securitised exposures and retained securitisation positions; (2) the exposure value of the securitised exposures
BIPRU 9.3.11DRP
1An originator's application for a waiver of the requirements in BIPRU 9.3.7R and BIPRU 9.3.8R must demonstrate that the following conditions are satisfied:(1) it has policies and methodologies in place which ensure that the possible reduction of capital requirements which the originator achieves by the securitisation is justified by a commensurate transfer of credit risk to third parties; and(2) that such transfer of credit risk to third parties is also recognised for the purposes
BIPRU 9.3.13GRP
1When considering an application for a waiver of the requirements in BIPRU 9.3.7R and BIPRU 9.3.8R, the appropriate regulator may undertake a visit to the firm in order to examine the firm's risk management and governance arrangements. Before such a visit, the appropriate regulator may request information from the firm additional or supplementary to that provided in the waiver application.
BIPRU 9.3.21GRP
1Subject to BIPRU 9.3.22G, BIPRU 9.15.9R and BIPRU 9.15.10R, where the originator or sponsor of a securitisation fails to meet any of the requirements in BIPRU 9.3.18R to BIPRU 9.3.20R (disclosure requirements) in any material respect by reason of its negligence or omission, the appropriate regulator will use its powers under section 55J (Variation etc on the Authority's own initiative) of the Act to impose an additional risk weight of no less than 250% (capped at 1250%) of the
BIPRU 9.3.22GRP
1When calculating the additional risk weight it will impose, the appropriate regulator will take into account the exemption of certain securitisations from the scope of BIPRU 9.15.3R under BIPRU 9.15.9R and BIPRU 9.15.10R and, if those exemptions are relevant, reduce the risk weight it would otherwise impose.[Note:BCD, Article 122a, paragraph 5]
BIPRU 4.5.5RRP
A firm using the methods set out in BIPRU 4.5.8 R (Slotting) for assigning risk weights for specialised lending exposures is exempt from the requirement to have an obligor rating scale which reflects exclusively quantification of the risk of obligor default for these exposures. Notwithstanding BIPRU 4.4.7 R (Seven grades for exposures to sovereigns, institutions and corporates), a firm must have for these exposures four grades for non-defaulted obligors and one grade for defaulted
BIPRU 4.5.6RRP
(1) A firm using the methods set out in BIPRU 4.5.8 R (Slotting) for assigning risk weights for specialised lending exposures must assign each of these exposures to a grade in accordance with BIPRU 4 Annex 1 R, taking into account the following factors:(a) financial strength;(b) political and legal environment;(c) transaction and/or asset characteristics;(d) strength of the sponsor and developer including any public private partnership income stream; and(e) security package.(2)
BIPRU 4.5.8RRP
For specialised lending exposures in respect of which a firm cannot demonstrate that its PD estimates meet the minimum IRB standards it must assign risk weights to these exposures according to the table in BIPRU 4.5.9 R.[Note:BCD Annex VII Part 1 point 6 (part)]
BIPRU 4.5.10RRP
A firm may generally assign preferential risk weights of 50% to exposures in category 1, and a 70% risk weight to exposures in category 2 if:(1) its IRB permission allows this; and(2) the firm's underwriting characteristics and other risk characteristics are substantially strong for the relevant category.[Note:BCD Annex VII Part 1 point 6 (part)]
BIPRU 4.5.12RRP
The EL values for specialised lending exposures where a firm uses the methods set out in BIPRU 4.5.8 R for assigning risk weights must be assigned according to the table in BIPRU 4.5.13 R.[Note:BCD Annex VII Part 1 point 31 (part)]
BIPRU 4.5.13RRP

Table: Expected loss values for specialised lending

This table belongs to BIPRU 4.5.12 R

Remaining maturity

Category 1 (Strong)

Category 2 (Good)

Category 3 (Satisfactory)

Category 4 (Weak)

Category 5

Less than 2.5 years

0%

0.4%

2.8%

8%

50%

Equal or more than 2.5 years

0.4%

0.8%

2.8%

8%

50%

The coverage of each of the categories is set out in BIPRU 4.5.6 R

[Note:BCD Annex VII Part 1 point 31 (part)]

