PRU Integrated Prudential sourcebook

You are viewing the Handbook in the past on 31/12/2006

View Handbook as at:

Export part as

PRU 1

Application and general requirements

PRU 1.1

to follow

01/10/2005

to follow

PRU 1.2

Adequacy of financial resources

01/10/2005

PRU 1.2.28

PRU 1.2.27 R amplifies the requirement in SYSC 3.2.6 R.

31/12/2004

PRU 1.3

Valuation

01/10/2005

PRU 1.3.9

Specific provisions for the methods and assumptions to be used by a firm in calculating its mathematical reserves are made in PRU 7.3.

31/12/2004

PRU 1.5

to follow

01/10/2005

to follow

PRU 1.6

to follow

01/10/2005

to follow

PRU 1.7

to follow

01/10/2005

to follow

Export chapter as

Legal Instruments that change this Chapter Application and general requirements

PRU 2

Capital

PRU 2.2

Capital resources

01/10/2005

PRU 2.2.13

Where PRU 2.2.14 R refers to related text, it is necessary to refer to that text in order to understand fully what is included in the descriptions of capital items and deductions set out in the table.

31/10/2004

PRU 2.2.18A

In PRU 2.2.17 R and PRU 2.2.18 R:

(1) items listed at stage B in PRU 2.2.14 R may be included notwithstanding PRU 2.2.20 R (1);
(2) innovative tier one capital that meets the conditions (other than PRU 2.2.108 R (11)) for it to be included as upper tier two capital at stage G in PRU 2.2.14 R may be treated as an item listed at stage G; and
(3) a firm must exclude from the calculation the higher of the following:

(a) the amount (if any) by which the sum of the items listed at stages G and H in PRU 2.2.14 R exceeds the total (net of deductions) of the remaining constituents of adjusted stage M; and
(b) the amount (if any) by which the sum of the items listed at stage H in PRU 2.2.14 R exceeds one-third of the total (net of deductions) of the remaining constituents of adjusted stage M;

where adjusted stage M means the amount calculated at stage M of the calculation in PRU 2.2.14 R less the amount of any innovative tier one capital that is not treated as upper tier two capital for the purpose of PRU 2.2.17 R or PRU 2.2.18 R, as the case may be.

31/12/2005

PRU 2.2.24A

In PRU 2.2.24 R the amount of any innovative tier one capital that meets the conditions for it to be included as upper tier two capital at stage G in PRU 2.2.14 R may be included in the amount calculated at stage G.

31/12/2005

PRU 2.2.41

PRU 2.2.38 R does not apply to permanent share capital because no item of capital that is either redeemable or that has a cumulative coupon can be permanent share capital.

31/12/2004

PRU 2.2.61

An item of capital does not fall into PRU 2.2.60 R merely because a firm has come under an obligation to pay a particular coupon in permanent share capital where that obligation is the result of a voluntary election by the holder or the firm to be paid the coupon in that form. Thus, for example, if a shareholder of a firm is allowed to elect to be paid a dividend in the form of a conventional scrip dividend, that does not make the share into an innovative tier one instrument.

31/10/2004

Fund for future appropriations

PRU 2.2.81A

The fund for future appropriations means the fund of the same name required by the insurance accounts rules, comprising all funds the allocation of which either to policyholders or to shareholders has not been determined by the end of the financial year, or the balance sheet items under international accounting standards which in aggregate represent as nearly as possible that fund.

31/12/2005

PRU 2.2.101A

Where a capital instrument meets PRU 2.2.101 R, and notice of the redemption or repayment of that instrument has been given by the firm in accordance with PRU 2.2.116A R, the firm must no longer include that instrument in its tier two capital resources.

31/12/2005

Export chapter as

Legal Instruments that change this Chapter Capital

PRU 5

Liquidity

PRU 5.1

Liquidity risk systems and controls

01/10/2005

PRU 5.1.3

Subject to PRU 5.1.5 R, PRU 5.1.6 R and PRU 5.1.8 R, the following provisions of PRU 5.1 apply to a firm described in PRU 5.1.4 R:

31/12/2004

PRU 5.1.4

The firms referred to in PRU 5.1.3 R are:

(1) a building society;
(2) a bank or an own account dealer (other than a venture capital firm) that is a UK firm;
(3) an incoming EEA firm which:

(a) is a full BCD credit institution; and
(b) has a branch in the United Kingdom;

(4) an overseas firm which is a bank or an own account dealer (other than a venture capital firm) but which is not:

(a) an incoming EEA firm; or
(b) a lead-regulated firm;

(5) an overseas firm which:

(a) is a bank;
(b) is a lead-regulated firm;
(c) is not an incoming EEA firm; and
(d) has a branch in the United Kingdom.

31/12/2004

PRU 5.1.5

For a firm described in PRU 5.1.4R (3) or PRU 5.1.4R (5), PRU 5.1 applies only with respect to the branch.

31/12/2004

PRU 5.1.6

This section applies to an incoming EEA firm only to the extent that the relevant matter is not reserved by the relevant Single Market Directive to the firm's Home State regulator.

31/12/2004

PRU 5.1.9

For the purposes of this section, the guidance in PRU 1.4.14 G to PRU 1.4.16 G applies to a firm described in PRU 5.1.4 R.

31/12/2004

PRU 5.1.13

The FSA recognises that a typical firm of a type described in PRU 5.1.4 R generally faces liquidity risk from a wider range of sources and of greater significance than a typical insurer. This section therefore explicitly applies some items of guidance to firms in PRU 5.1.4 R. Other parts of the guidance are also not relevant to many insurers. In particular, where the guidance refers to factors that a firm should consider in relation to a specific type of business, a firm that does not undertake such business does not need to carry out such consideration.

31/12/2004

PRU 5.1.17

High level requirements in relation to carrying out stress testing and scenario analysis are set out in PRU 1.2. In particular, PRU 1.2.35 R requires a firm to carry out appropriate stress testing and scenario analysis. This section gives guidance in relation to these tests in the case of liquidity risk.

31/12/2004

Firms with group liquidity management

PRU 5.1.18

Firms with group liquidity management should refer to PRU 1.4.14 G to PRU 1.4.16 G.

31/12/2004

Stress testing and scenario analysis

PRU 5.1.58

PRU 1.2.26 R, PRU 1.2.27 R, PRU 1.2.31 R, PRU 1.2.33 R and PRU 1.2.35 R entail that, for the purposes of determining the adequacy of its overall financial resources, a firm must carry out appropriate stress testing and scenario analysis, including taking reasonable steps to identify an appropriate range of realistic adverse circumstances and events in which liquidity risk might occur or crystallise.

31/12/2004

PRU 5.1.59

PRU 1.2.36 G and PRU 1.2.40 G to PRU 1.2.55 G give guidance on stress testing and scenario analysis, including on how to choose appropriate scenarios, but the precise scenarios that a firm chooses to use will depend on the nature of its activities. For the purposes of testing liquidity risk, however, a firm should normally consider scenarios based on varying degrees of stress and both firm-specific and market-wide difficulties. In developing any scenario of extreme market-wide stress that may pose systemic risk, it may be appropriate for a firm to make assumptions about the likelihood and nature of central bank intervention.

31/12/2004

PRU 5.1.60

A firm should review frequently the assumptions used in stress testing scenarios to gain assurance that they continue to be appropriate.

31/12/2004

PRU 5.1.61

(1) A scenario analysis in relation to liquidity risk required under PRU 1.2.35 R should include a cash-flow projection for each scenario tested, based on reasonable estimates of the impact (both on and off balance sheet) of that scenario on the firm's funding needs and sources.
(2) Contravention of (1) may be relied on as tending to establish contravention of PRU 1.2.35 R.

31/12/2004

PRU 5.1.62

In identifying the possible on and off balance sheet impact referred to in PRU 5.1.61E (1), a firm may take into account:

(1) possible changes in the market's perception of the firm and the effects that this might have on the firm's access to the markets, including:

(a) (where the firm funds its holdings of assets in one currency with liabilities in another) access to foreign exchange markets, particularly in less frequently traded currencies;
(b) access to secured funding, including by way of repo transactions; and
(c) the extent to which the firm may rely on committed facilities made available to it;

(2) (if applicable) the possible effect of each scenario analysed on currencies whose exchange rates are currently pegged or fixed; and
(3) that:

(a) general market turbulence may trigger a substantial increase in the extent to which persons exercise rights against the firm under off balance sheet instruments to which the firm is party;
(b) access to OTC derivative and foreign exchange markets are sensitive to credit-ratings;
(c) the scenario may involve the triggering of early amortisation in asset securitisation transactions with which the firm has a connection; and
(d) its ability to securitise assets may be reduced.

31/12/2004

PRU 5.1.68

For a firm described in PRU 5.1.4 R, management information would normally contain the following:

(1) a cash-flow or funding gap report;
(2) a funding maturity schedule;
(3) a list of large providers of funding; and
(4) a limit monitoring and exception report.

31/12/2004

PRU 5.1.70

For a firm described in PRU 5.1.4 R, the additional information referred to in PRU 5.1.69 G may include:

(1) asset quality and trends;
(2) any changes in the firm's funding strategy;
(3) earnings projections; and
(4) the firm's reputation in the market and the condition of the market itself.

31/12/2004

PRU 5.1.79

The FSA would normally expect a firm described in PRU 5.1.4 R to consider setting limits on:

(1) liability concentrations in relation to:

(a) individual, or related groups of, liability providers;
(b) instrument types;
(c) maturities, including the amount of debt maturing in a particular period; and
(d) retail and wholesale liabilities; and

(2) where appropriate, net leverage and gross leverage.

31/12/2004

Contingency funding plans

PRU 5.1.85

PRU 1.2.22 R states that a firm must at all times maintain overall financial resources adequate to ensure that there is no significant risk that its liabilities cannot be met as they fall due. PRU 1.2.3 R (2) states that for the purposes of determining the adequacy of its overall financial resources, a firm must estimate the financial resources it would need in each of the circumstances and events considered in carrying out its stress testing and scenario analysis in order to meet its liabilities as they fall due.

31/12/2004

PRU 5.1.86

(1) A firm should have a contingency funding plan for taking action to ensure, so far as it can, that, in each of the scenarios analysed under PRU 1.2.3 R (2), it would still have sufficient liquid financial resources to meet liabilities as they fall due.
(2) The contingency funding plan should cover what events or circumstances will lead the firm to put into action any part of the plan.
(3) Contravention of (1) or (2) may be relied upon as tending to establish contravention of PRU 1.2.22 R.

31/12/2004

PRU 5.1.87

A firm should adequately document the contingency funding plan referred to in PRU 5.1.86 E.

31/12/2004

PRU 5.1.88

The contingency funding plan of a firm described in PRU 5.1.4 R should cover the extent to which the actions in PRU 5.1.86E (1) include:

(1) selling, using as collateral in secured funding (including repo), or securitising, its assets;
(2) otherwise reducing its assets;
(3) modifying the structure of its liabilities or increasing its liabilities; and
(4) the use of committed facilities.

31/12/2004

PRU 5.1.89

A firm's contingency funding plan should, where relevant, take account of the impact of stressed market conditions on:

(1) the behaviour of any credit-sensitive liabilities it has; and
(2) its ability to securitise assets.

31/12/2004

PRU 5.1.90

The contingency funding plan should contain administrative policies and procedures that will enable the firm to manage the plan's implementation effectively, including:

(1) the responsibilities of senior management;
(2) names and contact details of members of the team responsible for implementing the contingency funding plan;
(3) where, geographically, team members will be assigned;
(4) who within the team is responsible for contact with head office (if appropriate), analysts, investors, external auditors, press, significant customers, regulators, lawyers and others; and
(5) mechanisms that enable senior management and the governing body to receive management information that is both relevant and timely.

31/12/2004

Documentation

PRU 5.1.91

PRU 1.2.37 R states that a firm must document its assessment of the adequacy of its liquidity financial resources, how it intends to deal with those risks, and details of the stress tests and scenario analyses carried out and the resulting financial resources estimated to be required. Accordingly, a firm should document both its stress testing and scenario analysis (see PRU 5.1.58 G) and its contingency funding plan (see PRU 5.1.85 G).

