Content Options:

Content Options

CHAPTER II TECHNICAL PRINCIPLES

Article 3 Elimination of multiple gearing and the intra-group creation of own funds

Own funds which result directly or indirectly from intra-group transactions shall not be included when calculating the supplementary capital adequacy requirements at the level of a financial conglomerate.

Article 4 Transferability and availability of own funds

  1. (1)

    Own funds recognised at the level of a regulated entity, that exceed those needed to meet sectoral solvency requirements as specified in Article 9, shall not be included in the calculation of the own funds of a financial conglomerate, or of the sum of the own funds of each regulated and non-regulated financial sector entity in a financial conglomerate, unless there is no current or foreseen practical or legal impediment to the transfer of the funds between entities in the financial conglomerate.

  2. (2)

    The entity referred to in Rule 12.1 of the Regulatory Reporting Part of the PRA Rulebook and rules 16.12.32R and 16.12.33R of the FCA Supervision manual shall, when submitting the results of the calculation and the relevant data for the calculation referred to in that Rule to the coordinator, confirm and provide evidence to the coordinator that paragraph 1 is complied with.

Article 5 Sector specific own funds

  1. (1)

    Own funds referred to in paragraph 2 which are available at the level of a regulated entity shall be eligible for the coverage of risks arising from the sector that recognises those own funds, and shall not be taken into account as eligible for the coverage of risks of other financial sectors.

  2. (2)

    The own funds referred to in paragraph 1 are own funds that are not the following:

    1. (a)

      Common Equity Tier 1, Additional Tier 1 or Tier 2 items within the meaning of Regulation (EU) No 575/2013;

    2. (b)

      basic own-fund items of insurance undertakings or reinsurance undertakings within the meaning of section 417 of FSMA where those items are classified in Tier 1 or in Tier 2 in accordance with Rules 3.1 and 3.2 of the Own Funds Part of the PRA Rulebook.

Article 6 Deficit of own funds at the financial conglomerate level

  1. (1)

    Where there is a deficit of own funds at the financial conglomerate level, only own fund items that are eligible under the sectoral rules for both the banking and investment sector (taken together)1, and the insurance sector shall be used to meet that deficit.

  2. (2)

    The own funds referred to in paragraph 1 are the following:

    1. (a)

      Common Equity Tier 1 capital as defined in Article 50 of Regulation (EU) No 575/2013;

    2. (b)

      basic own-fund items where those items may be included in Tier 1 own funds in accordance with Rule 3.1 of the Own Funds Part of the PRA Rulebook or MIFIDPRU 3 (as applicable)1, and the inclusion of those items is not limited by Article 82 of Regulation (EU) 2015/35;

    3. (c)

      Additional Tier 1 capital as defined in Article 61 of Regulation (EU) No 575/2013;

    4. (d)

      basic own-fund items where those items may be included in Tier 1 own funds in accordance Rule 3.1 of the Own Funds Part of the PRA Rulebook or MIFIDPRU 3 (as applicable)1, and the inclusion of those items is limited by Article 82 of Regulation (EU) 2015/35;

    5. (e)

      Tier 2 capital as defined in Article 71 of Regulation (EU) No 575/2013; and

    6. (f)

      basic own-fund items where those items may be included in Tier 2 in accordance with Rule 3.2 of the Own Funds Part of the PRA Rulebook or MIFIDPRU 3 (as applicable).1

  3. (3)

    Own funds items that are used to meet the deficit shall comply with Article 4(1).

Article 7 Consistency

The regulated entities or the mixed financial holding company in a financial conglomerate shall apply the calculation method in a consistent manner over time.

Article 8 Consolidation

In relation to insurance conglomerates, method 1 for calculating the group solvency of insurance and reinsurance undertakings, as laid down in Chapter 11 of the Group Supervision Part of the PRA Rulebook, shall be considered as equivalent to method 1 for calculating the supplementary capital adequacy requirements of the regulated entities in a financial conglomerate, as laid down in Annex 2 (Table 1) of the Financial Conglomerates Part of the PRA Rulebook and Annex 1R (Table 1) of Chapter 3 of the FCA General Prudential sourcebook, provided that the scope of group supervision under the Group Supervision Part of the PRA Rulebook and the Solvency 2 Regulations 2015 (Part 3) is not materially different from the scope of supplementary supervision under UK legislation implementing Chapter II of Directive 2002/87/EC.