BIPRU 4.5.14RRP
Where a firm'sIRB permission authorises it generally to assign preferential risk weights as outlined in BIPRU 4.5.10 R of 50% to exposures in category 1, and 70% to exposures in category 2, the EL value for exposures in category 1 must be 0%, and for exposures in category 2 must be 0.4%.[Note:BCD Annex VII Part 1 point 31 (part)]
BIPRU 4.8.13RRP
A firm must have systems and procedures for detecting deteriorations in the seller's financial condition and purchased receivables quality at an early stage, and for addressing emerging problems proactively. In particular a firm must have clear and effective policies, procedures, and information systems to monitor covenant violations, and clear and effective policies and procedures for initiating legal actions and dealing with problem purchased receivables.[Note: BCD Annex VII
BIPRU 4.8.14RRP
A firm must have clear and effective policies and procedures governing the control of purchased receivables, credit, and cash. In particular, written internal policies must specify all material elements of the receivables purchase programme, including the advancing rates, eligible collateral, necessary documentation, concentration limits, and the way cash receipts are to be handled. These elements must take appropriate account of all relevant and material factors, including the
BIPRU 4.8.21RRP
The risk weights for dilution risk for purchased receivables (both corporate exposures and retail exposures) must be calculated according to this rule. The risk weights must be calculated according to the formula in BIPRU 4.4.58 R. However, for the purposes of that formula, the total annual sales referred to in BIPRU 4.4.59 R are the weighted average by individual exposures of the pool. The input parameters PD and LGD and the exposure value must be determined under the applicable
BIPRU 4.8.24RRP
In the case of retail exposures, for dilution risk of purchased receivables PD must be set equal to EL estimates for dilution risk. If a firm can decompose its EL estimates for dilution risk of purchased receivables into PDs and LGDs in a reliable manner, the PD estimate may be used.[Note: BCD Annex VII Part 2 point 19]
BIPRU 4.8.25RRP
The following LGD values apply for purchased corporate exposure receivables:(1) for senior purchased corporate exposure receivables exposures where a firm cannot demonstrate that its PD estimates meet the minimum IRB standards, the value is 45%;(2) for subordinated purchased corporate exposure receivables exposures where a firm cannot demonstrate that its PD estimates meet the minimum IRB standards, the value is 100%; and(3) for dilution risk of purchased corporate exposure receivables,
BIPRU 4.8.26RRP
Notwithstanding BIPRU 4.4.34 R and BIPRU 4.8.25 R, for dilution risk and default risk if a firm is under its IRB permission using the advanced IRB approach for LGD estimates for corporate exposures and it can decompose its EL estimates for purchased corporate exposure receivables into PDs and LGDs in a reliable manner, the LGD estimate for purchased corporate exposure receivables may be used.[Note: BCD Annex VII Part 2 point 9]
BIPRU 4.8.27RRP
For dilution risk of purchased retail exposure receivables an LGD value of 75% must be used. If a firm can decompose its EL estimates for dilution risk of purchased receivables into PDs and LGDs in a reliable manner, the LGD estimate may be used.[Note: BCD Annex VII Part 2 point 21]
BIPRU 4.8.30RRP
The expected loss amounts for dilution risk of purchased receivables must be calculated according to the following formula: expected loss (EL) = PD × LGD; andexpected loss amount = EL × exposure value.[Note: BCD Article 88(5) and Annex VII Part 1 point 35]
BIPRU 4.2.2RRP
A firm's systems for the management and rating of credit risk exposures must be sound and implemented with integrity and, in particular, they must meet the following standards in accordance with the minimum IRB standards:(1) the firm'srating systems provide for a meaningful assessment of obligor and transaction characteristics, a meaningful differentiation of risk and accurate and consistent quantitative estimates of risk;(2) internal ratings and default and loss estimates used
BIPRU 4.2.5GRP
(1) This paragraph provides guidance on BIPRU 4.2.2 R and in particular BIPRU 4.2.2 R (1).(2) The information that a firm produces or uses for the purpose of the IRB approach should be reliable and take proper account of the different users of the information produced (customers, shareholders, regulators and other market participants).(3) A firm should establish quantified and documented targets and standards, against which it should test the accuracy of data used in its rating
BIPRU 4.2.7GRP
(1) This paragraph provides guidance on BIPRU 4.2.2 R and in particular BIPRU 4.2.2 R (2).(2) The IRB approach as applicable to a firm should be an integral part of its business and risk management processes and procedures to the extent that credit risk is relevant to them. It should also have a substantial influence on its decision-making and actions.21(a) particular regard should be had to the use of the IRB approach in: (i) credit approval;(ii) individual and portfolio limit
BIPRU 4.2.8GRP
This paragraph provides further guidance on BIPRU 4.2.2 R and in particular BIPRU 4.2.2 R (2). In the appropriate regulator's view risk management has an essential role in informing risk decisions. However, an essential role does not necessarily mean an exclusive role or even always a primary role. There may be justifiable differences between the IRB approach and the firm's use of rating systems for its internal purposes as referred to in BIPRU 4.2.2 R (2). For example, internal
BIPRU 4.2.10GRP
To the extent that a firm uses LGD estimates in its internal risk management processes that differ from the downturn LGDs used in the calculation of risk weighted assets3 (see BIPRU 4.3.103 R), the reasons for the difference should be documented in accordance with BIPRU 4.3.109 R.
BIPRU 4.2.11RRP
A firm must be able to demonstrate that it has been using for the IRB exposure classes in question rating systems that were broadly in line with the minimum IRB standards for internal risk measurement and management purposes for at least three years prior to the date of its IRB permission.[Note:BCD Article 84(3)]
BIPRU 4.2.18RRP
To the extent that a firm'sIRB permission permits this, implementation may be carried out sequentially across the different IRB exposure classes within the same business unit, across different business units in the same group or for the use of own estimates of LGDs or conversion factors for the calculation of risk weights for the sovereign, institution and corporate IRB exposure class.3[Note:BCD Article 85(1) (part)]
BIPRU 4.2.23RRP
Subject to BIPRU 4.2.17 R - BIPRU 4.2.20 R, BIPRU 4.2.22 R and BIPRU 4.2.26 R, a firm that has an IRB permission must not use the standardised approach for the calculation of risk weighted exposure amounts for the exposures to which the IRB approach applies under the IRB permission.[Note:BCD Article 85(4)]1
BIPRU 4.2.26RRP
(1) To the extent that its IRB permission permits this, a firm permitted to use the IRB approach in the calculation of risk weighted exposure amounts and expected loss amounts3 for one or more IRB exposure classes may apply the standardised approach in accordance with this rule.3(2) A firm may apply the standardised approach to the IRB exposure class referred to in BIPRU 4.3.2 R (1) (Sovereigns) where the number of material counterparties is limited and it would be unduly burdensome
BIPRU 4.10.4RRP
(1) Where the requirements of BIPRU 5.2.2 R - BIPRU 5.2.8 R are met the calculation of risk weighted exposure amounts, and, as relevant, expected loss amounts, may be modified in accordance with BIPRU 5 as modified by BIPRU 4.10.(2) No exposure in respect of which credit risk mitigation is obtained must produce a higher risk weighted exposure amount or expected loss amount than an otherwise identical exposure in respect of which there is no credit risk mitigation.(3) Where the
BIPRU 4.10.6RRP
(1) Residential real estate property which is or will be occupied or let by the owner or the beneficial owner in the case of personal investment companies and commercial real estate property, that is offices and other commercial premises, may be recognised as eligible collateral where the conditions set out in the remaining provisions of this paragraph are met.(2) The value of the property must not materially depend upon the credit quality of the obligor. This requirement does
BIPRU 4.10.15RRP
(1) For the recognition of receivables as collateral the requirements in this paragraph must be met.(2) The legal mechanism by which the collateral is provided must be robust and effective and ensure that the lender has clear rights over the proceeds.(3) A firm must take all steps necessary to fulfil local requirements in respect of the enforceability of security interests. There must be a framework which allows the lender to have a first priority claim over the collateral subject
BIPRU 4.10.19RRP
(1) Where the requirements set out in this paragraph are met, exposures arising from transactions whereby a firm leases property to a third party must be treated the same as loans collateralised by the type of property leased.(2) For the exposures arising from leasing transactions to be treated as collateralised by the type of property leased, the following conditions must be met:(a) the conditions set out or referred to in BIPRU 4.10.13 R or BIPRU 4.10.18 R as appropriate for
BIPRU 4.10.32RRP
(1) This rule sets out how the calculations under BIPRU 5.6.11 R (Using the supervisory volatility adjustments or the own estimates volatility adjustments approaches to master netting agreements covering repurchase transactions and/or securities or commodities lending or borrowing transactions and/or other capital market driven transactions) must be modified under the IRB approach.(2) Where risk weighted exposure amounts and expected loss amounts are calculated under the IRB approach,
BIPRU 4.10.35RRP
