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[X1PART ONE U.K. GENERAL PROVISIONS

TITLE II U.K. LEVEL OF APPLICATION OF REQUIREMENTS

CHAPTER 1 U.K. Application of requirements on an individual basis

Article 6U.K. General principles

1. Institutions shall comply with the obligations laid down in [F1Part Two, Part Three and Chapter 2 of Regulation (EU) 2017/2402 of the European Parliament and of the Council of 12 December 2017 laying down a general framework for securitisation and creating a specific framework for simple, transparent and standardised securitisation (provisions applicable to all securitisations)] on an individual basis.

[F21a. By way of derogation from paragraph 1 of this Article, only institutions identified as resolution entities that are also G-SIIs or that are part of a G-SII, and that do not have subsidiaries shall comply with the requirement laid down in Article 92a on an individual basis.

Material subsidiaries of a [F3non-UK] G-SII shall comply with Article 92b on an individual basis, where they meet all the following conditions:

(a) they are not resolution entities;

(b) they do not have subsidiaries;

(c) they are not the subsidiaries of [F4a UK parent institution].]

2. No institution which is either a subsidiary [F5authorised and supervised in the United Kingdom], or a parent undertaking, and no institution included in the consolidation pursuant to Article 18, shall be required to comply with the obligations laid down in Articles 89, 90 and 91 on an individual basis.

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Article 7U.K. Derogation from the application of prudential requirements on an individual basis

1. Competent authorities may waive the application of Article 6(1) to any subsidiary of an institution, where both the subsidiary and the institution are subject to authorisation and supervision [F7in the United Kingdom], and the subsidiary is included in the supervision on a consolidated basis of the institution which is the parent undertaking, and all of the following conditions are satisfied, in order to ensure that own funds are distributed adequately between the parent undertaking and the subsidiary:

(a) there is no current or foreseen material practical or legal impediment to the prompt transfer of own funds or repayment of liabilities by its parent undertaking;

(b) either the parent undertaking satisfies the competent authority regarding the prudent management of the subsidiary and has declared, with the permission of the competent authority, that it guarantees the commitments entered into by the subsidiary, or the risks in the subsidiary are of negligible interest;

(c) the risk evaluation, measurement and control procedures of the parent undertaking cover the subsidiary;

(d) the parent undertaking holds more than 50 % of the voting rights attached to shares in the capital of the subsidiary or has the right to appoint or remove a majority of the members of the management body of the subsidiary.

2. Competent authorities may exercise the option provided for in paragraph 1 [F8where the parent undertaking of the subsidiary is a UK financial holding company or a UK mixed financial holding company], provided that it is subject to the same supervision as that exercised over institutions, and in particular to the standards laid down in Article 11(1).

3. Competent authorities may waive the application of Article 6(1) to a [F9UK parent institution, where] it is included in the supervision on a consolidated basis, and all the following conditions are satisfied, in order to ensure that own funds are distributed adequately among the parent undertaking and the subsidiaries:

(a) there is no current or foreseen material practical or legal impediment to the prompt transfer of own funds or repayment of liabilities to the [F10UK parent institution];

(b) the risk evaluation, measurement and control procedures relevant for consolidated supervision cover the [F11UK parent institution].

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F13 Article 8 U.K. Derogation from the application of liquidity requirements on an individual basis

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Article 9 U.K. Individual consolidation method

1 . Subject to [F14paragraph 2] of this Article F15..., the competent authorities may permit on a case-by-case basis parent institutions to incorporate in the calculation of their requirement under Article 6(1), subsidiaries which meet the conditions laid down in points (c) and (d) of Article 7(1) and whose material exposures or material liabilities are to that parent institution.

2 . The treatment set out in paragraph 1 shall be permitted only where the parent institution demonstrates fully to the competent authorities the circumstances and arrangements, including legal arrangements, by virtue of which there is no current or foreseen material practical or legal impediment to the prompt transfer of own funds, or repayment of liabilities when due by the subsidiary to its parent undertaking.

