20(1)This paragraph applies for the purposes of paragraph 19(6) and (12).
(2)In this paragraph “relevant member” means—
(a)a relevant UK banking sub-group,
(b)a UK resident bank covered by paragraph 19(10), or
(c)an entity covered by paragraph 19(11).
(3)Sub-paragraph (4) applies if the members of a relevant UK banking sub-group are also members of one or more larger UK banking sub-groups.
(4)Any equity of the relevant UK banking sub-group is to be left out so far as it would have been eliminated under normal consolidation procedures had consolidated financial statements for the chargeable period been prepared for the larger or largest UK banking sub-group—
(a)under international accounting standards, or
(b)under UK GAAP if the entity which is the parent or parent undertaking for the larger or largest UK banking sub-group prepares its financial statements under UK GAAP.
(5)Sub-paragraph (6) applies if a relevant member within sub-paragraph (2)(b) or (c) is a member of one or more UK banking sub-groups.
(6)Any equity of the relevant member is to be left out so far as it would have been eliminated under normal consolidation procedures had consolidated financial statements for the chargeable period been prepared for the UK banking sub-group or the largest UK banking sub-group—
(a)under international accounting standards, or
(b)under UK GAAP if the entity which is the parent or parent undertaking for the UK banking sub-group or the largest UK banking sub-group prepares its financial statements under UK GAAP.
(7)The following liabilities of a relevant member are to be left out—
(a)liabilities to other relevant members, and
(b)liabilities to a relevant foreign bank covered by paragraph 19(17) so far as the bank’s assets corresponding to the liabilities are assets of the permanent establishment through which the bank carries on a trade in the United Kingdom as determined at Step 2 in paragraph 24(1).
(8)Sub-paragraph (12) applies if—
(a)an entity (“M”) within sub-paragraph (9) has liabilities to another entity (“N”) not within that sub-paragraph, and N has assets which correspond to those liabilities (“M’s liabilities”),
(b)M, or another entity within sub-paragraph (9), has assets which correspond to liabilities which N, or another entity not within that sub-paragraph, has to M or, as the case may be, to that other entity within that sub-paragraph (“N’s liabilities”),
(c)there is in place an agreement which makes provision for there to be a single net settlement of all M’s liabilities, and liabilities of other entities within sub-paragraph (9) to N or another entity which is not within that sub-paragraph, (so far as covered by the provision) and all N’s liabilities (so far as covered by the provision) if the netting event occurs, and
(d)the provision mentioned in paragraph (c) is legally effective and enforceable.
(9)An entity is within this sub-paragraph if it is—
(a)a member of a relevant UK banking sub-group, or
(b)a relevant member within sub-paragraph (2)(b) or (c).
(10)For the purposes of sub-paragraph (8)—
(a)“agreement” includes an agreement which forms part of a multi-lateral agreement, arrangement or trading facility,
(b)if N is a relevant foreign bank covered by paragraph 19(17), liabilities of M to N are to be ignored so far as N’s assets corresponding to those liabilities are assets of the permanent establishment through which N carries on a trade in the United Kingdom as determined at Step 2 in paragraph 24(1),
(c)references to assets of one party which correspond to liabilities of another party are to amounts receivable by that first party which correspond to amounts due from that other party,
(d)a liability which M has to N to which sub-paragraph (11) applies is to be treated as a liability to which an asset of N corresponds, and
(e)“the netting event occurs” if the insolvency or bankruptcy of—
(i)M, or another entity within sub-paragraph (9) which has assets which correspond to a liability covered by the provision mentioned in sub-paragraph (8)(c), or
(ii)N, or another entity not within sub-paragraph (9) which has such a liability,
gives rise to the termination of any arrangements under which such a liability arises.
(11)This sub-paragraph applies to a liability which M has to N if—
(a)as at the end of the chargeable period, the assets of M include a financial asset in respect of an advance of cash made by M to N,
(b)underlying that asset, as collateral, are securities which have been transferred by M to another person,
(c)the liability is a financial liability in respect of M’s obligation to return the securities or similar securities to N, and
(d)the provision mentioned in sub-paragraph (8)(c) covers both the financial asset mentioned in paragraph (a) and that financial liability.
Section 556 of CTA 2009 (meaning of securities and similar securities) applies for the purposes of this sub-paragraph as it applies for the purposes of Chapter 10 of Part 6 of that Act.
(12)The amount of M’s net settlement liabilities is to be reduced (but not below nil) by the amount of M’s net settlement assets.
(13)“M’s net settlement liabilities” means M’s liabilities so far as they—
(a)are covered by the provision mentioned in sub-paragraph (8)(c), and
(b)are not excluded liabilities.
(14)“M’s net settlement assets” means the assets of M, or of another entity within sub-paragraph (9), so far as corresponding to N’s net settlement liabilities.
(15)But—
(a)if N’s net settlement liabilities include liabilities of a relevant foreign bank covered by paragraph 19(17), X% (as determined at Step 2 in paragraph 24(1)) of the assets corresponding to the liabilities of the relevant foreign bank are to be disregarded for the purposes of sub-paragraph (14), and
(b)if sub-paragraph (12) applies in relation to more than one entity within sub-paragraph (9), no part of an asset may be included in the net settlement assets of more than one such entity.
(16)“N’s net settlement liabilities” means N’s liabilities so far as they are covered by the provision mentioned in sub-paragraph (8)(c).
(17)If M’s net settlement liabilities exceed M’s net settlement assets, and a proportion (A%) of those liabilities is long term liabilities and a proportion (B%) of those liabilities is short term liabilities, under sub-paragraph (12)—
(a)the long term liabilities are reduced by A% of M’s net settlement assets, and
(b)the short term liabilities are reduced by B% of those assets.