(1) This rule sets out how the calculations under BIPRU 5.4.28 R (Calculating adjusted values under the financial collateral comprehensive method) must be modified under the IRB approach.(2) E as referred to in the provisions listed in (1) is the exposure value as would be determined under the IRB approach if the exposure was not collateralised. For this purpose, where a firm calculates risk weighted exposure amounts under the IRB approach, the exposure value of the items listed
BIPRU 4.10.39RRP
Where risk weighted exposure amounts and expected loss amounts are calculated under the IRB approach, to be eligible a guarantor must be internally rated by a firm in accordance with the provisions of the minimum IRB standards.[Note: BCD Annex VIII Part 1 point 27]
BIPRU 4.10.51RRP
GA as calculated under BIPRU 5.8.11 R is then taken as the value of the protection for the purposes of calculating the effects of unfunded credit protection under the IRB approach.[Note: BCD Annex VIII Part 4 point 8 (part)]
IFPRU 2.3.8GRP
The SREP is a process under which the FCA: (1) reviews the arrangements, strategies, processes and mechanisms implemented by a firm to comply with IFPRU, SYSC and with requirements imposed by or under the EUCRR and wider regulatory system and evaluates the risks to which the firm is, or might be, exposed;(2) determines whether the arrangements, strategies, processes and mechanisms implemented by the firm and the capital held by the firm ensures a sound management and coverage
IFPRU 2.3.34GRP
(1) This paragraph applies to a firm that is not a significant IFPRU firm (see IFPRU 1.2.3 R) whose activities are simple and primarily not credit-related.(2) In carrying out its ICAAP it could: (a) identify and consider that firm's largest losses over the last three to five years and whether those losses are likely to recur;(b) prepare a short list of the most significant risks to which that firm is exposed;(c) consider how that firm would act, and the amount of capital that
IFPRU 2.3.35GRP
For a firm that is a significant IFPRU firm (see IFPRU 1.2.3 R1) and whose activities are moderately complex, in carrying out its ICAAP, IFPRU 2.3.34 G (2) to IFPRU 2.3.34 G (4) apply. In addition, it could: 1(1) having consulted the management in each major business line, prepare a comprehensive list of the major risks to which the business is exposed;(2) estimate, with the aid of historical data, where available, the range and distribution of possible losses which might arise
IFPRU 2.3.36GRP
(1) This paragraph applies to a proportional ICAAP in the case of a firm that is a significant IFPRU firm (see IFPRU 1.2.3 R) whose activities are complex.(2) A proportional approach to that firm'sICAAP should cover the matters identified in IFPRU 2.3.34 G and IFPRU 2.3.35 G, but is likely also to involve the use of models, most of which will be integrated into its day-to-day management and operation.(3) Models of the kind referred to in (2) may be linked to generate an overall
IFPRU 2.3.37GRP
IFPRU 2.3.37 G to IFPRU 2.3.47 G set out guidance on some of the sources of risk identified in the overall Pillar 2 rule.IFPRU 2.3.50 R to IFPRU 2.3.54 G1 contain material relating to a firm with an IRB permission.1
IFPRU 2.3.50RRP
A firm with an IRB permission must ensure that there is no significant risk of it being unable to meet its own funds requirements for credit risk under Part Three, Title II of the EU CRR (Capital requirements for credit risk) at all times throughout an economic cycle, including the own funds requirements for credit risk indicated by any stress test carried out under article 177 of the EU CRR (Stress tests used in assessment of capital adequacy for a firm with an IRB permission)
IFPRU 2.3.58GRP
An asset manager is primarily exposed to operational risk and reputational risk.
IFPRU 2.3.59GRP
When assessing reputational risk, an asset manager should consider issues such as: (1) how poor performance can affect its ability to generate profits;(2) the effect on its financial position should one or more of its key fund managers leave that firm; (3) the effect on its financial position should it lose some of its largest customers; and(4) how poor customer services can affect its financial position; for example, a firm which has outsourced the management of customer accounts
IFPRU 2.3.60GRP
As an asset manager's mandates become more complex, the risk of it failing to comply fully with the terms of its contracts increases. In the event of such failure, a firm can be exposed to substantial losses resulting from customers' claims and legal actions. Although the FCA would expect an asset manager to have adequate controls in place to mitigate that risk, it may also like to consider the potential cost to it if customers claim that it has not adhered to mandates. Past claims
IFPRU 2.3.68GRP
A firm may approach its assessment of adequate capital by developing a model, including an ECM (see IFPRU 2.3.36 G), for some or all of its business risks. The assumptions required to aggregate risks modelled and the confidence levels adopted should be considered by a firm'ssenior management. A firm should also consider whether any relevant risks, including systems and control risks, are not captured by the model.
SYSC 19A.3.2GRP
SYSC 12.1.13 R (2)(dA) requires the firm to ensure that the risk management processes and internal control mechanisms at the level of any UK consolidation group or non-EEA sub-group of which a firm is a member comply with the obligations set out in this section on a consolidated (or sub-consolidated) basis. In the appropriate regulator's view, the requirement to apply this section at group, parent undertaking and subsidiary undertaking levels (as provided for in SYSC 19A.3.1
SYSC 19A.3.7RRP
A firm must ensure that its remuneration policy is consistent with and promotes sound and effective risk management and does not encourage risk-taking that exceeds the level of tolerated risk of the firm.[Note:3article 92(2)(a) of CRD]3
SYSC 19A.3.12RRP
(1) A 3CRRfirm that is significant in terms of its size, internal organisation and the nature, the scope and the complexity of its activities must establish a remuneration committee. (2) The remuneration committee must be constituted in a way that enables it to exercise competent and independent judgment on remuneration policies and practices and the incentives created for managing risk, capital and liquidity.(3) The chairman and the members of the remuneration committee must
SYSC 19A.3.15ERP
(1) A firm's risk management and compliance functions should have appropriate input into setting the remuneration policy for other business areas. The procedures for setting remuneration should allow risk and compliance functions to have significant input into the setting of individual remuneration awards where those functions have concerns about the behaviour of the individuals concerned or the riskiness of the business undertaken.(2) Contravention of (1) may be relied on as
SYSC 19A.3.16RRP
A firm must ensure that the remuneration of the senior officers in risk management and compliance functions is directly overseen by the remuneration committee referred to in SYSC 19A.3.12 R, or, if such a committee has not been established, by the governing body in its supervisory function.[Note:3article 92(2)(f) of CRD]3
SYSC 19A.3.17GRP
(1) This Remuneration Principle is designed to manage the conflicts of interest which might arise if other business areas had undue influence over the remuneration of employees within control functions. Conflicts of interest can easily arise when employees are involved in the determination of remuneration for their own business area. Where these could arise they need to be managed by having in place independent roles for control functions (including, notably, risk management and
SYSC 19A.3.20RRP
A firm that benefits from exceptional government intervention must ensure that:(1) variable remuneration is strictly limited as a percentage of net revenues when it is inconsistent with the maintenance of a sound capital base and timely exit from government support;(2) it restructures remuneration in a manner aligned with sound risk management and long-term growth, including when appropriate establishing limits to the remuneration of3members of its management body; and3(3) no
SYSC 19A.3.23GRP
(1) This Remuneration Principle stresses the importance of risk adjustment in measuring performance, and the importance within that process of applying judgment and common sense. A firm should ask the risk management function to validate and assess risk-adjustment techniques, and to attend a meeting of the governing body or remuneration committee for this purpose.(2) A number of risk-adjustment techniques and measures are available, and a firm should choose those most appropriate
SYSC 19A.3.35RRP
A firm must ensure that the structure of an employee'sremuneration is consistent with and promotes effective risk management.
SYSC 19A.3.37GRP
Non-financial performance metrics should form a significant part of the performance assessment process and should include adherence to effective risk management and compliance with the regulatory system and with relevant overseas regulatory requirements. Poor performance as assessed by non-financial metrics such as poor risk management or other behaviours contrary to firm values can pose significant risks for a firm and should, as appropriate, override metrics of financial performance.
SYSC 19A.3.52ERP
(1) A firm should reduce unvested deferred variable remuneration when, as a minimum:(a) there is reasonable evidence of employee misbehaviour or material error; or(b) the firm or the relevant business unit suffers a material downturn in its financial performance; or(c) the firm or the relevant business unit suffers a material failure of risk management.(2) For performance adjustment purposes, awards of deferred variable remuneration made in shares or other non-cash instruments
BIPRU 7.6.7RRP
(1) The appropriate position risk adjustment for a position is that listed in the table in BIPRU 7.6.8R against the relevant underlying position.(2) If the firm uses the commodity extended maturity ladder approach or the commodity maturity ladder approach for a particular commodity under BIPRU 7.4 (Commodity PRR) the appropriate position risk adjustment for an option on that commodity is the outright rate applicable to the underlying position (see BIPRU 7.4.26R (Calculating the
BIPRU 7.6.8RRP