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F17Article 10 U.K. Waiver for credit institutions permanently affiliated to a central body

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[F18Article 10AU.K.Application of prudential requirements on a consolidated basis where FCA investment firms are parent undertakings

For the purposes of the application of this Chapter, FCA investment firms are to be considered to be UK parent financial holding companies where they are parent undertakings of an institution.]

Textual Amendments

CHAPTER 2 U.K. Prudential consolidation

Section 1 U.K. Application of requirements on a consolidated basis

Article 11 U.K. General treatment

[F191.[F20UK parent institutions] shall comply, to the extent and in the manner set out in Article 18, with the obligations laid down in [F21Parts Two and Three on the basis of their consolidated situation]. The parent undertakings and their subsidiaries that are subject to this Regulation shall set up a proper organisational structure and appropriate internal control mechanisms in order to ensure that the data required for consolidation are duly processed and forwarded. In particular, they shall ensure that subsidiaries not subject to this Regulation implement arrangements, processes and mechanisms to ensure proper consolidation.

2. For the purpose of ensuring that the requirements of this Regulation are applied on a consolidated basis, the terms ‘ institution ’, [F22‘UK parent institution’] and ‘ parent undertaking ’, as the case may be, shall also refer to:

(a) a financial holding company or mixed financial holding company approved in accordance with Article 21a of Directive 2013/36/EU [F23UK law];

(b) a designated institution controlled by a parent financial holding company or parent mixed financial holding company where such a parent is not subject to approval in accordance with Article 21a(4) of Directive 2013/36/EU [F23UK law];

(c) a financial holding company, mixed financial holding company or institution designated in accordance with point (d) of Article 21a(6) of Directive 2013/36/EU [F23UK law].

The consolidated situation of an undertaking referred to in point (b) of the first subparagraph of this paragraph shall be the consolidated situation of the parent financial holding company or the parent mixed financial holding company that is not subject to approval in accordance with Article 21a(4) of Directive 2013/36/EU [F23UK law]. The consolidated situation of an undertaking referred to in point (c) of the first subparagraph of this paragraph shall be the consolidated situation of its parent financial holding company or parent mixed financial holding company.]

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[F23a. By way of derogation from paragraph 1 of this Article, only parent institutions identified as resolution entities that are G-SIIs, part of a G-SII or part of a [F25non-UK G-SII] shall comply with Article 92a of this Regulation on a consolidated basis, to the extent and in the manner set out in Article 18 of this Regulation.

Only [F26UK parent undertakings] that are a material subsidiary of a [F25non-UK G-SII] and are not resolution entities shall comply with Article 92b of this Regulation on a consolidated basis to the extent and in the manner set out in Article 18 of this Regulation. F27...]

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6.[F30In addition to the requirements of paragraphs 1 to 3, the competent authority may require an institution to comply with the obligations mentioned in the third sub-paragraph on a sub-consolidated basis when—

(a)it is justified for supervisory purposes by the specificities of the risk or the capital structure of the institution, or

(b)the institution is a ring-fenced body within the meaning of section 142A(1) of FSMA.]

The application of the approach set out in the first subparagraph shall be without prejudice to effective supervision on a consolidated basis. F31... [F32The obligations mentioned in this sub-paragraph are those provided for in—

(a)Parts [F33Two and Three] of this Regulation;

(b)Directive 2013/36/EU UK law which implemented Title 7, Chapter 4 of Directive 2013/36/EU.]

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F24Article 12U.K. [F24Financial holding company or mixed financial holding company with both a subsidiary credit institution and a subsidiary investment firm]

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[F2 Article 12a U.K. Consolidated calculation for G-SIIs with multiple resolution entities

Where at least two G-SII entities belonging to the same G-SII are resolution entities, the [F34UK parent institution] of that G-SII shall calculate the amount of own funds and eligible liabilities referred to in point (a) of Article 92a(1) of this Regulation. That calculation shall be undertaken on the basis of the consolidated situation of the [F34UK parent institution] as if it were the only resolution entity of the G-SII.