31/12/2004

Export chapter as

Legal Instruments that change this Chapter Liquidity

PRU 7

Insurance risk

PRU 7 Annex 1G

PRU 7.3 (Mathematical reserves) and PRU 7.4 (With-profits insurance capital component)

01/10/2005

31/12/2004

Export chapter as

Legal Instruments that change this Chapter Insurance risk

PRU 8

Group risk

PRU 8.1

Group risk systems and controls requirement

01/10/2005

Application

PRU 8.1.1

Subject to PRU 8.1.3 R to PRU 8.1.5 R, PRU 8.1 applies to each of the following which is a member of a group:

(1) a firm that falls into any of the following categories:

(a) a regulated entity;
(b) a bank, ELMI or building society;
(c) an insurer;
(d) an own account dealer;
(e) a matched principal broker;
(f) a UCITS investment firm; and
(g) a broker/manager or an arranger that satisfies the following conditions:

(i) it is an ISD investment firm; and
(ii) it is not an exempt CAD firm;

(2) a UCITS firm, but only if its group contains a firm falling into (1); and
(3) the Society.

01/01/2005

PRU 8.1.2

Except as set out in PRU 8.1.5 R, PRU 8.1 applies with respect to different types of group as follows:

(1) PRU 8.1.9 R and PRU 8.1.11 R apply with respect to all groups, including FSA regulated EEA financial conglomerates, other financial conglomerates and groups dealt with in PRU 8.1.14 R and PRU 8.1.15 R;
(2) the additional requirements set out in PRU 8.1.12 R and PRU 8.1.13 R only apply with respect to FSA regulated EEA financial conglomerates; and
(3) the additional requirements set out in PRU 8.1.14 R and PRU 8.1.15 R only apply with respect to groups of the kind dealt with by whichever of those rules apply.

01/01/2005

PRU 8.1.3

PRU 8.1 does not apply to:

(1) an incoming EEA firm; or
(2) an incoming Treaty firm; or
(3) a UCITS qualifier; or
(4) an ICVC.

01/01/2005

PRU 8.1.4

A venture capital firm that would otherwise be included in PRU 8.1.1 R (1)(d) to PRU 8.1.1 R (1)(g) is excluded from those rules if it is not an ISD investment firm.

01/01/2005

PRU 8.1.5

(1) This rule applies to:

(a) PRU 8.1.9 R (2);
(b) PRU 8.1.11 R (1), so far as it relates to PRU 8.1.9 R (2);
(c) PRU 8.1.11 R (2); and
(d) PRU 8.1.12 R to PRU 8.1.14 R.

(2) The rules referred to in (1):

(a) only apply with respect to a financial conglomerate if it is an FSA regulated EEA financial conglomerate;
(b) (so far as they apply with respect to a group that is not a financial conglomerate) do not apply with respect to a group for which a competent authority in another EEA state is lead regulator;
(c) (so far as they apply with respect to a financial conglomerate) do not apply to a firm with respect to a financial conglomerate of which it is a member if the interest of the financial conglomerate in that firm is no more than a participation;
(d) (so far as they apply with respect to other groups) do not apply to a firm with respect to a group of which it is a member if the only relationship of the kind set out in paragraph (3) of the definition of group between it and the other members of the group is nothing more than a participation; and
(e) do not apply with respect to a third-country group.

01/01/2005

PRU 8.1.6

For the purposes of PRU 8.1, a group is defined in the Glossary, and includes the whole of a firm's group, including financial and non-financial undertakings. It also covers undertakings with other links to group members if their omission from the scope of group risk systems and controls would be misleading. The scope of the group systems and controls requirements may therefore differ from the scope of the quantitative requirements for groups.

01/01/2005

Purpose

PRU 8.1.7

The purpose of this chapter is to set out how systems and controls requirements apply where a firm is part of a group. SYSC 3.1 (Systems and controls) requires a firm to take reasonable care to establish and maintain such systems and controls as are appropriate to the nature, scale and complexity of its business. If a firm is a member of a group, it should be able to assess the potential impact of risks arising from other parts of its group as well as from its own activities.

01/01/2005

PRU 8.1.8

PRU 8.1 implements Articles 52(6) (Supervision on a consolidated basis of credit institutions) and 55a (Intra-group transactions with mixed activity holding companies) of the Banking Consolidation Directive, Article 9 of the Financial Groups Directive (Internal control mechanisms and risk management processes) and Article 8 of the Insurance Groups Directive (Intra-group transactions).

01/01/2005

General rules

PRU 8.1.9

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.

01/01/2005

PRU 8.1.10

For the purposes of PRU 8.1.9 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.

01/01/2005

PRU 8.1.11

The internal control mechanisms referred to in PRU 8.1.9 R must include:

(1) mechanisms that are adequate for the purpose of producing any data and information which would be relevant for the purpose of monitoring compliance with any prudential requirements (including any reporting requirements and any requirements relating to capital adequacy, solvency and large exposures):

(a) to which the firm is subject with respect to its membership of a group; or
(b) that apply to or with respect to that group or part of it; and

(2) mechanisms that are adequate to monitor funding within the group.

01/01/2005

Financial conglomerates

PRU 8.1.12

Where PRU 8.1 applies with respect to a financial conglomerate, the risk management processes referred to in PRU 8.1.9 R (2) 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 policies of the financial conglomerate in respect of all the risks assumed by the financial conglomerate, such review and approval being carried out at the level of the financial conglomerate;
(2) adequate capital adequacy policies at the level of the financial conglomerate, one of the purposes of which must be to anticipate the impact of the business strategy of the financial conglomerate on its risk profile and on the capital adequacy requirements to which it and its members are subject;
(3) adequate procedures for the purpose of ensuring that the risk monitoring systems of the financial conglomerate and its members are well integrated into their organisation; and
(4) adequate procedures for the purpose of ensuring that the systems and controls of the members of the financial conglomerate are consistent and that the risks can be measured, monitored and controlled at the level of the financial conglomerate.

01/01/2005

PRU 8.1.13

Where PRU 8.1 applies with respect to a financial conglomerate, the internal control mechanisms referred to in PRU 8.1.9 R (2) 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 to risks; and
(2) sound reporting and accounting procedures for the purpose of identifying, measuring, monitoring and controlling intra-group transactions and risk concentrations.

01/01/2005

Credit institutions and investment firms

PRU 8.1.14

In the case of a firm that:

(1) is a credit institution or investment firm; and
(2) has a mixed-activity holding company as a parent undertaking;

the risk management processes and internal control mechanisms referred to in PRU 8.1.9 R must include sound reporting and accounting procedures and other mechanisms that are adequate to identify, measure, monitor and control transactions between the firm's parent undertaking mixed-activity holding company and any of the mixed-activity holding company's subsidiary undertakings.

01/01/2005

Insurance undertakings

PRU 8.1.15

In the case of an insurer that has a mixed-activity insurance holding company as a parent undertaking, the risk management processes and internal control mechanisms referred to in PRU 8.1.9 R must include sound reporting and accounting procedures and other mechanisms that are adequate to identify, measure, monitor and control transactions between the firm's parent undertaking mixed-activity insurance holding company and any of the mixed-activity insurance holding company's subsidiary undertakings.

01/01/2005

PRU 8.1.16

PRU 8.1.14 R cannot apply to a building society as it cannot have a mixed-activity holding company as a parent undertaking. PRU 8.1.15 R cannot apply to a friendly society as it cannot have a mixed-activity insurance holding company as a parent undertaking.

01/01/2005

Nature and extent of requirements and allocation of responsibilities within the group

PRU 8.1.17

Assessment of the adequacy of a group's systems and controls required by PRU 8.1 will form part of the FSA's risk management process.

01/01/2005

PRU 8.1.18

The nature and extent of the systems and controls necessary under PRU 8.1.9 R (1) to address group risk will vary according to the materiality of those risks to the firm and the position of the firm within the group.

01/01/2005

PRU 8.1.19

In some cases the management of the systems and controls used to address the risks described in PRU 8.1.9 R (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 PRU 8.1.9 R (1). A firm cannot absolve itself of such a responsibility by claiming that any breach of that rule is caused by the actions of another member of the group to whom the firm has delegated tasks. The risk management arrangements are still those of the firm, even though personnel elsewhere in the firm's group are carrying out these functions on its behalf.

01/01/2005

PRU 8.1.20

PRU 8.1.9 R (1) deals with the systems and controls that a firm should have in respect of the exposure it has to the rest of the group. On the other hand, the purpose of PRU 8.1.9 R (2) and the rules in PRU 8.1 that amplify it is to require groups to have adequate systems and controls. However a group is not a single legal entity on which obligations can be imposed. Therefore the obligations have to be placed on individual firms. The purpose of imposing the obligations on each firm in the group is to make sure that the FSA can take supervisory action against any firm in a group whose systems and controls do not meet the standards in PRU 8.1 Thus responsibility for compliance with the rules for group systems and controls is a joint one.

01/01/2005

PRU 8.1.21

If both a firm and its parent undertaking are subject to PRU 8.1.9 R (2), the FSA would not expect systems and controls to be duplicated. In this case, the firm should assess whether and to what extent it can rely on its parent's group risk systems and controls.

01/01/2005

PRU 8.2

to follow

01/10/2005

PRU 8.3

Group Risk: Insurance Groups

01/10/2005

Application

PRU 8.3.1

PRU 8.3 applies to an insurer that is either:

(1) a participating insurance undertaking; or
(2) a member of an insurance group which is not a participating insurance undertaking and which is not:

(a) a pure reinsurer; or
(b) a non-EEA insurer; or
(c) a friendly society.

31/12/2005
Past version of PRU 8.3.1 before 31/12/2005

PRU 8.3.2

PRU 8.3 does not apply to:

(1) a non-directive friendly society; or
(2) a Swiss general insurer; or
(3) an EEA-deposit insurer; or
(4) an incoming EEA firm; or
(5) an incoming Treaty firm.

31/12/2004

PRU 8.3.3

PRU 8.3 applies to a firm:

(1) on a solo basis, as an adjusted solo calculation, where that firm is a participating insurance undertaking; and
(2) on a group basis where that firm is a member of an insurance group.

31/12/2004

PRU 8.3.4

For the purposes of PRU 8.3, an insurer includes a pure reinsurer, a friendly society (other than a non-directive friendly society) and a non-EEA insurer.

31/12/2004

Purpose

PRU 8.3.5

The purpose of this section is to implement the Insurance Groups Directive on supplementary supervision of firms in an insurance group, as amended by the Financial Groups Directive. The Financial Groups Directive (by amending the Insurance Directives and the Insurance Groups Directive) introduces specific requirements for the treatment of related undertakings of an insurance parent undertaking or a participating insurance undertaking that are credit institutions, investment firms or financial institutions.

31/12/2004

PRU 8.3.6

PRU 8.3 sets out the sectoral rules for insurers for:

(1) firms that are participating insurance undertakings carrying out an adjusted solo calculation as contemplated by PRU 2.1.9 (2);
(2) insurance groups; and
(3) insurance conglomerates.

31/12/2004

PRU 8.3.7

For a firm that is a participating insurance undertaking, the rules in PRU 8.3 set out the minimum capital adequacy requirements for the firm itself. A firm that satisfies the test in PRU 8.3.9 R in relation to its group capital resources is deemed by PRU 2.1.9 (2) to be in compliance with the capital adequacy requirement set out in PRU 2.1.9 (1).

31/12/2004

Requirement to calculate GCR and GCRR

PRU 8.3.8

A firm must on a regular basis calculate the group capital resources (GCR) and group capital resources requirement (GCRR) of each undertaking referred to in PRU 8.3.17 R.