Table: Appropriate position risk adjustment

This table belongs to BIPRU 7.6.7R

Underlying position

Appropriate position risk adjustment

Equity

The position risk adjustment applicable to the underlying equity or equity index in the table in BIPRU 7.3.30R (Simplified equity method)

Interest rate

The sum of the specific risk position risk adjustment (see BIPRU 7.2.43R to BIPRU 7.2.51G (Specific risk calculation)) and the general market risk position risk adjustment (as set out in BIPRU 7.2.57R (General market riskposition risk adjustments)) applicable to the underlying position

Debt securities

The sum of the specific risk position risk adjustment (see BIPRU 7.2.43R to BIPRU 7.2.51G (Specific risk calculation)) and the general market risk position risk adjustment (as set out in the table in BIPRU 7.2.57R (General market riskposition risk adjustments)) applicable to the underlying position

Commodity

18% (unless BIPRU 7.6.7R requires otherwise)

Currency

8%

Gold

8%

CIU

32% (subject to BIPRU 7.6.6R and BIPRU 7.6.7R)
BIPRU 7.6.13RRP

Table: Derived positions

This table belongs to BIPRU 7.6.9R

Underlying

Option (or warrant)

Derived position

Equity

Option (warrant) on a single equity or option on a future/forward on a single equity

A notional position in the actual equity underlying the contract valued at the current market price of the equity.

Option (warrant) on a basket of equities or option on a future/forward on a basket of equities

A notional position in the actual equities underlying the contract valued at the current market price of the equities.

Option (warrant) on an equity index or option on a future/forward on an equity index

A notional position in the index underlying the contract valued at the current market price of the index.

Interest rate

Option on an interest rate or an interest rate future/FRA

A zero coupon zero-specific-risk security in the currency concerned with a maturity equal to the sum of the time to expiry of the contract and the length of the period on which the settlement amount of the contract is calculated valued at the notional amount of the contract.

Option on an interest rate swap

A zero coupon zero-specific-risk security in the currency concerned with a maturity equal to the length of the swap valued at the notional principal amount.

Interest rate cap or floor

A zero coupon zero-specific-risk security in the currency concerned with a maturity equal to the remaining period of the cap or floor valued at the notional amount of the contract.

Debt securities

Option (warrant) on a debt security or option on a future/forward on a debt security

The underlying debt security with a maturity equal to the time to expiry of the option valued as the nominal amount underlying the contract at the current market price of the debt security.

Option (warrant) on a basket of debt securities or option on a future/forward on a basket of debt securities

A notional position in the actual debt securities underlying the contract valued at the current market price of the debt securities.

Option (warrant) on an index of debt securities or option on a future/forward on an index of debt securities

A notional position in the index underlying the contract valued at the current market price of the index.

Commodity

Option on a commodity or option on a future/forward on a commodity

An amount equal to the tonnage, barrels or kilos underlying the option with (in the case of a future/forward on a commodity) a maturity equal to the expiry date of the forward or Futures contract underlying the option. In the case of an option on a commodity the maturity of the position falls into Band 1 in the table in BIPRU 7.4.28R (Table: Maturity bands for the maturity ladder approach).

Option on a commodityswap

An amount equal to the tonnage, barrels or kilos underlying the option with a maturity equal to the length of the swap valued at the notional principal amount.

CIU

(These provisions about CIUs are subject to BIPRU 7.6.35R)

Option (warrant) on a single CIU or option on a future/forward on a single CIU

A notional position in the actual CIU underlying the contract valued at the current market price of the CIU.

Option (warrant) on a basket of CIUs or option on a future/forward on a basket of CIUs

A notional position in the actual CIUs underlying the contract valued at the current market price of the CIUs.

Gold

Option on gold or option on a future/forward on gold

An amount equal to the troy ounces underlying the option with (in the case of a future/forward on gold) a maturity equal to the expiry date of the forward or futures contract underlying the option.

Currency

Currency option

The amount of the underlying currency that the firm will receive if the option is exercised converted at the spot rate into the currency that the firm will sell if the option is exercised.
BIPRU 7.6.20RRP
Under the option standard method, the PRR for a purchased option or warrant is the lesser of:(1) the market value of the derived position (see BIPRU 7.6.9R) multiplied by the appropriate position risk adjustment (see BIPRU 7.6.8R); and(2) the market value of the option or warrant.
BIPRU 7.6.21RRP
Under the option standard method, the PRR for a written option or warrant is the market value of the derived position (see BIPRU 7.6.9R) multiplied by the appropriate position risk adjustment (see BIPRU 7.6.8R). This result may be reduced by the amount the option or warrant is out of the money (subject to a maximum reduction to zero).
BIPRU 7.6.27RRP

Table: The hedging method of calculating the PRR (equities, debt securities and gold)

This table belongs to BIPRU 7.6.24R(1) - (3)

PRR

Option or warrantposition

In the money by more than the position risk adjustment

In the money by less than the position risk adjustment

Out of the money or at the money

Long in security or gold

Long put

Zero

Wp

X

Short call

Y

Y

Z

Short in security or gold

Long call

Zero

Wc

X

Short put

Y

Y

Z

Where:

Wp means

{(position risk adjustment-100%) x The underlying position valued at strike price}

+

The market value of the underlying position

Wc means

{(100% +position risk adjustment x The underlying position valued at strike price}

-

The market value of the underlying position

X means

The market value of the underlying position multiplied by the appropriate position risk adjustment

Y means

The market value of the underlying position multiplied by the appropriate position risk adjustment. This result may be reduced by the market value of the option or warrant, subject to a maximum reduction to zero.