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F36 Article 13U.K. Application of disclosure requirements on a consolidated basis

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[F19 Article 14 U.K. Application of requirements of Article 5 of Regulation (EU) 2017/2402 on a consolidated basis

1 . Parent undertakings and their subsidiaries that are subject to this Regulation shall be required to meet the obligations laid down in Article 5 of Regulation (EU) 2017/2402 on a consolidated or sub-consolidated basis, to ensure that their arrangements, processes and mechanisms required by those provisions are consistent and well-integrated and that any data and information relevant to the purpose of supervision can be produced. In particular, they shall ensure that subsidiaries that are not subject to this Regulation implement arrangements, processes and mechanisms to ensure compliance with those provisions.

2 . Institutions shall apply an additional risk weight in accordance with Article 270a of this Regulation when applying Article 92 of this Regulation on a consolidated or sub-consolidated basis if the requirements laid down in Article 5 of Regulation (EU) 2017/2402 are breached at the level of an entity established in a third country included in the consolidation in accordance with Article 18 of this Regulation if the breach is material in relation to the overall risk profile of the group.]

Textual Amendments

F37 Article 15 U.K. Derogation from the application of own funds requirements on a consolidated basis for groups of investment firms

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F38Article 16U.K. Derogation from the application of the leverage ratio requirements on a consolidated basis for groups of investment firms

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F39 Article 17U.K. Supervision of investment firms waived from the application of own funds requirements on a consolidated basis

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Section 2 U.K. Methods for prudential consolidation

[F19 Article 18]U.K. Methods of prudential consolidation

[F191.Institutions, financial holding companies and mixed financial holding companies that are required to comply with the requirements referred to in Section 1 of this Chapter on the basis of their consolidated situation shall carry out a full consolidation of all institutions and financial institutions that are their subsidiaries. F40...]

[F2For the purposes of Article 11(3a), institutions that are required to comply with the requirements referred to in Article 92a or 92b on a consolidated basis shall carry out a full consolidation of all institutions and financial institutions that are their subsidiaries in the relevant resolution groups.]

[F192. Ancillary services undertakings shall be included in consolidation in the cases, and in accordance with the methods, laid down in this Article.

3. Where undertakings are related [F41by a common management relationship], competent authorities shall determine how consolidation is to be carried out.

4. The consolidating supervisor shall require the proportional consolidation according to the share of capital held of participations in institutions and financial institutions managed by an undertaking included in the consolidation together with one or more undertakings not included in the consolidation, where the liability of those undertakings is limited to the share of the capital they hold.

5. In the case of participations or capital ties other than those referred to in paragraphs 1 and 4, competent authorities shall determine whether and how consolidation is to be carried out. In particular, they may permit or require the use of the equity method. That method shall not, however, constitute inclusion of the undertakings concerned in supervision on a consolidated basis.

6. Competent authorities shall determine whether and how consolidation is to be carried out in the following cases:

(a) where, in the opinion of the competent authorities, an institution exercises a significant influence over one or more institutions or financial institutions, but without holding a participation or other capital ties in those institutions; and

(b) where two or more institutions or financial institutions are placed under single management other than pursuant to a contract, clauses of their memoranda or articles of association.

In particular, competent authorities may permit or require the use of the method provided for in Article 22(7), (8) and (9) of Directive 2013/34/EU [F42, as it had effect immediately before IP completion day]. That method shall not, however, constitute inclusion of the undertakings concerned in consolidated supervision.

7.Where an institution has a subsidiary which is an undertaking other than an institution, a financial institution or an ancillary services undertaking or holds a participation in such an undertaking, it shall apply to that subsidiary or participation the equity method. That method shall not, however, constitute inclusion of the undertakings concerned in supervision on a consolidated basis.