31/12/2004

Requirement to maintain group capital

PRU 8.3.9

Where a firm is the undertaking referred to in PRU 8.3.17 R (1)(c) or PRU 8.3.17 R (2), it must maintain at all times tier one capital resources and tier two capital resources of such an amount that its group capital resources are equal to or exceed its group capital resources requirement.

31/12/2004

PRU 8.3.10

A firm that is both:

(1) a composite firm; and

(2) an undertaking referred to in PRU 8.3.17 R (1)(c) or PRU 8.3.17 R (2);

must comply with PRU 8.3.9 R separately in respect of its long-term insurance business and its general insurance business.

31/12/2004

PRU 8.3.11

For the purposes of PRU 8.3.10 R, a firm must include in the calculation of the group capital resources and group capital resources requirement of its long-term insurance business the regulated related undertakings and ancillary services undertakings that are long-term insurance assets.

31/12/2004

PRU 8.3.12

PRU 7.6 sets out the detailed requirements for the separation of long-term and general insurance business.

31/12/2004

PRU 8.3.13

In order to comply with PRU 8.3.10 R, a composite firm will need to:

(1) establish the group capital resources requirement of its general insurance business and its long-term insurance business separately; and
(2) allocate its group capital resources between its general insurance business and its long-term insurance business so that:

(a) the group capital resources allocated to its general insurance business are equal to or in excess of the group capital resources requirement of its general insurance business; and
(b) the group capital resources allocated to its long-term insurance business are equal to or in excess of the group capital resources requirement of its long-term insurance business.

31/12/2004

PRU 8.3.14

Surplus group capital resources in the long-term insurance business cannot be used towards meeting the requirements of the general insurance business (see PRU 8.3.41 R) but surplus group capital resources in the general insurance business may be used towards meeting the amount of the group capital resources requirement that relates to the long-term insurance business.

31/12/2004

PRU 8.3.15

Subject to PRU 8.3.27 R, a firm must ensure that at all times its capital resources are of such an amount that the group capital resources of each undertaking referred to in PRU 8.3.17 R (excluding those referred to in PRU 8.3.9 R) are equal to or exceed that undertaking's group capital resources requirement.

31/12/2006

PRU 8.3.16

Principle 4 requires a firm to maintain adequate financial resources, taking into account any activity of other members of the group of which the firm is a member. PRU 8.3 sets out provisions that deal specifically with the way the activities of other members of the group should be taken into account. This results in the firm being required to hold sufficient capital resources so that the group capital resources are at least equal to the group capital resources requirement. However, the adequacy of the group capital resources needs to be assessed both by the firm and the FSA. Firms are required to carry out an assessment of the adequacy of their financial resources (PRU 1.2.26 R) and the FSA will review this and may provide individual guidance on the amount and quality of capital resources the FSA considers adequate. As part of such reviews, the FSA may also form a view on the appropriateness of the group capital resources requirement and group capital resources. Where necessary, the FSA may also give individual guidance on the capital resources a firm should hold in order to comply with Principle 4 expressed by reference to PRU 8.3.9 R and PRU 8.3.15 R.

31/12/2004

Scope - undertakings whose group capital is to be calculated and maintained

PRU 8.3.17

The undertakings referred to in PRU 8.3.8 R, PRU 8.3.9 R, PRU 8.3.10 R and PRU 8.3.15 Rare:

(1) for any firm that is not within (2), each of the following:

(a) its ultimate insurance parent undertaking;

(b) its ultimate EEA insurance parent undertaking (if different); and

(2) the firm itself, where the firm is a participating insurance undertaking and is:

(a) a pure reinsurer; or

(b) a non-EEA insurer; or

31/12/2004

PRU 8.3.18

Article 3(3) of the Insurance Groups Directive allows an undertaking to be excluded from supplementary supervision if:

(1) its head office is in a non-EEA State where there are legal impediments to the transfer of the necessary information; or
(2) in the opinion of the competent authority responsible for exercising supplementary supervision, having regard to the objectives of supplementary supervision:

(a) its inclusion would be inappropriate or misleading; or
(b) it is of neglible interest.

31/12/2004

PRU 8.3.19

If an application is made for a waiver, it is the policy of the FSA to consider the effect, in the circumstances described in PRU 8.3.18 G, of granting a waiver allowing the exclusion of a related undertaking from the calculation of group capital resources and the group capital resources requirement required by PRU 8.3.8 R.

31/12/2004

PRU 8.3.20

Examples of related undertakings which may be excluded from supplementary supervision by Article 3(3) of the Insurance Groups Directive include insurance holding companies in the insurance group that are not the ultimate insurance parent undertaking or, if different, the ultimate EEA insurance parent undertaking of a firm.

31/12/2004

PRU 8.3.21

If more than one member of the insurance group is to be excluded in the circumstances described in PRU 8.3.18 G (2)(b), they may only be excluded if, considered together, they are of negligible interest in the context of the insurance group.

31/12/2004

PRU 8.3.22

When giving a waiver in the circumstances described in PRU 8.3.18 G, the FSA may impose a condition requiring the firm to provide information about any member of the insurance group excluded pursuant to a waiver granted in the circumstances described in PRU 8.3.18 G.

31/12/2004

Optional alternative method of calculation for firms subject to supplementary supervision by another EEA competent authority

PRU 8.3.23

If the competent authority in an EEA State other than the United Kingdom has agreed to be the competent authority responsible for exercising supplementary supervision of an insurance group of which a firm is a member under Article 4(2) of the Insurance Groups Directive, the firm may prepare the calculations required under PRU 8.3.8 R in relation to the ultimate EEA insurance parent undertaking in accordance with the requirements of supplementary supervision in that EEA State.

31/12/2004

PRU 8.3.24

The FSA will notify the firm if it has reached agreement with the competent authority in an EEA State other than the United Kingdom in accordance with Article 4(2) of the Insurance Groups Directive.

31/12/2004

Non-EEA ultimate insurance parent undertakings

PRU 8.3.25

Where the ultimate insurance parent undertaking of a firm has its head office in a non-EEA State, the firm may:

(1) calculate the group capital resources and the group capital resources requirement of its ultimate insurance parent undertaking in accordance with accounting practice applicable for the purposes of the regulation of insurance undertakings in the state or territory of the head office of the ultimate insurance parent undertaking adapted as necessary to apply the general principles set out in Annex I (1) paragraphs B, C and D of the Insurance Groups Directive; and
(2) elect (see PRU 8.3.26 R) to carry out the calculation referred to in (1) in accordance with the accounting consolidation method set out in Annex I (3) of the Insurance Groups Directive.

31/12/2004

PRU 8.3.26

A firm may elect to use the calculation method referred to in PRU 8.3.25 R (2) if it has made the election by written notice to the FSA in a way that complies with the requirements for written notice in SUP 15.7.

31/12/2004

PRU 8.3.27

PRU 8.3.15 R does not apply in respect of the group capital resources of a firm's ultimate insurance parent undertaking if that ultimate insurance parent undertaking has its head office in a non-EEA State.

31/12/2004

Proportional holdings

PRU 8.3.28

Subject to PRU 8.3.30 R and PRU 8.3.31 R, when calculating group capital resources and the group capital resources requirement of an undertaking in PRU 8.3.17 R, a firm must take only the relevant proportion of the following items ("calculation items") into account:

(1) the solo capital resources of a regulated related undertaking;
(2) the assets of a regulated related undertaking which are required to be deducted as part of the calculation of group capital resources; and
(3) the individual capital resources requirement of a regulated related undertaking.

31/12/2004

PRU 8.3.29

In PRU 8.3.28 R, the relevant proportion is either:

(1) the proportion of the total number of issued shares in the regulated related undertaking held, directly or indirectly, by the undertaking in PRU 8.3.17 R; or
(2) where a consolidation Article 12(1) relationship exists between related undertakings within the insurance group, such proportion as the FSA determines in accordance with Article 28(5) of the Financial Groups Directive and Regulation 15 of the Financial Groups Directive Regulations.

31/12/2004

PRU 8.3.30

Where the undertaking in PRU 8.3.17 R is a firm, if the individual capital resources requirement of a regulated related undertaking that is a subsidiary undertaking and not an insurer exceeds the solo capital resources of that undertaking less the amount calculated in PRU 8.3.74 R (3) (if any), the full amount of the calculation items of that regulated related undertaking less the amount in PRU 8.3.74 R (3) must be taken into account in the calculation of group capital resources and the group capital resources requirement.

31/12/2004

PRU 8.3.31

Except where PRU 8.3.30 R applies, if the individual capital resources requirement of a regulated related undertaking that is a subsidiary undertaking of the undertaking in PRU 8.3.17 R exceeds its solo capital resources, the full amount of the calculation items of that regulated related undertaking must be taken into account in the calculation of group capital resources and the group capital resources requirement.

31/12/2004

PRU 8.3.32

For the purposes of PRU 8.3.10 R, where a composite firm that is an undertaking in PRU 8.3.17 R (1)(c) or (2):

(1) holds directly or indirectly shares in a regulated related undertaking; and
(2) the shares in (1) are held partly by its long-term insurance business and partly by its general insurance business;
(3) the relevant proportion of the calculation items calculated in accordance with PRU 8.3.29 R, subject to PRU 8.3.30 R and PRU 8.3.31 R, must be allocated between the long-term and general insurance business in proportion to their respective holdings, directly or indirectly, in the shares in that regulated related undertaking.

31/12/2004

Calculation of the GCRR

PRU 8.3.33

Subject to PRU 8.3.23 R and PRU 8.3.25 R, a firm must calculate the group capital resources requirement of an undertaking in PRU 8.3.17 R as the sum of the individual capital resources requirement of that undertaking and the individual capital resources requirement of each of its regulated related undertakings.

31/12/2004

PRU 8.3.34

For the purposes of PRU 8.3, an individual capital resources requirement is:

(1) in respect of an insurer that is not within (2):

(a) its capital resources requirement calculated in accordance with PRU 2.1; less
(b) where the capital resources requirements of both the insurer and its insurance parent undertaking that is an insurer include with-profits insurance capital components, any element of double-counting that may arise from the aggregation of the individual capital resources requirements for the purposes of PRU 8.3.33 R;

(2) in respect of an insurer that is either a pure reinsurer or whose main business otherwise consists of reinsurance, and whose head office is in the United Kingdom, the capital resources requirement that would apply to the firm in accordance with PRU 2.1 if its insurance business was not restricted to reinsurance;
(3) in respect of an insurance undertaking that is not within (1) or (2) and whose main business is reinsurance and whose head office is in a designated State or territory, either:

(a) the proxy capital resources requirement that would apply to it if, in connection with its reinsurance activities, the permissions on the basis of which that proxy capital resources requirement is calculated were permissions to carry on insurance business that is not restricted to reinsurance; or
(b) the solo capital resources requirement that would apply to it if, in connection with its reinsurance activities, the insurance undertaking were a regulated insurance entity whose insurance business is not restricted to reinsurance for the purposes of calculating the solo capital resources requirement in accordance with the relevant sectoral rules of the designated State or territory;

(4) in respect of an insurance undertaking that is not within (1) to (3) and whose main business is reinsurance, the proxy capital resources requirement that would apply to it if, in connection with its reinsurance activities, the permissions on the basis of which that proxy capital resources requirement is calculated were permissions to carry on insurance business that is not restricted to reinsurance;
(5) in respect of an EEA insurer, the equivalent of the capital resources requirement as calculated in accordance with the applicable requirements in its Home State;
(6) in respect of an insurance undertaking that is not within (1) to (5) and whose head office is in a designated State or territory, either:

(a) the solo capital resources requirement applicable to it in that designated State or territory; or
(b) its proxy capital resources requirement;

(7) in respect of an insurance undertaking that is not within (1) to (6), its proxy capital resources requirement;
(8) in respect of a regulated entity with its head office in the EEA (excluding an insurance undertaking), its solo capital resources requirement calculated in accordance with the sectoral rules for the financial sector applicable to it in the EEA State in which it has its head office;
(9) in respect of a regulated entity not within (8) (excluding an insurance undertaking), its solo capital resources requirement;
(10) in respect of an asset management company, the solo capital resources requirement that would apply to it if, in connection with its activities, it were treated as an investment firm for the purposes of calculating the solo capital resources requirement;
(11) in respect of a financial institution that is not a regulated entity (including a financial holding company), the solo capital resources requirement that would apply to it if, in connection with its activities, it were treated as being within the banking sector; and
(12) in respect of an insurance holding company, zero.

