PART 3U.K.PROHIBITIONS AND EXCEPTIONS

Financial institutions exposures: trade financeU.K.

15.—(1) A ring-fenced body may incur a financial institution exposure provided that both the following conditions are satisfied—

(a)the purpose of the transaction giving rise to the exposure is—

(i)to provide finance or make a payment in connection with the supply of goods or services by or to a person or an undertaking which is not a relevant financial institution; or

(ii)to guarantee or otherwise provide an indemnity or security for the obligations of a customer of the ring-fenced body or a third party in connection with the supply of goods or services by or to a person or an undertaking which is not a relevant financial institution;

(b)the ring-fenced body enters into [F1a relevant agreement, which specifies, or together with other connected agreements specifies]

(i)the supplies of goods or services to which the transaction relates, and

(ii)the maximum payments which the ring-fenced body may be required to make under [F2the relevant agreement and any connected agreements].

[F3(1A) For the purpose of paragraph (1)(b)—

(a)an agreement is a “relevant agreement” if—

(i)it gives effect to the transaction described in paragraph (1)(a) (“the finance transaction”),

(ii)it is made under a master agreement which gives effect to the finance transaction, or

(iii)it is one of a number of connected agreements entered into in relation to the finance transaction;

(b)an agreement is a “connected agreement” if it is one of a number of agreements which—

(i)are entered into by a party to the finance transaction, or to the supply of goods or services to which the finance transaction relates, with one or more other such parties; and

(ii)collectively give effect to the finance transaction.]

(2) For the purpose of paragraph (1)(b)(ii), the maximum payments payable under the agreement may be expressed—

(a)as a defined sum, or

(b)as a multiple of an average price of a commodity, where the average price is determined by reference to prices quoted on a specified index of prices for that commodity over a specified period, and for these purposes “specified” means specified in the agreement.