By way of derogation from the first subparagraph, competent authorities may allow or require institutions to apply a different method to such subsidiaries or participations, including the method required by the applicable accounting framework, provided that:

(a)the institution does not already apply the equity method on 28 December 2020;

(b)it would be unduly burdensome to apply the equity method or the equity method does not adequately reflect the risks that the undertaking referred to in the first subparagraph poses to the institution; and

(c)the method applied does not result in full or proportional consolidation of that undertaking.

[F438.Where consolidated supervision is required under this regulation, ancillary services undertakings and asset management companies as defined in Article 4(1)(19) of this regulation must be included in consolidations in the cases, and in accordance with the methods, laid down in this Article.]]

[F29 .[F44The [F45PRA may] make] technical standards to specify conditions in accordance with which consolidation shall be carried out in the cases referred to in paragraphs 3 to 6 and paragraph 8.

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Section 3 U.K. Scope of prudential consolidation

Article 19 U.K. Entities excluded from the scope of prudential consolidation

1 . An institution, a financial institution or an ancillary services undertaking which is a subsidiary or an undertaking in which a participation is held, need not to be included in the consolidation where the total amount of assets and off-balance sheet items of the undertaking concerned is less than the smaller of the following two amounts:

( a ) EUR 10 million;

( b ) 1 % of the total amount of assets and off-balance sheet items of the parent undertaking or the undertaking that holds the participation.

2 .[F47The consolidating supervisor] may on a case-by-case basis decide in the following cases that an institution, financial institution or ancillary services undertaking which is a subsidiary or in which a participation is held need not be included in the consolidation:

( a ) where the undertaking concerned is situated in a third country where there are legal impediments to the transfer of the necessary information;

( b ) where the undertaking concerned is of negligible interest only with respect to the objectives of monitoring institutions;

[X2(c ) where, in the opinion of [F48the consolidating supervisor], the consolidation of the financial situation of the undertaking concerned would be inappropriate or misleading as far as the objectives of the supervision of institutions are concerned.]

3 . Where, in the cases referred to in paragraph 1 and point (b) of paragraph 2, several undertakings meet the criteria set out therein, they shall nevertheless be included in the consolidation where collectively they are of non-negligible interest with respect to the specified objectives.

Editorial Information

Textual Amendments

Article 20 U.K. Joint decisions on prudential requirements

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6 . Where [F50a UK parent institution and its subsidiaries, the subsidiaries of a UK parent financial holding company or a UK parent mixed financial holding company] use an Advanced Measurement Approach referred to in Article 312(2) or an IRB Approach referred to in Article 143 on a unified basis, the competent authorities shall allow the qualifying criteria set out in Articles 321 and 322 or in Part Three, Title II, Chapter 3, Section 6 respectively to be met by the parent and its subsidiaries considered together, in a way that is consistent with the structure of the group and its risk management systems, processes and methodologies.

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F52 Article 21 U.K. Joint decisions on the level of application of liquidity requirements

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F53 Article 22U.K. Sub-consolidation in cases of entities in third countries

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Article 23 U.K. Undertakings in third countries

For the purposes of applying supervision on a consolidated basis in accordance with this Chapter, the terms ‘ investment firm ’ , ‘ credit institution ’ , financial institution', and ‘ institution ’ shall also apply to undertakings established in third countries, which, were they established in the [F54United Kingdom], would fulfil the definitions of those terms in Article 4.

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Article 24 U.K. Valuation of assets and off-balance sheet items

1 . The valuation of assets and off-balance sheet items shall be effected in accordance with the applicable accounting framework.

2 . By way of derogation from paragraph 1, competent authorities may require that institutions effect the valuation of assets and off-balance sheet items and the determination of own funds in accordance with the [F55UK-adopted international accounting standards].]

Textual Amendments

Editorial Information