31/12/2004

PRU 8.3.34A

For the purposes of PRU 8.3.34 R (3)(b) and (6)(a), where the solo capital resources requirement in a designated State or territory is ascertained by reference to the trigger for regulatory intervention, the FSA considers that the solo capital resources requirement of the insurance undertaking in such a designated State or territory will generally correspond to the highest point at which any regulatory or corrective action is triggered or which is in effect most nearly equivalent to the capital resources requirement which would apply if the insurance undertaking were an insurer.

31/12/2005

PRU 8.3.35

The Insurance Groups Directive defines reinsurers in terms of the 'main business' they carry on. Under the directive, the individual capital resources requirements for reinsurers (including those whose head office is in the United Kingdom) are to be calculated on the basis of requirements analogous to those applicable to direct insurers (that is, insurers carrying on insurance business that is not restricted to reinsurance). Although insurers that are pure reinsurers are already subject to PRU, there are a number of respects in which the capital regime that applies to them differs from that applicable to insurers who are direct insurers. The effect of PRU 8.3.34 R (2) to (4) is to calculate the individual capital resources requirement for all reinsurers as if they were carrying on direct insurance. This applies to:

(1) pure reinsurers whose head office is in the United Kingdom;
(2) insurers whose head office is in the United Kingdom and whose main business is reinsurance (because an insurer that is not a pure reinsurer with their business restricted to reinsurance may nevertheless in principle still have reinsurance as its main business);
(3) reinsurers whose head office is in another EEA State;
(4) reinsurers whose head office is in a designated State or territory (other than an EEA State); and
(5) reinsurers whose head office is outside the EEA.

31/12/2004

Calculation of GCR

PRU 8.3.36

For the purposes of PRU 8.3.8 R and subject to PRU 8.3.23 R and PRU 8.3.25 R, a firm must calculate the group capital resources of an undertaking in PRU 8.3.17 R in accordance with the table in PRU 8.3.43 R, subject to the limits in PRU 8.3.45 R.

31/12/2004

PRU 8.3.37

For the purposes of PRU 8.3, the following expressions when used in relation to either an undertaking in PRU 8.3.17 R or a regulated related undertaking which is not subject to PRU 2.2.14 R, are to be construed as if that undertaking were required to calculate its capital resources in accordance with PRU 2.2.14 R, but with such adjustments being made to secure that the undertaking's calculation of its solo capital resources complies with the relevant sectoral rules applicable to it:

(1) tier one capital resources;
(2) tier two capital resources;
(3) upper tier two capital resources;
(4) lower tier two capital resources;
(5) innovative tier one capital resources; and
(6) core tier one capital.

31/12/2004

PRU 8.3.38

For the purposes of PRU 8.3.37 R, the sectoral rules applicable to:

(1) an insurance holding company are the sectoral rules that would apply to it if, in connection with its activities, it were treated as an insurer;
(2) an asset management company are the sectoral rules that would apply to it if, in connection with its activities, it were treated as an investment firm; and
(3) subject to PRU 8.3.39 R, a financial institution, that is not a regulated entity, are the sectoral rules that would apply to it if, in connection with its activities, it were treated as being within the banking sector.

31/12/2004

PRU 8.3.39

Where a financial institution, that is not a regulated entity, has invested in tier one capital or tier two capital issued by a parent undertaking that is:

(1) an insurance holding company; or
(2) an insurer;

the sectoral rules that apply to that financial institution are the sectoral rules for the insurance sector.

31/12/2004

PRU 8.3.40

For the purposes of PRU 8.3.36 R, the capital resources of a financial institution within PRU 8.3.39 R that can be included in the calculations in PRU 8.3.48 R (2), PRU 8.3.50 R (2), PRU 8.3.53 R (2), PRU 8.3.55 R (2) and PRU 8.3.57 R (2) are:

(1) the issued tier one capital or tier two capital of that financial institution held, directly or indirectly, by its parent undertaking referred to in PRU 8.3.39 R; and
(2) the lower of:

(a) the tier one capital or tier two capital issued by the parent undertaking referred to in PRU 8.3.39 R pursuant to the investment by the financial institution; and
(b) the tier one capital or tier two capital issued by the financial institution to raise funds for its investment in the capital resources of the parent undertaking referred to in (a).

31/12/2004

PRU 8.3.41

(1) In calculating group capital resources, a firm must exclude the restricted assets of a regulated related undertaking except insofar as those assets are available to meet the individual capital resources requirement of that regulated related undertaking.
(2) In (1), "restricted assets" means assets of a regulated related undertaking which are subject to a legal restriction or other requirement having the effect that those assets cannot be transferred or otherwise made available to another regulated related undertaking for the purposes of meeting its individual capital resources requirement without causing a breach of that legal restriction or requirement.

31/12/2004

PRU 8.3.42

For the purposes of PRU 8.3.41 R, in respect of an insurance undertaking that is a member of an insurance group, the assets of a long-term insurance fund are restricted assets within the meaning of PRU 8.3.41 R. Any excess of assets over liabilities in the long-term insurance business may only be included in the calculation of the group capital resources up to the amount of the capital resources requirement related to that long-term insurance business.

31/12/2004

PRU 8.3.43

Table: Group capital resources

Stage

Related text

Total group tier one capital

PRU 8.3.48 R

Total group tier two capital

PRU 8.3.50 R

Group capital resources before deductions

C=(A+B)

Total deductions of inadmissible assets

PRU 8.3.59 R

Total deductions under the requirement deduction method from group capital resources

PRU 8.3.62 R

Total deductions of ineligible surplus capital*

PRU 8.3.65 R

Deduction of assets in excess of market risk and counterparty exposure limits*

PRU 8.3.70 R

Group capital resources

H=(C-(D+E+F*+G*))

* = section (F) of the table (the deductions for ineligible surplus capital) and section (G) of the table (assets in excess of market risk and counterparty exposure limits) only apply and are required to be calculated for the purposes of the adjusted solo calculation of an undertaking in PRU 8.3.17 R that is a participating insurance undertaking.

31/12/2004

Calculation of GCR - Limits on the use of different forms of capital

PRU 8.3.44

As the various components of capital differ in the degree of protection that they offer the insurance group, restrictions are placed on the extent to which certain types of capital are eligible for inclusion in the group capital resources of the undertaking in PRU 8.3.17 R. These restrictions are set out in PRU 8.3.45 R.

31/12/2004

PRU 8.3.45

(1) For the purposes of PRU 8.3.9 R, PRU 8.3.10 R and PRU 8.3.15 R, a firm must ensure that at all times its tier one capital resources and tier two capital resources are of such an amount that the group capital resources of the undertaking in PRU 8.3.17 R comply with the following limits:

(a) (P - Q) > ½ (R - S);
(b) (P - Q + T - W) > ¾ (R - S);
(c) V > ½ P;
(d) Q < 15% of P;
(e) T < P; and
(f) W < ½ P

(2) For the purposes of PRU 8.3.9 R and PRU 8.3.10 R, a firm must ensure that at all times its tier one capital resources and tier two capital resources are of such an amount that its group capital resources comply with the following limit, subject to (4):
(P - Q + T) > 1/3 X + (R - S - U - X).
(3) For the purposes of (1) and (2):

(a) P is the total group tier one capital of the undertaking in PRU 8.3.17 R;
(b) Q is the sum of the innovative tier one capital resources calculated in accordance with PRU 8.3.53 R;
(c) R is the group capital resources requirement of the undertaking in PRU 8.3.17 R;
(d) S is the sum of all the with-profits insurance capital components of an undertaking in PRU 8.3.17 R that is an insurer and each of its regulated related undertakings that is an insurer;
(e) T is the total group tier two capital of the undertaking in PRU 8.3.17 R;
(f) U is the sum of all the resilience capital requirements of an undertaking in PRU 8.3.17 R that is an insurer and each of its regulated related undertakings that is an insurer;
(g) V is the sum of all the core tier one capital calculated in accordance with PRU 8.3.55 R;
(h) W is the sum of the lower tier two capital resources calculated in accordance with PRU 8.3.57 R; and
(i) X is the MCR of the firm less its resilience capital requirement, if any.

(4) For the purposes of (2):

(a) PRU 8.3.45 R (1)(a) does not apply;
(b) the innovative tier one capital of the firm or its regulated related undertakings that meets the conditions for it to be upper tier two capital may be included as upper tier two capital for the purpose of the calculation in PRU 8.3.50 R; and
(c) the firm must exclude from the calculation of (P - Q + T) in (2) the higher of:

(i) any amount by which the total group tier two capital exceeds the group capital resources of the firm less any innovative tier one capital excluded by (b); and
(ii) any amount by which the sum of lower tier two capital resources calculated in accordance with PRU 8.3.57 R exceeds one third of the group capital resources of the firm less any innovative tier one capital excluded by (b).

31/12/2005
Past version of PRU 8.3.45 before 31/12/2005

PRU 8.3.46

The amount of any capital item excluded from group capital resources under PRU 8.3.45 R (1)(d) may form part of total group tier two capital calculated in accordance with PRU 8.3.50 R subject to the limits in PRU 8.3.45 R (1)(e) and (f).

31/12/2004

PRU 8.3.47

For the purposes of PRU 8.3.10 R, a firm must ensure that the tier one capital resources and tier two capital resources of each of its long-term insurance business and its general insurance business are of such an amount that the group capital resources of each its long-term insurance business and its general insurance business comply with the limits in PRU 8.3.45 R separately for each type of business.

31/12/2004

Calculation of GCR - Total group tier one capital

PRU 8.3.48

For the purposes of PRU 8.3.43 R, the total group tier one capital of an undertaking in PRU 8.3.17 R is the sum of:

(1) the tier one capital resources of the undertaking in PRU 8.3.17 R; and
(2) subject to PRU 8.3.40 R, the tier one capital resources of each of the related undertakings of that undertaking that is a regulated related undertaking after the deduction in PRU 8.3.49 R.

31/12/2004

PRU 8.3.49

The deduction referred to in PRU 8.3.48 R is the sum of:

(1) the book value of the investment by the undertaking in PRU 8.3.17 R in the tier one capital resources of each of its related undertakings that is a regulated related undertaking; and
(2) the book value of the investments by related undertakings of the undertaking in PRU 8.3.17 R in the tier one capital resources of the undertaking in PRU 8.3.17 R and each of its related undertakings that is a regulated related undertaking.

31/12/2004

Calculation of GCR - Total group tier two capital

PRU 8.3.50

For the purposes of PRU 8.3.43 R, the total group tier two capital of an undertaking in PRU 8.3.17 R is the sum of:

(1) the upper tier two capital resources and the lower tier two capital resources of that undertaking; and
(2) subject to PRU 8.3.40 R, the upper tier two capital resources and the lower tier two capital resources of each of the related undertakings of that undertaking that is a regulated related undertaking after the deduction in PRU 8.3.51 R.

31/12/2004

PRU 8.3.51

The deduction referred to in PRU 8.3.50 R is the sum of:

(1) the book value of the investments by the undertaking in PRU 8.3.17 R in the upper tier two capital resources and the lower tier two capital resources of each of its related undertakings that is a regulated related undertaking; and
(2) the book value of the investments by related undertakings of the undertaking in PRU 8.3.17 R in the upper tier two capital resources and the lower tier two capital resources of the undertaking in PRU 8.3.17 R and each of its related undertakings that is a regulated related undertaking.

31/12/2004

PRU 8.3.52

For the purposes of PRU 8.3.50 R (2), the limits in PRU 2.2.23 R apply to the upper tier two capital resources and the lower tier two capital resources of any regulated related undertaking that is an insurer. Similar limits may apply to other regulated related undertakings under the relevant sectoral rules.