Article 9 Solvency requirement

  1. (1)

    Where the rules for the insurance sector are to be applied, the Solvency Capital Requirement referred to in Chapters 2 and 3 of the Solvency Capital Requirement - General Provisions Part and Chapter 4 of the Group Supervision Part of the PRA Rulebook including any capital add-on applied in accordance with Regulation 20 of the Solvency 2 Regulations 2015 or under sections 55L or 55M of FSMA shall be considered to be the solvency requirements; for the purpose of the calculation of the supplementary capital adequacy requirements.

  2. (2)

    Where the rules for the banking or investment services sector are to be applied,

    1. (a)

      own funds requirements as laid down in Chapter 1 of Title I of Part Three of Regulation (EU) No 575/2013 or MIFIDPRU 4 1 (as applicable), and

    2. (b)

      requirements pursuant to that Regulation or to Directive 2013/36/EU UK law, or to MIFIDPRU (as applicable) 1 to hold own funds in excess of those requirements, including

      1. (i)

        a requirement arising from the internal capital adequacy assessment process in the Internal Capital Adequacy Assessment Part of the PRA Rulebook or from compliance with the requirements of MIFIDPRU 7 (as applicable)1,

      2. (ii)

        any requirement imposed by a competent authority pursuant to Regulation 34 of the Capital Requirements Regulations 2013 or under sections 55L or 55M of FSMA,

      3. (iii)

        the combined buffer requirement as defined in Regulation 2 of the Capital Requirements (Capital Buffers and Macro-prudential Measures) Regulations 2014, and

      4. (iv)

        measures adopted pursuant to Articles 458 or 459 of Regulation (EU) No 575/2013

shall be considered to be the solvency requirements for the purpose of the calculation of the supplementary capital adequacy requirements

Article 10 The financial conglomerate's own funds and solvency requirements

  1. (1)

    Subject to paragraphs 7, 8 and 9 of Article 14, the financial conglomerate's own funds and solvency requirements shall be calculated in accordance with the definitions and limits established in the relevant sectoral rules.

  2. (2)

    The own funds of asset management companies shall be calculated in accordance with the UK legislation implementing Article 2(1)(l) of Directive 2009/65/EC of the European Parliament and of the Council. The solvency requirements of asset management companies shall be the requirements set out in the UK legislation implementing Article 7(1)(a) of that Directive.

  3. (3)

    The own funds of alternative investment fund managers shall be calculated in accordance with the UK legislation implementing Article 4(1)(ad) of Directive 2011/61/EU of the European Parliament and of the Council. The solvency requirements of alternative investment fund managers shall be the requirements set out in the UK legislation implementing Article 9 of that Directive.

Article 11 Treatment of cross sector holdings

  1. (1)

    Where an entity in a banking- or investment-led financial conglomerate has a holding in a financial sector entity which belongs to the insurance sector and which is deducted pursuant to Articles 14(3) or 15(3) no supplementary capital adequacy requirement shall arise in respect of that holding at the level of the financial conglomerate.

  2. (2)

    Where the application of paragraph 1 results in a direct change in the expected loss amount under the Internal Ratings Based approach within the meaning of Chapter 3 of Title II of Part Three of Regulation (EU) No 575/2013, an amount equivalent to that change shall be added to the own funds of the financial conglomerate.

Article 12 Notional own funds and notional solvency requirements for non-regulated financial sector entities

  1. (1)

    Where a mixed financial holding company has a holding in a non-regulated financial sector entity, the notional own funds and the notional solvency requirements for that entity shall be calculated in accordance with the sectoral rules of the most important sector in the financial conglomerate.

  2. (2)

    For a non-regulated financial sector entity other than one referred to in paragraph 1, the notional own funds and the notional solvency requirements shall be calculated in accordance with the sectoral rules of the closest financial sector of the non-regulated financial sector entity. The determination of the closest financial sector shall be based on the range of activities of the relevant entity and the extent to which it carries out those activities. If it is not possible to clearly identify the closest financial sector, the sectoral rules of the most important sector in the financial conglomerate shall be used.

Article 13 Sectoral transitional and grandfathering arrangements

The sectoral rules applied in the calculation of the supplementary capital adequacy requirements shall include any transitional or grandfathering provisions that apply at sectoral level.