Z means

The option hedging method is not permitted; the option standard method must be used.
BIPRU 7.6.30RRP
The option PRR for a written cliquet option is the market value of the derived position (see BIPRU 7.6.9R) multiplied by the appropriate position risk adjustment (see BIPRU 7.6.8R) multiplied by F+1 (see the following provisions of this paragraph). This result may be reduced by the amount the option is out of the money (subject to a maximum reduction to zero). The option PRR for a written cliquet option is therefore defined by the following formula:[position risk adjustment *
BIPRU 7.6.31RRP
If the pay-out to the holder of a quanto option is fixed at the inception of the transaction a firm must add 8% to the position risk adjustment when applying the option standard method.
BIPRU 7.6.35RRP
For the purpose of identifying the appropriate treatment for the purpose of BIPRU 7.6.5R, the underlying position for the purpose of BIPRU 7.6.8R and the derived position under BIPRU 7.6.13R a firm may choose between treating an option on a CIU as being:(1) a position in the CIU itself; or(2) (if the conditions in BIPRU 7.7 (Position risk requirements for collective investment undertakings) for the use of the method in question are satisfied) positions in the underlying investments
BIPRU 7.6.36GRP
(1) This paragraph gives an example of how the appropriate position risk adjustment should be calculated for the purpose of deciding whether or not an option on a CIU is sufficiently in the money for the firm to have a choice whether or not to apply an option PRR. This example assumes that there is no leveraging (see BIPRU 7.7.11R (CIU modified look through method)).(2) Say that the CIU contains underlying equityposition and the firm is using one of the CIU look through methods.
SYSC 6.3.1RRP
A firm must ensure the policies and procedures established under SYSC 6.1.1 R include systems and controls that:1(1) enable it to identify, assess, monitor and manage money laundering risk; and(2) are comprehensive and proportionate to the nature, scale and complexity of its activities.
SYSC 6.3.2GRP
"Money laundering risk" is the risk that a firm may be used to further money laundering. Failure by a firm to manage this risk effectively will increase the risk to society of crime and terrorism.
SYSC 6.3.6GRP
In identifying its money laundering risk and in establishing the nature of these systems and controls, a firm should consider a range of factors, including:1(1) its customer, product and activity profiles;(2) its distribution channels;(3) the complexity and volume of its transactions;(4) its processes and systems; and(5) its operating environment.
SYSC 6.3.7GRP
A firm should ensure that the systems and controls include:1(1) appropriate training for its employees in relation to money laundering;(2) appropriate provision of information to its governing body and senior management, including a report at least annually by that firm'smoney laundering reporting officer (MLRO) on the operation and effectiveness of those systems and controls;(3) appropriate documentation of its risk management policies and risk profile in relation to money laundering,
SYSC 6.3.11GRP
3The FCA provides guidance on steps that a firm can take to reduce the risk that it might be used to further financial crime in FC (Financial crime: a guide for firms).
BIPRU 7.7.4RRP
A firm may rely on a third party to calculate and report PRR capital requirements for position risk (general market risk and specific risk) for positions in CIUs falling within BIPRU 7.7.9R and BIPRU 7.7.11R, in accordance with the methods set out in BIPRU 7.7, provided that the correctness of the calculation and the report is adequately ensured.
BIPRU 7.7.5RRP
Without prejudice to other provisions in BIPRU 7.7, a position in a CIU is subject to a collective investment undertaking PRR (general market risk and specific risk) of 32%. Without prejudice to provisions in BIPRU 7.5.18R (Foreign currency PRR for CIUs) or, if the firm has a VaR model permission, BIPRU 7.10.44R (Commodity risks and VaR models) taken together with BIPRU 7.5.18R, where the modified gold treatment set out in those rules is used, a position in a CIU is subject to
BIPRU 7.7.9RRP
(1) Where a firm is aware of the underlying investments of the CIU on a daily basis the firm may look through to those underlying investments in order to calculate the securities PRR for position risk (general market risk and specific risk) for those positions in accordance with the methods set out in the securities PRR requirements or, if the firm has a VaR model permission, in accordance with the methods set out in BIPRU 7.10 (Use of a Value at Risk Model).(2) Under this approach,
BIPRU 7.7.10RRP
(1) A firm may calculate the securities PRR for position risk (general market risk and specific risk) for positions in CIUs in accordance with the methods set out in the securities PRR requirements or, if the firm has a VaR model permission, in accordance with the methods set out in BIPRU 7.10 (Use of a Value at Risk Model), to assumed positions representing those necessary to replicate the composition and performance of the externally generated index or fixed basket of equities
BIPRU 7.7.11RRP
Where a firm is not aware of the underlying investments of the CIU on a daily basis, the firm may calculate the securities PRR for position risk (general market risk and specific risk) in accordance with the methods set out in the securities PRR requirements, subject to the following conditions:(1) it must be assumed that the CIU first invests to the maximum extent allowed under its mandate in the asset classes attracting the highest securities PRR for position risk (general market
BIPRU 3.5.1GRP
This section (BIPRU 3.5) sets out a simplified approach to calculating risk weights. This approach is only relevant to an exposure class for which risk weights are determined by the ratings of a nominated ECAI or an export credit agency. For other exposure classes a firm should use the normal approach under the standardised approach.
BIPRU 3.5.3GRP
Rather than risk weightingexposures individually, a firm eligible to apply the simplified approach should apply a single risk weight to all exposures in each exposure class. The simplified risk weight for exposures in a particular class will be the risk weighting for unrated entities for each exposure class in which the external credit assessments influence risk weights.
BIPRU 3.5.4GRP
The table in BIPRU 3.5.5 G has a summary of the risk weights that a firm should use if it uses the simplified method of calculating risk weights referred to in BIPRU 3.5.1 G.
BIPRU 3.5.5GRP

Table : Simplified method of calculating risk weights

This table belongs to BIPRU 3.5.4 G.

Exposure class

Exposure sub-class

Risk weights

Comments

Central government

Exposures to United Kingdom government or Bank of England in sterling

0%

Exposures to United Kingdom government or Bank of England in the currency of another EEA State

0%

See Note 2.

Exposures to EEA State's central government or central bank in currency of that state

0%

Exposures to EEA State's central government or central bank in the currency of another EEA State

0%

See Notes 2 and 3.

Exposures to central governments or central banks of certain countries outside the EEA in currency of that country

See next column

The risk weight is whatever it is under local law. See BIPRU 3.4.6 R for precise details.