31/12/2004

Calculation of GCR - Innovative tier one capital resources, lower tier two capital resources and core tier one capital

PRU 8.3.53

For the purposes of PRU 8.3.45R (3)(b), the innovative tier one capital resources is the sum of:

(1) the innovative tier one capital resources of the undertaking in PRU 8.3.17 R; and
(2) subject to PRU 8.3.40 R, the innovative tier one capital resources of each of the related undertakings of that undertaking that is a regulated related undertaking after the deduction in PRU 8.3.54 R.

31/12/2004

PRU 8.3.54

The deduction referred to in PRU 8.3.53 R is the sum of:

(1) the book value of the investments by the undertaking in PRU 8.3.17 R in the innovative tier one capital resources of each of its related undertakings that is a regulated related undertaking; and
(2) the book value of the investments by related undertakings of the undertaking in PRU 8.3.17 R in the innovative tier one capital resources of the undertaking in PRU 8.3.17 R and each of its related undertakings that is a regulated related undertaking.

31/12/2004

PRU 8.3.55

For the purposes of PRU 8.3.45R (3)(g), the core tier one capital is the sum of:

(1) the core tier one capital of the undertaking of PRU 8.3.17 R; and
(2) subject to PRU 8.3.40 R, the core tier one capital of each of the related undertakings of that undertaking that is a regulated related undertaking after the deduction in PRU 8.3.56 R.

31/12/2004

PRU 8.3.56

The deduction referred to in PRU 8.3.55 R is the sum of:

(1) the book value of the investments by the undertaking in PRU 8.3.17 R in the core tier one capital of each of its related undertakings that is a regulated related undertaking; and
(2) the book value of the investments by related undertakings of the undertaking in PRU 8.3.17 R in the core tier one capital of the undertaking in PRU 8.3.17 R and each of its related undertakings that is a regulated related undertaking.

31/12/2004

PRU 8.3.57

For the purposes of PRU 8.3.45R (3)(h), the lower tier two capital resources is the sum of:

(1) the lower tier two capital resources of the undertaking in PRU 8.3.17 R; and
(2) subject to PRU 8.3.40 R, the lower tier two capital resources of each of the related undertakings of that undertaking that is a regulated related undertaking after the deduction in PRU 8.3.58 R.

31/12/2004

PRU 8.3.58

The deduction referred to in PRU 8.3.57 R is the sum of:

(1) the book value of the investments by the undertaking in PRU 8.3.17 R in the lower tier two capital resources of each of its related undertakings that is a regulated related undertaking; and
(2) the book value of the investments by related undertakings of the undertaking in PRU 8.3.17 R in the lower tier two capital resources of the undertaking in PRU 8.3.17 R and each of its related undertakings that is a regulated related undertaking.

31/12/2004

Calculation of GCR - Inadmissible assets

PRU 8.3.59

For the purpose of PRU 8.3.43 R, a firm must deduct from the group capital resources before deduction (calculated at stage C in the table in PRU 8.3.43 R) of the undertaking in PRU 8.3.17 R, the value of all assets of the undertaking in PRU 8.3.17 R and each of its regulated related undertakings that are not admissible assets as set out in PRU 8.3.60 R.

31/12/2004

PRU 8.3.60

For the purposes of PRU 8.3.59 R, an asset is not an admissible asset if:

(1) in respect of a regulated related undertaking or undertaking in PRU 8.3.17 R that is an insurer, it is not an admissible asset as listed in PRU 2 Annex 1R;
(2) in respect of a regulated related undertaking or undertaking in PRU 8.3.17 R that is not an insurer, it is an asset of the undertaking that is not admissible for the purpose of calculating that undertaking's solo capital resources in accordance with the sectoral rules applicable to it.

31/12/2004

PRU 8.3.61

For the purposes of PRU 8.3.60 R (2), the sectoral rules applicable to:

(1) an asset management company are the sectoral rules that would apply to it if, in connection with its activities, it were treated as an investment firm; and
(2) a financial institution that is not a regulated entity are the sectoral rules that would apply to it if, in connection with its activities, it were treated as being within the banking sector.

31/12/2004

Calculation of GCR - Deductions under requirement deduction method from group capital resources

PRU 8.3.62

For the purposes of PRU 8.3.43 R, a firm must deduct from the group capital resources before deduction (calculated at stage C in the table in PRU 8.3.43 R) of an undertaking in PRU 8.3.17 R, the sum of the value of the direct or indirect investments by the undertaking in PRU 8.3.17 R in each of its related undertakings which is an ancillary services undertaking, calculated in accordance with PRU 8.3.63 R.

31/12/2004

PRU 8.3.63

The value of an investment in an undertaking referred to in PRU 8.3.62 R is the higher of the book value of the direct or indirect investment by the undertaking in PRU 8.3.17 R and the notional capital resources requirement of that undertaking.

31/12/2004

PRU 8.3.64

For the purposes of PRU 8.3.63 R, the notional capital resources requirement is:

(1) for an ancillary insurance services undertaking, zero;
(2) for any other ancillary services undertaking, the capital resources requirement that would apply to that undertaking, if it were a regulated related undertaking, in accordance with the sectoral rules applicable to a regulated related undertaking whose activities are closest in nature and scope to the activities of that undertaking.

31/12/2004

Calculation of GCR - Deductions of ineligible surplus capital

PRU 8.3.65

Where the undertaking in PRU 8.3.17 R is a participating insurance undertaking, the firm must, for the purposes of PRU 8.3.43 R, deduct from its group capital resources before deduction (calculated at stage C in the table in PRU 8.3.43 R) the sum of the ineligible surplus capital of each of its regulated related undertakings that is an insurance undertaking, calculated in accordance with PRU 8.3.67 R.

31/12/2004

PRU 8.3.66

The purpose of PRU 8.3.65 R is to ensure that, where the undertaking in PRU 8.3.17 R is a firm, group capital resources are not overstated by the inclusion of capital that, although surplus to the requirements of the relevant regulated related undertaking that is an insurance undertaking, cannot practically be transferred to support requirements arising elsewhere in the group. Therefore, ineligible surplus capital in a regulated related undertaking that is an insurance undertaking is deducted in arriving at group capital resources. Surplus capital in such a regulated related undertaking is regarded as transferable only to the extent that:

(1) it can be transferred without the regulated related undertaking breaching its own limits on the use of different forms of capital;
(2) it does not contain assets that are restricted within the meaning of PRU 8.3.41 R; and
(3) in the case of a regulated related undertaking that has a long-term insurance business, it does not contain any assets allocated to the capital resources of that undertaking for the purposes of the capital resources of its long-term insurance business meeting the capital resources requirement of its long-term insurance business.

31/12/2004

PRU 8.3.67

(1) For the purposes of PRU 8.3.65 R, the ineligible surplus capital of a regulated related undertaking that is an insurance undertaking is calculated by deducting B from A where:

(a) A is the regulatory surplus value of that insurance undertaking less any restricted assets of the insurance undertaking that have been excluded under PRU 8.3.41 R; and
(b) B is the transferable capital of that undertaking.

(2) If A minus B is negative, the ineligible surplus capital is zero.

31/12/2004

PRU 8.3.68

For the purposes of PRU 8.3.67 R (1)(b), the transferable capital is calculated by deducting the sum of the following from the tier one capital resources of the regulated related undertaking that is an insurance undertaking:

(1) any restricted assets of that insurance undertaking that have been excluded under PRU 8.3.41 R;
(2) any tier one capital resources of that insurance undertaking that have been allocated towards meeting the individual capital resources requirement of its long-term insurance business; and
(3) the higher of:

(a) 50% of the individual capital resources requirement of the general insurance business of that insurance undertaking; and
(b) the individual capital resources requirement of the general insurance business of that insurance undertaking less the difference between E and F where:

(i) E is its tier two capital resources; and
(ii) F is the amount of its tier two capital resources that have been allocated towards meeting the individual capital resources requirement of its long-term insurance business.

31/12/2004

PRU 8.3.69

Examples of transferable and ineligible surplus capital:

Example 1

Share capital

Audited reserves

FFA

Tier two

Requirement

(i) Under PRU 8.3.68 R, transferable capital = tier one capital resources of 50, less the sum of:

(1) restricted assets excluded under PRU 8.3.41 R = (none);

(2) tier one capital resources allocated to the long-term insurance business = (none); and

(3) higher of (50% of 50 = 25 and 50 - 40 = 10) = (25) = (50 - 25) = 25

(2) Under PRU 8.3.67 R, ineligible surplus capital = regulatory surplus value (40) less restricted assets excluded under PRU 8.3.41 R (0) less transferable capital (25) = 15.

Example 2

Share capital

Audited reserves

FFA (of which 5 is restricted)

Tier two

Requirement (of which 4 relates to the long-term insurance business)

(i) Under PRU 8.3.68 R, transferable capital = tier one capital resources of 60, less the sum of:

(1) restricted assets excluded under PRU 8.3.41 R = (5);

(2) tier one capital resources allocated to the long-term insurance business = (5); and

(3) the higher of (50% of 45 = 22.5; and 45 - 40 = 5) = (22.5)= 60 - 32.5 = 27.5

(ii) Under PRU 8.3.67 R, ineligible surplus capital = regulatory surplus value (50) - restricted assets excluded under PRU 8.3.41 R of (5) - transferable capital (27.5) = 17.5.

Example 3

Share capital

Audited reserves

FFA (of which 0 is restricted)

Tier two (40, of which 5 is excluded at the solo level - see below)

Requirement (of which 25 relates to the long-term insurance business)

The requirement relating to the long-term insurance business is met by the FFA of 20 and tier two capital resources of 5. Of the remaining tier two capital resources of 35, 5 is excluded at the solo level because the tier one capital resources allocated to the general insurance business are 30.

(i) Under PRU 8.3.68 R, transferable capital = tier one capital resources of 50, less the sum of:

(1) restricted assets excluded under PRU 8.3.41 R = (none);

(2) tier one capital resources allocated to the long-term insurance business = (20); and

(3) the higher of (50% of 25 = 12.5; and 25 - (35 - 5) = -5) = (12.5)= 50 - 32.5 = 17.5.

(ii) Under PRU 8.3.67 R, ineligible surplus capital = regulatory surplus value (35) - restricted assets excluded under PRU 8.3.41 R of (0) - transferable capital (17.5) = 17.5.

31/12/2004

Calculation of GCR - Assets in excess of market risk and counterparty exposure limits

PRU 8.3.70

Where the undertaking in PRU 8.3.17 R is a participating insurance undertaking, the firm must deduct from its group capital resources before deduction (calculated at stage C in the table in PRU 8.3.43 R) the assets in excess of market risk and counterparty exposure limits calculated in accordance with PRU 8.3.74 R.

31/12/2004

PRU 8.3.71

For the purposes of PRU 8.3.43 R, where the undertaking in PRU 8.3.17 R is a participating insurance undertaking, the investments referred to in PRU 8.3.48 R and PRU 8.3.50 R are not subject to the market risk and counterparty exposure limits.

31/12/2004

PRU 8.3.72

The firm (A) must, subject to PRU 8.3.73 R, include in the calculation in PRU 8.3.74 R each related undertaking (B) that is:

(1) a regulated related undertaking that is a subsidiary undertaking; or
(2) a related undertaking where the firm has elected to value the shares held in that undertaking by the firm in accordance with PRU 1.3.35 R for the purposes of calculating the tier one capital resources of the firm.

31/12/2004

PRU 8.3.73

The related undertakings in PRU 8.3.72 R need only be included in the calculation in PRU 8.3.74 R if:

(1) where B is a regulated related undertaking, the solo capital resources of that undertaking exceed its individual capital resources requirement; or
(2) where B is an undertaking in PRU 8.3.72 R (2), its assets that fall within one or more of the categories in PRU 2 Annex 1R exceed its accounting liabilities.

31/12/2004

PRU 8.3.74

A's assets in excess of the market risk and counterparty exposure limits are calculated as follows:

(1) Subject to (2), a firm must apply the market risk and counterparty exposure limits in PRU 3.2.22 R (3) to:

(a) where B is an insurer, the admissible assets of B;
(b) where B is a regulated related undertaking that is not an insurer, the assets of that undertaking less those assets identified in PRU 8.3.60 R (2) as not being admissible assets.

(2) The market risk and counterparty exposure limits do not need to be applied to an undertaking in PRU 8.3.72 R (2).
(3) Where the assets of B in PRU 8.3.74 R (1) exceed the limits in PRU 3.2.22 R (3), the assets of B in excess of the limits must be deducted by the firm from B's solo capital resources for the purposes of PRU 8.3.30 R.
(4) After the application of (1) and (2), the surplus assets of B are aggregated with the admissible assets of A, where the surplus assets of B are:

(a) where B is a firm, the admissible assets of B that represent the amount by which the capital resources of B exceed its capital resources requirement, subject to PRU 8.3.77 R, and limited to the amount of transferable capital calculated in accordance with PRU 8.3.68 R;
(b) where B is a regulated related undertaking that is not a firm, the assets of the undertaking in PRU 8.3.74 R (1)(b) that represent the amount by which the solo capital resources of B exceed its individual capital resources requirement and, where B is an insurance undertaking that is not a firm, limited to the amount of transferable capital calculated in accordance with PRU 8.3.68 R; and
(c) where B is an undertaking in PRU 8.3.72 R (2), the assets of the undertaking which represent those assets that fall within one or more of the categories in PRU 2 Annex 1R which exceed its accounting liabilities.

(5) The market risk and counterparty exposure limits are then applied to the aggregate of A's admissible assets and the surplus assets in PRU 8.3.74 R (4).

31/12/2004

PRU 8.3.75

The firm (A) must then deduct the amount by which the admissible assets aggregated in accordance with PRU 8.3.74 R (5) exceed the market risk and counterparty exposure limits from A's group capital resources before deduction (calculated at stage C in the table in PRU 8.3.43 R) in accordance with PRU 8.3.70 R.

31/12/2004

PRU 8.3.76

In relation to any of its regulated related undertakings that is not an insurer, A may modify the calculation in PRU 8.3.74 R by:

(1) omitting the calculation in PRU 8.3.74 R (1) and (3); and
(2) aggregating all of the assets of B identified in PRU 8.3.74 R (1)(b) as admissible assets with the admissible assets of A in PRU 8.3.74 R (4).

31/12/2004

PRU 8.3.77

The admissible assets of either A or B that are part of a long-term insurance fund of A or B are excluded for the purposes of the calculation in PRU 8.3.74 R except insofar as those assets are available to meet the liabilities and capital resources requirement of that long-term insurance fund.

31/12/2004

PRU 8.3.78

If B is itself either a participating insurance undertaking or an insurance parent undertaking, the admissible assets of B for the purposes of PRU 8.3.74 R (1) must be calculated as in PRU 8.3.75 R but as if B were A.

31/12/2004

PRU 8.4

Cross sector groups

01/10/2005

Application

PRU 8.4.1

(1) PRU 8.4 applies to every firm that is a member of a financial conglomerate other than:

(a) an incoming EEA firm;
(b) an incoming Treaty firm;
(c) a UCITS qualifier; and
(d) an ICVC.

(2) PRU 8.4 does not apply to a firm with respect to a financial conglomerate of which it is a member if the interest of the financial conglomerate in that firm is no more than a participation.
(3) PRU 8.4.25 R (Capital adequacy requirements: high level requirement), PRU 8.4.26 R (Capital adequacy requirements: application of Method 4 from Annex I of the Financial Groups Directive), PRU 8.4.29 R (Capital adequacy requirements: application of Methods 1, 2 or 3 from Annex I of the Financial Groups Directive) and PRU 8.4.35 R (Risk concentration and intra group transactions: the main rule) do not apply with respect to a third-country financial conglomerate.

11/08/2004

Purpose

PRU 8.4.2

PRU 8.4 implements the Financial Groups Directive. However, material on the following topics is to be found elsewhere in the Handbook as follows:

(1) further material on third-country financial conglomerates can be found in PRU 8.5;
(2) SUP 15.9 contains notification rules for members of financial conglomerates;
(3) material on reporting obligations can be found in SUP 16.7.73 R and SUP 16.7.74 R; and
(4) material on systems and controls in financial conglomerates can be found in PRU 8.1.

11/08/2004

Introduction: identifying a financial conglomerate

PRU 8.4.3

(1) In general the process in (2) to (8) applies for identifying financial conglomerates.
(2) Competent authorities that have authorised regulated entities should try to identify any consolidation group that is a financial conglomerate. If a competent authority is of the opinion that a regulated entity authorised by that competent authority is a member of a consolidation group which may be a financial conglomerate it should communicate its view to the other competent authorities concerned.
(3) A competent authority may start (as described in (2)) the process of deciding whether a group is a financial conglomerate even if it would not be the coordinator.
(4) A member of a group may also start that process by notifying one of the competent authorities that have authorised group members that its group may be a financial conglomerate, for example by notification under SUP 15.9.
(5) If a group member gives a notification in accordance with (4), that does not automatically mean that the group should be treated as a financial conglomerate. The process described in (6) to (9) still applies.
(6) The competent authority that would be coordinator will take the lead in establishing whether a group is a financial conglomerate once the process has been started as described in (2) and (3).
(7) The process of establishing whether a group is a financial conglomerate will normally involve discussions between the financial conglomerate and the competent authorities concerned.
(8) A financial conglomerate should be notified by its coordinator that it has been identified as a financial conglomerate and of the appointment of the coordinator. The notification should be given to the parent undertaking at the head of the group or, in the absence of a parent undertaking, the regulated entity with the largest balance sheet total in the most important financial sector. That notification does not of itself make a group into a financial conglomerate; whether or not a group is a financial conglomerate is governed by the definition of financial conglomerate as set out in PRU 8.4.
(9) PRU 8 Ann 4R is a questionnaire (together with its explanatory notes) that the FSA asks groups that may be financial conglomerates to fill out in order to decide whether or not they are.

11/08/2004

Introduction: The role of other competent authorities

PRU 8.4.4

A lead supervisor (called the coordinator) is appointed for each financial conglomerate. Article 10 of the Financial Groups Directive describes the criteria for deciding which competent authority is appointed as coordinator. Article 11 of the Financial Groups Directive sets out the tasks of the coordinator.

11/08/2004

Definition of financial conglomerate: basic definition

PRU 8.4.5

A financial conglomerate means a consolidation group that is identified as a financial conglomerate in accordance with the decision tree in PRU 8 Ann 3G G.

31/12/2004

Definition of financial conglomerate: sub-groups

PRU 8.4.6

A consolidation group is not prevented from being a financial conglomerate because it is part of a wider:

(1) consolidation group; or
(2) financial conglomerate; or
(3) group of persons linked in some other way.

11/08/2004

Definition of financial conglomerate: the financial sectors: general

PRU 8.4.7

For the purpose of the definition of financial conglomerate, there are two financial sectors as follows:

(1) the banking sector and the investment services sector, taken together; and
(2) the insurance sector.

11/08/2004

PRU 8.4.8

(1) This rule applies for the purpose of the definition of financial conglomerate and the financial conglomerate definition decision tree.
(2) Any mixed financial holding company is considered to be outside the overall financial sector for the purpose of the tests set out in the boxes titled Threshold Test 1, Threshold Test 2 and Threshold Test 3 in the financial conglomerate definition decision tree.
(3) Determining whether the tests set out in the boxes titled Threshold Test 2 and Threshold Test 3 in the financial conglomerate definition decision tree are passed is based on considering the consolidated and/or aggregated activities of the members of the consolidation group within the insurance sector and the consolidated and/or aggregated activities of the members of the consolidation group within the banking sector and the investment services sector.

11/08/2004

Definition of financial conglomerate: adjustment of the percentages

PRU 8.4.9

Once a financial conglomerate has become a financial conglomerate and subject to supervision in accordance with the Financial Groups Directive, the figures in the financial conglomerate definition decision tree are altered as follows:

(1) the figure of 40% in the box titled Threshold Test 1 is replaced by 35%;
(2) the figure of 10% in the box titled Threshold Test 2 is replaced by 8%; and
(3) the figure of six billion Euro in the box titled Threshold Test 3 is replaced by five billion Euro.

11/08/2004

PRU 8.4.10

The alteration in PRU 8.4.9 R only applies to a financial conglomerate during the period that:

(1) begins when the financial conglomerate would otherwise have stopped being a financial conglomerate because it does not meet one of the unaltered thresholds referred to in PRU 8.4.9 R; and
(2) covers the three years following that date.

11/08/2004

Definition of financial conglomerate: balance sheet totals

PRU 8.4.11

The calculations referred to in the financial conglomerate definition decision tree regarding the balance sheet must be made on the basis of the aggregated balance sheet total of the members of the consolidation group, according to their annual accounts. For the purposes of this calculation, undertakings in which a participation is held must be taken into account as regards the amount of their balance sheet total corresponding to the aggregated proportional share held by the consolidation group. However, where consolidated accounts are available, they must be used instead of aggregated accounts.

11/08/2004

Definition of financial conglomerate: solvency requirement

PRU 8.4.12

The solvency and capital adequacy requirements referred to in the financial conglomerate definition decision tree must be calculated in accordance with the provisions of the relevant sectoral rules.

11/08/2004

Definition of financial conglomerate: discretionary changes to the definition

PRU 8.4.13

Articles 3(3) to 3(6), Article 5(4) and Article 6(5) of the Financial Groups Directive allow competent authorities, on a case by case basis, to:

(1) change the definition of financial conglomerate and the obligations applying with respect to a financial conglomerate;
(2) apply the scheme in the Financial Groups Directive to EEA regulated entities in specified kinds of group structures that do not come within the definition of financial conglomerate; and
(3) exclude a particular entity in the scope of capital adequacy requirements that apply with respect to a financial conglomerate.

11/08/2004

Capital adequacy requirements: introduction

PRU 8.4.14

The capital adequacy provisions of PRU 8.4 are designed to be applied to EEA-based financial conglomerates.

11/08/2004

PRU 8.4.15

PRU 8.4.25 R is a high level capital adequacy rule. It applies whether or not the FSA is the coordinator of the financial conglomerate concerned.

11/08/2004

PRU 8.4.16

PRU 8.4.26 R to PRU 8.4.31 R and PRU 8 Ann 1R G implement the detailed capital adequacy requirements of the Financial Groups Directive. They only deal with a financial conglomerate for which the FSA is the coordinator. If another competent authority is coordinator of a financial conglomerate, those rules do not apply with respect to that financial conglomerate and instead that coordinator will be responsible for implementing those detailed requirements.

11/08/2004

PRU 8.4.17

Annex I of the Financial Groups Directive lays down four methods for calculating capital adequacy at the level of a financial conglomerate. Those four methods are implemented as follows:

(1) Method 1 calculates capital adequacy using accounting consolidation. It is implemented by PRU 8.4.29 R to PRU 8.4.31 R and Part 1 of PRU 8 Ann 1R G.
(2) Method 2 calculates capital adequacy using a deduction and aggregation approach. It is implemented by PRU 8.4.29 R to PRU 8.4.31 R and Part 2 of PRU 8 Ann 1R 1.
(3) Method 3 calculates capital adequacy using book values and the deduction of capital requirements. It is implemented by PRU 8.4.29 R to PRU 8.4.31 R and Part 3 of PRU 8 Ann 1R G.
(4) Method 4 consists of a combination of Methods 1, 2 and 3 from Annex I of the Financial Groups Directive, or a combination of two of those Methods. It is implemented by PRU 8.4.26 R to PRU 8.4.28 R, PRU 8.4.30 R and Part 4 of PRU 8 Ann 1R G.