Exposures to European Central Bank

0%

Other exposures

100%

Regional/local governments

Exposures to the Scottish Parliament, National Assembly for Wales and Northern Ireland Assembly in sterling

0%

Exposures to the Scottish Parliament, National Assembly for Wales and Northern Ireland Assembly in the currency of another EEA State

0%

See Note 2.

Exposures to EEA States' equivalent regional/local governments in currency of that state

0%

See BIPRU 3.4.17 R for details of type of local/regional government covered.

Exposures to EEA States' equivalent regional/local governments in the currency of another EEA State

0%

See BIPRU 3.4.17 R for details of type of local/regional government covered.

See Notes 2 and 3.

Exposures to local or regional governments of certain countries outside the EEA in currency of that country

0%

See BIPRU 3.4.19 R for details of type of local/regional government covered.

See Note 1.

Exposures to United Kingdom or EEA States' local/regional government in currency of that state if the exposure has original effective maturity of 3 months or less

20%

Exposures to United Kingdom or EEA States' local/regional government in the currency of another EEA State if the exposure has original effective maturity of 3 months or less

20%

See Note 2. See Note 3 for local/regional government of an EEA State other than the United Kingdom

Exposures to local or regional governments of countries outside the EEA in currency of that country if the exposure has original effective maturity of 3 months or less

20%

See Note 1.

Other exposures

100%

PSE

Exposures to a PSE of the United Kingdom or of an EEA State if that PSE is guaranteed by its central government and if the exposure is be in currency of that PSE's state.

0%

BIPRU 3.4.24 R describes the United KingdomPSEs covered and BIPRU 3.4.25 R describes the EEAPSEs covered.

Exposures to PSE of a country outside the EEA if that PSE is guaranteed by the country's central government and if the exposure is in currency of that country.

0%

See BIPRU 3.4.26 R and Note 1.

Exposures to a PSE of the United Kingdom or of an EEA State in currency of that state if the exposure has original effective maturity of 3 months or less

20%

Exposures to a PSEof the United Kingdom or of an EEA State in the currency of another EEA State if the exposure has original effective maturity of 3 months or less

20%

See Notes 2 and 3.

Exposures to PSE of a country outside the EEA in currency of that country if the exposure has original effective maturity of 3 months or less

20%

See Note 1.

Other exposures

100%

Multilateral development banks

Exposures to multilateral development banks listed in paragraph (1) of the Glossary definition

0%

Simplified approach does not apply. Normal rules apply.

Other exposures

Various

Treated as an institution

EU2, the International Monetary Fund and the Bank for International Settlements

2

0%

Simplified approach does not apply. Normal rules apply.

Institutions

Exposures to United Kingdominstitution in sterling with original effective maturity of three months or less

20%

Exposures to United Kingdominstitution in the currency of another EEA State with original effective maturity of three months or less

20%

See Note 2.

Exposures to institution whose head office is in another EEA State in the currency of that state with original effective maturity of three months or less

20%

Exposures to institution whose head office is in another EEA State in the currency of another EEA State with original effective maturity of three months or less

20%

See Notes 2 and 3.

Exposures to institution with a head office in a country outside the EEA in the currency of that country with original effective maturity of three months or less

20%

See Note 1.

Exposures to United Kingdominstitution in sterling with original effective maturity of over three months

50%

Exposures to United Kingdominstitution in the currency of another EEA State with original effective maturity of over three months

50%

See Note 2.

Exposures to an EEAinstitution with a head office in another EEA State in the currency of that state with original effective maturity of over three 1months

50%

Exposures to an EEAinstitution with a head office in another EEA State in the currency of another EEA State with original effective maturity of over three1 months

50%

See Notes 2 and 3.

Exposures to institution with a head office in a country outside the EEA in the currency of that country with original effective maturity of over three1 months

50%

See Note 1.

Other exposures

100%

Corporates

100%

Retail exposures

75%

Simplified approach does not apply. Normal rules apply.

Mortgages on residential or commercial property

Various

Simplified approach does not apply. Normal rules apply.

Past due items

Various

Simplified approach does not apply. Normal rules apply.

High risk items

150%

Simplified approach does not apply. Normal rules apply.

Covered bonds

Various

Risk weights are based on the risk weight of issuer as described in BIPRU 3.4.110 R. The risk weight of the issuer for this purpose should be calculated under the simplified approach.

Securitisationexposures

Generally 1250%. May look through to underlying exposures if BIPRU 9 allows.

Use the BIPRU 9rules for unrated exposures under the standardised approach

Short term exposures with rating

See BIPRU 3.4.112 R. Not applicable as uses ECAI ratings.

CIUs

May look through to underlying under BIPRU 3.4.123 R

Various

Simplified approach does not apply. Normal rules apply. May use simplified approach to underlying if simplified approach applies to underlying.

May use average risk weight under BIPRU 3.4.124 R

Various

Simplified approach does not apply. Normal rules apply. May use simplified approach to underlyings if simplified approach applies to underlying.

High risk under BIPRU 3.4.118 R

150%

Simplified approach does not apply. Normal rules apply.

Others

100%

Other items under BIPRU 3.2.9 R (16)

Various

Simplified approach does not apply. Normal rules apply.

Note 1: The risk weight should not be lower than the risk weight that applies for national currency exposures of the central government of the third country in question under BIPRU 3.5. That means that this risk weight only applies if the third country is one of those to which BIPRU 3.4.6 R (Preferential risk weight for exposures of the central government of countries outside the EEA that apply equivalent prudential standards) applies.

Note 2: This is a transitional measure. It lasts until 31 December 2012.