11/08/2004

PRU 8.4.18

Part 4 of PRU 8 Ann 1R G (Use of Method 4 from Annex I of the Financial Conglomerates Directive) applies the FSA's sectoral rules with respect to the financial conglomerate as a whole, with some adjustments. Where Part 4 of PRU 8 Ann 1R G applies the FSA's sectoral rules for:

(1) the insurance sector, that involves a combination of Methods 2 and 3; and
(2) the banking sector and the investment services sector, that involves a combination of Methods 1 and 3.

11/08/2004

PRU 8.4.19

Paragraph 5.5 of PRU 8 Ann 1R G (Capital adequacy calculations for financial conglomerates) deals with a case in which there are no capital ties between entities in a financial conglomerate. In particular, the FSA, after consultation with the other relevant competent authorities and in accordance with Annex I of the Financial Groups Directive, will determine which proportional share of a solvency deficit in such an entity will have to be taken into account, bearing in mind the liability to which the existing relationship gives rise.

11/08/2004

PRU 8.4.20

(1) In the following cases, the FSA (acting as coordinator) may choose which of the four methods for calculating capital adequacy laid down in Annex I of the Financial Groups Directive should apply:

(a) where a financial conglomerate is headed by a regulated entity that has been authorised by the FSA; or
(b) the only relevant competent authority for the financial conglomerate is the FSA.

(2) PRU 8.4.28 R automatically applies Method 4 from Annex I of the Financial Groups Directive in these circumstances except in the cases set out in PRU 8.4.28 R (1)(e) and PRU 8.4.28 R (1)(f). The process in PRU 8.4.22 G does not apply.

11/08/2004

PRU 8.4.21

Where PRU 8.4.20 G does not apply, the Annex I method to be applied is decided by the coordinator after consultation with the relevant competent authorities and the financial conglomerate itself.

11/08/2004

PRU 8.4.22

The method of calculating capital adequacy chosen in respect of a financial conglomerate as described in PRU 8.4.21 G will be applied with respect to that financial conglomerate by varying the Part IV permission of a firm in that financial conglomerate to include a requirement. That requirement will have the effect of obliging the firm to ensure that the financial conglomerate has capital resources of the type and amount needed to comply with whichever of the methods in PRU 8 Ann 1R G is to be applied with respect to that financial conglomerate. The powers in the Act relating to waivers and varying a firm's Part IV permission can be used to implement one of the methods from Annex I of the Financial Groups Directive in a way that is different from that set out in PRU 8.4 and PRU 8 Ann 1R G if that is necessary to reflect the consultations referred to in PRU 8.4.21 G.

11/08/2004

PRU 8.4.23

If there is more than one firm in a financial conglomerate with a Part IV permission, the FSA would not normally expect to apply the requirement described in PRU 8.4.22 G to all of them. Normally it will only be necessary to apply it to one.

11/08/2004

PRU 8.4.24

The FSA expects that in all or most cases falling into PRU 8.4.21 G, the rules in Part 4 of PRU 8 Ann 1R G will be applied.

11/08/2004

Capital adequacy requirements: high level requirement

PRU 8.4.25

(1) A firm that is a member of a financial conglomerate must at all times have capital resources of such an amount and type that results in the capital resources of the financial conglomerate taken as a whole being adequate.
(2) This rule does not apply with respect to any financial conglomerate until notification has been made that it has been identified as a financial conglomerate as contemplated by Article 4(2) of the Financial Groups Directive.

01/01/2005

Capital adequacy requirements: application of Method 4 from Annex I of the Financial Groups Directive

PRU 8.4.26

If this rule applies under PRU 8.4.27 R to a firm with respect to a financial conglomerate of which it is a member, the firm must at all times have capital resources of an amount and type:

(1) that ensure that the financial conglomerate has capital resources of an amount and type that comply with the rules applicable with respect to that financial conglomerate under Part 4 of PRU 8 Ann 1R G (as modified by that annex); and
(2) that as a result ensure that the firm complies with those rules (as so modified) with respect to that financial conglomerate.

01/01/2005

PRU 8.4.27

PRU 8.4.26 R applies to a firm with respect to a financial conglomerate of which it is a member if one of the following conditions is satisfied:

(1) the condition in PRU 8.4.28 R is satisfied; or
(2) this rule is applied to the firm with respect to that financial conglomerate as described in PRU 8.4.30 R.

01/01/2005

Capital adequacy requirements: compulsory application of Method 4 from Annex I of the Financial Groups Directive

PRU 8.4.28

(1) The condition in this rule is satisfied for the purpose of PRU 8.4.27 R (1) with respect to a firm and a financial conglomerate of which it is a member (with the result that PRU 8.4.26 R automatically applies to that firm) if:

(a) notification has been made in accordance with regulation 2 of the Financial Groups Directive Regulations that the financial conglomerate is a financial conglomerate and that the FSA is coordinator of that financial conglomerate;
(b) the financial conglomerate is not part of a wider FSA regulated EEA financial conglomerate;
(c) the financial conglomerate is not an FSA regulated EEA financial conglomerate under another rule or under paragraph (b) of the definition of FSA regulated EEA financial conglomerate (application of supplementary supervision through a firm's Part IV permission);
(d) one of the following conditions is satisfied:

(i) the financial conglomerate is headed by a regulated entity that is a UK domestic firm; or
(ii) the only relevant competent authority for that financial conglomerate is the FSA;

(e) this rule is not disapplied under paragraph 5.5 of PRU 8 Ann 1R G (No capital ties); and
(f) the financial conglomerate meets the condition set out in the box titled Threshold Test 2 (10% average of balance sheet and solvency requirements) in the financial conglomerate definition decision tree.

(2) Once PRU 8.4.26 R applies to a firm with respect to a financial conglomerate of which it is a member under PRU 8.4.27 R (1), (1)(f) ceases to apply with respect to that financial conglomerate. Therefore the fact that the financial conglomerate subsequently ceases to meet the condition in (1)(f) does not mean that the condition in this rule is not satisfied.

01/01/2005

Capital adequacy requirements: application of Methods 1, 2 or 3 from Annex I of the Financial Groups Directive

PRU 8.4.29

If with respect to a firm and a financial conglomerate of which it is a member, this rule is applied to the firm with respect to that financial conglomerate as described in PRU 8.4.30 R, the firm must at all times have capital resources of an amount and type that ensures that the conglomerate capital resources of that financial conglomerate at all times equal or exceed its conglomerate capital resources requirement.

01/01/2005

Capital adequacy requirements: use of Part IV permission to apply Annex I of the Financial Groups Directive

PRU 8.4.30

With respect to a firm and a financial conglomerate of which it is a member:

(1) PRU 8.4.26 R (Method 4 from Annex I of the Financial Groups Directive) is applied to the firm with respect to that financial conglomerate for the purposes of PRU 8.4.27 R (2); or
(2) PRU 8.4.29 R (Methods 1 to 3 from Annex I of the Financial Groups Directive) is applied to the firm with respect to that financial conglomerate;

if the firm's Part IV permission contains a requirement obliging the firm to comply with PRU 8.4.26 R or, as the case may be, PRU 8.4.29 R.

01/01/2005

PRU 8.4.31

If PRU 8.4.29 R (Methods 1-3 from Annex I of the Financial Groups Directive) applies to a firm with respect to a financial conglomerate of which it is a member, the definitions of conglomerate capital resources and conglomerate capital resources requirement that apply for the purposes of that rule are the ones from whichever of Part 1, Part 2 or Part 3 of PRU 8 Ann 1R G is specified in the requirement referred to in PRU 8.4.30 R.

01/01/2005

Risk concentration and intra-group transactions: introduction

PRU 8.4.32

PRU 8.4.35 R implements Article 7(4) and Article 8(4) of the Financial Groups Directive, which provide that where a financial conglomerate is headed by a mixed financial holding company, the sectoral rules regarding risk concentration and intra-group transactions of the most important financial sector in the financial conglomerate, if any, shall apply to that sector as a whole, including the mixed financial holding company.

11/08/2004

PRU 8.4.33

Articles 7(3) (Risk concentration) and 8(3) (Intra-group transactions) and Annex II (Technical application of the provisions on intra-group transactions and risk concentration) of the Financial Groups Directive say that Member States may apply at the level of the financial conglomerate the provisions of the sectoral rules on risk concentrations and intra-group transactions. PRU 8.4 does not take up that option, although the FSA may impose such obligations on a case by case basis.

11/08/2004

Risk concentration and intra-group transactions: application

PRU 8.4.34

PRU 8.4.35 R applies to a firm with respect to a financial conglomerate of which it is a member if:

(1) the condition in Articles 7(4) and 8(4) of the Financial Groups Directive is satisfied (the financial conglomerate is headed by a mixed financial holding company); and
(2) that financial conglomerate is an FSA regulated EEA financial conglomerate.

01/01/2005

Risk concentration and intra group transactions: the main rule

PRU 8.4.35

A firm must ensure that the sectoral rules regarding risk concentration and intra-group transactions of the most important financial sector in the financial conglomerate referred to in PRU 8.4.34 R are complied with with respect to that financial sector as a whole, including the mixed financial holding company. The FSA's sectoral rules for these purposes are those identified in the table in PRU 8.4.36 R.

01/01/2005

Risk concentration and intra-group transactions: Table of applicable sectoral rules

PRU 8.4.36

Application of sectoral rules

This table belongs to PRU 8.4.35 R

The most important financial sector

Applicable sectoral rules

Risk concentration

Intra-group transactions

Banking sector

Rules 3.3.13, 3.3.19 and 3.3.21 of chapter GN of IPRU(BANK) (as they apply to large exposures on a consolidated basis)

Rules 3.3.13, 3.3.19 and 3.3.21 of chapter GN of IPRU(BANK) (as they apply to large exposures on a solo basis)

Insurance sector

None

Rule 9.39 of IPRU(INS)

Investment services sector

Rule 14.3.2 in Chapter 14 of IPRU(INV)

Rule 10-190 in Chapter 10 of IPRU(INV) as it applies on a solo basis

Note:

The rules as applied in column three apply without any concession or exemption for exposures to other group members.

Note

The decision tree in paragraph 4.5 of PRU 8 Ann 1R G applies for the purpose of identifying the most important financial sector.

01/01/2005

PRU 8.4.37

The material in IPRU(BANK) that has particular application to the rules in IPRU(BANK) referred to in the table in PRU 8.4.36 R is:

(1) (in the case of column 2) Chapter LE as it applies on a consolidated basis;
(2) (in the case of column 3) Chapter LE as it applies on a solo basis.

01/01/2005

PRU 8.4.38

The table in PRU 8.4.36 R does not refer to the rules for building societies as a building society cannot have a mixed financial holding company as a parent.

01/01/2005

The financial sectors: asset management companies

PRU 8.4.39

(1) In accordance with Article 30 of the Financial Groups Directive (Asset management companies), this rule deals with the inclusion of an asset management company that is a member of a financial conglomerate in the scope of regulation of financial conglomerates. This rule does not apply to the definition of financial conglomerate.
(2) An asset management company is in the overall financial sector and is a regulated entity for the purpose of:

(a) PRU 8.4.26 R to PRU 8.4.36 R;
(b) PRU 8 Ann 1R G (Capital adequacy calculations for financial conglomerates) and PRU 8 Ann 2R (Prudential rules for third country groups); and
(c) any other provision of the Handbook relating to the supervision of financial conglomerates.

(3) In the case of a financial conglomerate for which the FSA is the coordinator, all asset management companies must be allocated to one financial sector for the purposes in (2), being either the investment services sector or the insurance sector. But if that choice has not been made in accordance with (4) and notified to the FSA in accordance with (4)(d), an asset management company must be allocated to the investment services sector.
(4) The choice in (3):

(a) must be made by the undertaking in the financial conglomerate holding the position referred to in Article 4(2) of the Financial Groups Directive (group member to whom notice must be given that the group has been found to be a financial conglomerate);
(b) applies to all asset management companies that are members of the financial conglomerate from time to time;
(c) cannot be changed; and
(d) must be notified to the FSA as soon as reasonably practicable after the notification in (4)(a).