Note 3: The risk weight should not be lower than the risk weight that applies for exposures of the central government of the EEA State in question in the currency of another EEA State under BIPRU 3.5.
BIPRU 3.5.7GRP
If an exposure is collateralised and if under BIPRU 5 the firm may recognise the collateral, the simplified approach may be used to determine the risk weight to be applied to the collateralised exposure. The key provisions are BIPRU 5.4.18 R to BIPRU 5.4.21 R.
BIPRU 4.9.2RRP
The following must be calculated in accordance with BIPRU 9 (Securitisation):(1) risk-weighted exposure amounts for securitisedexposures and for exposures belonging to the IRB exposure class referred to in BIPRU 4.3.2 R (6) (securitisation positions); and(2) the expected loss amounts for securitisedexposures.[Note: BCD Article 87(10) and Article 88(3)]
BIPRU 4.9.3RRP
Where a firm provides credit protection for a number of exposures under terms that the nth default among the exposures shall trigger payment and that this credit event shall terminate the contract, if the product has an external credit assessment from an eligible ECAI the risk weights set out in BIPRU 9 must be applied. If the product is not rated by an eligible ECAI, the risk weights of the exposures included in the basket must be aggregated, excluding n-1 exposures where the
BIPRU 4.9.6RRP
The risk weighted exposure amounts must be calculated according to the formula:Risk-weighted exposure amount = 100% * exposure value except for when the exposure is a residual value of leased properties1 in which case it must1 be calculated as follows:1/t * 100% * exposure value;where t is the greater of 1 and the nearest number of whole years of the lease remaining.1[Note: BCD Annex VII Part 1 point 27]1
BIPRU 4.9.8RRP
Where a firm has full recourse in respect of purchased receivables for default risk and for dilution risk, to the seller of the purchased receivables, BIPRU 4.8.21 R and BIPRU 4.8.30 R need not be applied. The exposure may instead be treated as a collateralised exposure.[Note: BCD Article 87(2) (part)]
BIPRU 4.9.11RRP
(1) Where exposures in the form of a CIU1 meet the criteria set out in BIPRU 3.4.121 R to BIPRU 3.4.122 R (Conditions for look through treatment under the standardised approach) and the firm is aware of all of the underlying exposures of the CIU, the firm must look through to those underlying exposures in order to calculate risk weighted exposure amounts and expected loss amounts in accordance with the methods set out in BIPRU 4.BIPRU 4.9.12 R applies to the part of the underlying
BIPRU 4.9.12RRP
(1) Where exposures in the form of a CIU do not meet the criteria set out in BIPRU 3.4.121 R to BIPRU 3.4.122 R (Conditions for look through treatment under the standardised approach) or the firm is not aware of all of the underlying exposures of the CIU, a firm must look through to the underlying exposures and calculate risk weighted exposure amounts and expected loss amounts in accordance with the approach set out in BIPRU 4.7.9 R - BIPRU 4.7.12 R (Simple risk weights). If,
MIPRU 4.2BA.5RRP
(1) Economic substance: the risk management and capital treatment of a securitisation must be determined on the basis of its economic substance and not its legal form.(2) Eligible structures: only standalone traditional securitisations are eligible.(3) Eligible underlying assets: term assets (e.g. residential mortgages) originated by the firm are eligible. (4) Effective credit-risk transfer: the securitisation mechanism (e.g. true sale) must effectively transfer the risks of the
MIPRU 4.2BA.9RRP
Policies and procedures: a firm must evaluate and address all risks, including reputational risks, through appropriate policies and procedures, to ensure in particular that the economic substance of the transaction is fully reflected in risk assessments and management decisions.
MIPRU 4.2BA.12RRP
Stress testing: the firm must carry out regular stress testing which takes into account: (1) the firm-wide impact of securitisation activities and exposures in stressed market conditions; and(2) the implications for other sources of risk including, but not limited to, credit risk, concentration risk, counterparty risk, market risk, liquidity risk and reputational risk.
MIPRU 4.2BA.49RRP
Where the firm is unable to determine the risk weights that would be applied to the securitised exposures, it must apply a risk weight of 1250%.
MIPRU 4.2BA.50RRP
(1) A conversion factor of 100% must be applied to the nominal amount of unrated liquidity facilities unless the conditions in MIPRU 4.2BA.51 R or MIPRU 4.2BA.53 R for a conversion factor of 50% or 0% are met. (2) The risk weight to be applied is the highest risk weight that would be applied to any of the securitised exposures by a firm holding those exposures.
MIPRU 4.2BA.51RRP
(1) A conversion factor of 50% may be applied to the nominal amount of an unrated liquidity facility where all the conditions in MIPRU 4.2BA.52 R are met. (2) The risk weight to be applied is the highest risk weight that would be applied to any of the securitised exposures by a firm holding those exposures.
MIPRU 4.2BA.52RRP
The conditions for the application of a conversion factor of 50% are:(1) the liquidity facility documentation must clearly identify and limit the circumstances under which the facility may be drawn;(2) it must not be possible for the facility to be drawn so as to provide credit support by covering losses already incurred at the time of drawdown, for example by providing liquidity for exposures in default at the time of drawdown or by acquiring assets at more than fair value;(3)
BIPRU 7.8.1GRP
BIPRU 7.8 sets out the method for calculating a net underwriting position or reduced net underwriting position, which is then included in the PRR calculation in other parts of BIPRU 7. It also deals with concentration risk. BIPRU 7.8 only relates to new securities, which is defined in BIPRU 7.8.12R.
BIPRU 7.8.2RRP
A firm which underwrites or sub-underwrites an issue of securities must, for the purposes of calculating its market risk capital component and its concentration risk capital component:(1) identify commitments to underwrite or sub-underwrite which give rise to an underwritingposition (see BIPRU 7.8.8R);(2) identify the time of initial commitment (see BIPRU 7.8.13R); and(3) calculate the net underwriting position (set out in BIPRU 7.8.17R), reduced net underwriting position or the
BIPRU 7.8.31RRP
For the purposes of calculating the total amount of its trading bookexposures to a person for concentration risk purposes, a firm must include net underwriting exposure to that person.
BIPRU 7.8.32RRP
A firm must include any other exposures arising out of underwriting (including any counterparty exposures to any sub-underwriters) for the purposes of calculating the total amount of its trading bookexposures to a person for concentration risk purposes.
BIPRU 7.8.33RRP
A firm, before entering into a new underwriting commitment, must be able to recalculate the concentration risk capital component to the level of detail necessary to ensure that the firm'scapital resources requirement does not exceed the firm'scapital resources.
BIPRU 7.8.37RRP
For the purposes of concentration risk monitoring only, a firm must report its net underwriting exposure both before and after the application of the reduction factors in the table in BIPRU 7.8.35R.
REC 2.3.3GRP
In determining whether a UK recognised body has financial resources sufficient for the proper performance of its relevant functions, the FCA5 may have regard to:5(1) the operational and other risks to which the UK recognised body is exposed;(2) if the UK recognised body guarantees the performance of transactions in specified investments, the counterparty and market risks to which it is exposed in that capacity; 5(3) the amount and composition of the UK recognised body's capital;(4)
REC 2.3.6GRP
In assessing whether a UK recognised body has sufficient financial resources in relation to operational and other risks, the FCA5 may have regard to the extent to which, after allowing for the financial resources necessary to cover counterparty and market risks, the UK recognised body's financial resources are sufficient and sufficiently liquid:5(1) to enable the UK recognised body to continue carrying on properly the regulated activities that it expects to carry on; and(2) to
REC 2.3.7GRP
In considering whether a UK recognised body has sufficient financial resources in relation to operational and other risks, the FCA5 will normally have regard to two components: eligible financial resources and net capital.454
REC 2.3.9GRP
4(1) 4The FCA5 considers that a UK RIE which at any time holds:5(a) eligible financial resources not less than the greater of:(i) the amount calculated under the standard approach; and (ii) the amount calculated under the risk-based approach; and (b) net capital not less than the amount of eligible financial resources determined under (1)(a);will, at that time, have sufficient financial resources to meet the recognition requirement in respect of operational and other risks unless
REC 2.3.10GRP
4The FCA5 would expect to provide a UK recognised body with individual guidance on the amount of eligible financial resources which it considers would be sufficient for the UK recognised body to hold in respect of operational and other risks in order to satisfy the recognition requirements. In formulating its individual guidance, the FCA5 will ordinarily apply the approach described in REC 2.3.9 G for UK RIEs.5555
REC 2.3.17GRP
4The financial risk assessment should be based on a methodology which provides a reasonable estimate of the potential business losses which a UK RIE might incur in stressed but plausible market conditions. The FCA5 would expect a UK RIE to carry out a financial risk assessment at least once in every twelve-month period, or more frequently if there are material changes in the nature, scale or complexity of the UK RIE's operations or its business plans that suggest such financial
BIPRU 3.2.2RRP
The off-balance sheet items listed in the table in BIPRU 3.7.2 R must be assigned to the risk categories as indicated in that table.[Note: BCD Article 78(1) part]
BIPRU 3.2.10RRP
To be eligible for the retail exposure class, an exposure must meet the following conditions:(1) the exposure must be either to an individual person or persons, or to a small or medium sized entity;(2) the exposure must be one of a significant number of exposures with similar characteristics such that the risks associated with such lending are substantially reduced; and(3) the total amount owed to the firm, its parent undertakings and its subsidiary undertakings, including any
BIPRU 3.2.14GRP
A key driver of the preferential risk weight afforded retail exposures is the lower correlation and systematic risk associated with such exposures. This aspect is unrelated to the absolute number of retail exposures. Accordingly in defining what constitutes a significant number of retail exposures for the purpose of BIPRU 3.2.10 R (2), a firm need only satisfy itself that the number of retail exposures is sufficiently large to diversify away idiosyncratic risk. This assessment
BIPRU 3.2.27ARRP
(1) 2For the purpose of BIPRU 3.2.25R (1)(e), a firm must be able on an ongoing basis to demonstrate fully to the appropriate regulator the circumstances and arrangements, including legal arrangements, by virtue of which there are no material practical or legal impediments, and none are foreseen, to the prompt transfer of capital resources or repayment of liabilities from the counterparty to the firm. (2) In relation to a counterparty that is not a firm, the arrangements referred
BIPRU 3.2.28GRP
For the purpose of BIPRU 3.2.25 R (1)(c) it is the risk management functions of the group that should be integrated, rather than the group's operational management. A firm should ensure that if risk management functions are integrated in this way it should be possible for the appropriate regulator to undertake qualitative supervision of the management of the integrated risk management function.
BIPRU 3.2.37GRP
BIPRU 3 Annex 1 G is a flow chart guide to assessing whether an intra-group exposure can be zero risk weighted using the standardised approach subject to the conditions set out in BIPRU 3.2.25 R - BIPRU 3.2.35 R.
BIPRU 7.3.11GRP
(1) An example of BIPRU 7.3.10R is as follows. The current market value of a particular equity is £2.50. If a firm contracts to sell this equity in five year's time for £3 it would treat the notional short equityposition as having a value of £2.50 when calculating the equity PRR.(2) In effect, the forward position has been treated as being equivalent to a spot position for the purposes of calculating equity PRR. To capture the risk that the forward price changes relative to the
BIPRU 7.3.29RRP
Under the simplified equity method, the PRR for each equity, equity index, or equity basket equals the market value of the net position (ignoring the sign) multiplied by the appropriate position risk adjustment from the table in BIPRU 7.3.30R. The result must be converted into the firm'sbase currency at current spot foreign currency rates.
BIPRU 7.3.30RRP

Table: simplified equity method position risk adjustments

This table belongs to BIPRU 7.3.29R

Instrument

Position risk adjustment

Single equities

16%2

2

Qualifying equity indices2 (see BIPRU 7.3.38R)

2

8%

All other equity indices or baskets

16%2

2

If it is necessary to distinguish between the specific risk position risk adjustment and the general market risk position risk adjustment, the specific risk position risk adjustment for the first and third rows is 8%2 and that for the second row is 0%. The rest of the position risk adjustment in the second column is the general market risk position risk adjustment

2
BIPRU 7.3.32RRP
Under the standard equity method, a firm must:(1) group equitypositions into country portfolios as follows:(a) a position in an individual equity belongs to:(i) the country it is listed in;(ii) any of the countries it is listed in, if more than one; or(iii) the country it was issued from, if unlisted;(b) a position in an equity basket or index that is treated under BIPRU 7.3.15R(2), is allocated to one or more country portfolios based on the countries to which the underlying equities
BIPRU 7.3.33RRP
Under the standard equity method, a firm must calculate a PRR for specific risk based on the net position in each equity, equity index or equity basket by multiplying its market value (ignoring the sign) by the appropriate position risk adjustment from the table in BIPRU 7.3.34R.
BIPRU 7.3.34RRP

Table: position risk adjustment for specific risk under the standard equity method

This table belongs to BIPRU 7.3.33R1

Instrument

Position risk adjustment

Qualifying equity indices2 (see BIPRU 7.3.38R)

2

0%

All equities, and other2equity indices or equity2 baskets

22

8%2

2
BIPRU 7.3.48RRP
If a firm nets off positions in one or more of the equities constituting an equity index future, forward or CFD against one or more positions in the equity index future, forward or CFD itself, the firm must apply an additional equity PRR to the netted position to cover the risk of loss caused by the value of the future, forward or CFD not moving fully in line with that of its constituent equities. The same applies if a firm holds opposite positions in a future, forward or CFD
LR 15.2.2RRP
An applicant must invest and manage its assets in a way which is consistent with its object of spreading investment risk.
LR 15.2.4AGRP
1Although there is no restriction on an applicant taking a controlling stake in an investee company, to ensure a spread of investment risk an applicant should avoid:(1) cross-financing between the businesses forming part of its investment portfolio including, for example, through the provision of undertakings or security for borrowings by such businesses for the benefit of another; and(2) the operation of common treasury functions as between the applicant and investee compani
LR 15.2.6RRP
1(1) If an applicant principally invests its funds in another company or fund that invests in a portfolio of investments (a "master fund"), the applicant must ensure that:1(a) the master fund's investment policies are consistent with the applicant's published investment policy and provide for spreading investment risk; and1(b) the master fund in fact invests and manages its investments in a way that is consistent with the applicant's published investment policy and spreads investment
LR 15.2.7RRP
An applicant must have a published investment policy that contains information about the policies which the closed-ended investment fund will follow relating to asset allocation, risk diversification, and gearing, and that includes maximum exposures.
LR 15.2.8GRP
The information in the investment policy, including quantitative information concerning the exposures mentioned in LR 15.2.7 R, should be sufficiently precise and clear as to enable an investor to:(1) assess the investment opportunity;(2) identify how the objective of risk spreading is to be achieved; and(3) assess the significance of any proposed change of investment policy.