11/08/2004

PRU 8.5

Third-country groups

01/10/2005

Application

PRU 8.5.1

PRU 8.5 applies to every firm that is a member of a third-country group. But it does not apply to:

(1) an incoming EEA firm; or
(2) an incoming Treaty firm; or
(3) a UCITS qualifier; or
(4) an ICVC.

11/08/2004

Purpose

PRU 8.5.2

PRU 8.5 implements in part Article 18 of the Financial Groups Directive and Article 56a of the Banking Consolidation Directive.

11/08/2004

Equivalence

PRU 8.5.3

The first question that must be asked about a third-country financial group is whether the EEA regulated entities in that third-country group are subject to supervision by a third-country competent authority, which is equivalent to that provided for by the Financial Groups Directive (in the case of a financial conglomerate) or the EEA prudential sectoral legislation for the banking sector or the investment services sector (in the case of a banking and investment group). Article 18(1) of the Financial Groups Directive sets out the process for establishing equivalence with respect to third-country financial conglomerates and the first three paragraphs of Article 56a of the Banking Consolidation Directive does so with respect to third-country banking and investment groups.

11/08/2004

Other methods: General

PRU 8.5.4

If the supervision of a third-country group by a third-country competent authority does not meet the equivalence test referred to in PRU 8.5.3 G, competent authorities may apply other methods that ensure appropriate supervision of the EEA regulated entities in that third-country group in accordance with the aims of supplementary supervision under the Financial Groups Directive or consolidated supervision under the applicable EEA prudential sectoral legislation.

11/08/2004

Supervision by analogy: introduction

PRU 8.5.5

If the supervision of a third-country group by a third-country competent authority does not meet the equivalence test referred to in PRU 8.5.3 G, a competent authority may, rather than take the measures described in PRU 8.5.4 G, apply, by analogy, the provisions concerning supplementary supervision under the Financial Groups Directive or, as applicable, consolidated supervision under the applicable EEA prudential sectoral legislation, to the EEA regulated entities in the banking sector, investment services sector and (in the case of a financial conglomerate) insurance sector.

11/08/2004

PRU 8.5.6

The FSA believes that it will only be right to adopt the option in PRU 8.5.5 G in response to very unusual group structures.

11/08/2004

PRU 8.5.7

PRU 8.5.8 R and PRU 8.5.9 R and PRU 8 Ann 2R set out rules to deal with the situation covered in PRU 8.5.5 G. Those rules do not apply automatically. Instead, they can only be applied with respect to a particular third-country group through the Part IV permission of a firm in that third-country group. Broadly speaking the procedure described in PRU 8.4.22 G also applies to this process.

11/08/2004

Supervision by analogy: rules for third-country conglomerates

PRU 8.5.8

If the Part IV permission of a firm contains a requirement obliging it to comply with this rule with respect to a third-country financial conglomerate of which it is a member, it must comply, with respect to that third-country financial conglomerate, with the rules in Part 1 of PRU 8 Ann 2R, as adjusted by Part 3 of that annex.

01/01/2005

Supervision by analogy: rules for third-country banking and investment groups

PRU 8.5.9

If the Part IV permission of a firm contains a requirement obliging it to comply with this rule with respect to a third-country banking and investment group of which it is a member, it must comply, with respect to that third-country banking and investment group, with the rules in Part 2 of PRU 8 Ann 2R, as adjusted by Part 3 of that annex.

01/01/2005

PRU 8 Ann 1R

01/10/2005

Capital adequacy calculations for financial conglomerates (PRU 8.4.26 R and PRU 8.4.29 R)

31/12/2004

PRU 8 Ann 1R 1

Table: PART 1: Method of Annex I of the Financial Groups Directive (Accounting Consolidation Method)

Capital resources

1.1

The conglomerate capital resources of a financial conglomerate calculated in accordance with this Part are the capital of that financial conglomerate, calculated on an accounting consolidation basis, that qualifies under paragraph 1.2.

1.2

The elements of capital that qualify for the purposes of paragraph 1.1 are those that qualify in accordance with the applicable sectoral rules, in accordance with the following:

(1)

the conglomerate capital resources requirement is divided up in accordance with the contribution of each financial sector to it; and

(2)

the portion of the conglomerate capital resources requirement attributable to a particular financial sector must be met by capital resources that are eligible in accordance with the applicable sectoral rules for that financial sector.

Capital resources requirement

1.3

The conglomerate capital resources requirement of a financial conglomerate calculated in accordance with this Part is equal to the sum of the capital adequacy and solvency requirements for each financial sector calculated in accordance with the applicable sectoral rules for that financial sector.

Consolidation

1.4

The information required for the purpose of establishing whether or not a firm is complying with PRU 8.4.29 R (insofar as the definitions in this Part are applied for the purpose of that rule) must be based on the consolidated accounts of the financial conglomerate, together with such other sources of information as appropriate.

1.5

The applicable sectoral rules that are applied under this Part are the applicable sectoral consolidation rules. Other applicable sectoral rules must be applied if required.

31/12/2004

PRU 8 Ann 1R 2

Table: PART 2: Method 2 of Annex I of the Financial Groups Directive (Deduction and aggregation Method)

Capital resources

2.1

The conglomerate capital resources of a financial conglomerate calculated in accordance with this Part are equal to the sum of the following amounts (so far as they qualify under paragraph 2.3) for each member of the overall financial sector:

(1)

(for the person at the head of the financial conglomerate) its solo capital resources;

(2)

(for any other member):

(a)

its solo capital resources; less

(b)

the book value of the financial conglomerate's investment in that member.

2.2

The deduction in paragraph 2.1(2) must be carried out separately for each type of capital represented by the financial conglomerate's investment in the member concerned.

2.3

The elements of capital that qualify for the purposes of paragraph 2.1 are those that qualify in accordance with the applicable sectoral rules. In particular, the portion of the conglomerate capital resources requirement attributable to a particular member of a financial sector must be met by capital resources that would be eligible under the sectoral rules that apply to the calculation of its solo capital resources.

Capital resources requirement

2.4

The conglomerate capital resources requirement of a financial conglomerate calculated in accordance with this Part is equal to the sum of the solo capital resources requirement for each member of the financial conglomerate that is in the overall financial sector.

Partial inclusion

2.5

The capital resources and capital resources requirements of a member of the financial conglomerate in the overall financial sector must be included proportionally. If however the member is a subsidiary undertaking and it has a solvency deficit, they must be included in full.

Accounts

2.6

The information required for the purpose of establishing whether or not a firm is complying with PRU 8.4.29 R (insofar as the definitions in this Part are applied for the purpose of that rule) must be based on the individual accounts of members of the financial conglomerate, together with such other sources of information as appropriate.

31/12/2004

PRU 8 Ann 1R 3

Table: PART 3: Method 3 of Annex I of the Financial Groups Directive (Book value/Requirement Method)

Capital resources

3.1

The conglomerate capital resources of a financial conglomerate calculated in accordance with this Part are equal to the capital resources of the person at the head of the financial conglomerate that qualify under paragraph 3.2.

3.2

The elements of capital that qualify for the purposes of paragraph 3.1 are those that qualify in accordance with the applicable sectoral rules. In particular, the portion of the conglomerate capital resources requirement attributable to a particular member of a financial sector must be met by capital resources that would be eligible under the sectoral rules that apply to the calculation of its solo capital resources.

Capital resources requirement

3.3

The conglomerate capital resources requirement of a financial conglomerate calculated in accordance with this Part is equal to the sum of the following amounts for each member of the overall financial sector:

(1)

(in the case of the person at the head of the financial conglomerate) its solo capital resources requirement;

(2)

(in the case of any other member) the higher of the following two amounts:

(a)

its solo capital resources requirement; and

(b)

the book value of the interest of the person at the head of the financial conglomerate in that member.

3.4

A participation may be valued using the equity method of accounting.

Partial inclusion

3.5

The capital resources requirement of a member of the financial conglomerate in the overall financial sector must be included proportionally. If however the member has a solvency deficit and is a subsidiary undertaking, it must be included in full.

Accounts

3.6

The information required for the purpose of establishing whether or not a firm is complying with PRU 8.4.29 R (insofar as the definitions in this Part are applied for the purpose of that rule) must be based on the individual accounts of members of the financial conglomerate, together with such other sources of information as appropriate.

31/12/2004

PRU 8 Ann 1R 4

Table: PART 4: Method 4 of Annex I of the Financial Groups Directive (Combination of Methods 1, 2 and 3)

Applicable sectoral rules

4.1

The rules that apply with respect to a particular financial conglomerate under PRU 8.4.26 R are those relating to capital adequacy and solvency set out in the table in paragraph 4.2.

31/12/2004

PRU 8 Ann 1R 5

Table: Paragraph 4.2: Application of sectoral consolidation rules

Type of financial conglomerate

Applicable sectoral consolidation rules

Banking conglomerate

IPRU(BANK) Chapter GN rule 3.3.13 (as it applies on a consolidated basis), subject to paragraph 4.7.

Insurance conglomerate

PRU 8.3 amended in accordance with Part 5.

Building society conglomerate

IPRU(BSOC) (Volume 1) Chapter 1, rule 1.2.1 (as it applies on a consolidated basis).

Investment services conglomerate

Chapter 14 of IPRU(INV).

31/12/2004

PRU 8 Ann 1G 6

Table

How to apply chapter 14 of IPRU(INV)

4.3

Where chapter 14 of IPRU(INV) applies:

(1)

the main investment services undertaking is treated as being the main firm for the purpose of rule 14.4.2 of chapter 14 of IPRU(INV);

(2)

if the main investment services undertaking is not subject to any of the FSA's sectoral rules applied by chapter 14 of IPRU(INV), then the FSA's sectoral rules that are applied are those that would do so if:

(a)

it were a UK domestic firm; and

(b)

it had a permission that includes all the regulated activities that it would need to have in its Part IV permission if it carried on all its activities in the United Kingdom.

The different types of financial conglomerate

4.4

(1)

The decision tree in paragraph 4.5:

(a)

decides into which of the categories listed in the table in paragraph 4.2 a financial conglomerate falls; and

(b)

modifies the definition of the most important financial sector for the purposes of PRU 8 Ann 1R G and for the purposes of any other provision in PRU 8 (Group risk) that applies that decision tree.

(2)

Paragraph 6.1(2) (financial institution allocated to the banking sector) and paragraph 6.1(3) (allocation of asset management companies) apply for the purpose of 4.4 and the table in paragraph 4.5.

31/12/2004

PRU 8 Ann 1.7

Paragraph 4.5: Types of financial conglomerate and definition of most important financial sector

31/12/2004

PRU 8 Ann 1.8

Table *

A mixed financial holding company

4.6

A mixed financial holding company must be treated in the same way as:

(1)

a financial holding company (if the rules in IPRU(BANK) or IPRU(INV)) are applied; or

(2)

an insurance holding company (if the rules in PRU 8.3 are applied).

E-money

4.7

If there are no full credit institutions or investment firms in a banking conglomerate but there are one or more e-money issuers, the sectoral rules in IPRU(BANK) are amended as follows :

(1)

the rules in ELM that apply on a solo basis must be used to establish the capital requirement for the e-money issuers; and

(2)

for the purpose of (1), those rules in ELM shall be amended by calculating the amount of the deductions in respect of ownership shares and capital falling into ELM 2.4.17 R (6) in accordance with paragraph 3.3(2).

31/12/2004

PRU 8 Ann 1R 9

Table: PART 5: Principles applicable to all methods

Transferability of capital

5.1

Capital may not be included in:

(1)

a firm's conglomerate capital resources under PRU 8.4.29 R; or

(2)

in the capital resources of the financial conglomerate for the purposes of PRU 8.4.26 R;

if the effectiveness of the transferability and availability of the capital across the different members of the financial conglomerate is insufficient, given the objectives (as referred to in the third unnumbered sub-paragraph of paragraph 2(ii) of Annex I of the Financial Groups Directive (Technical principles)) of the capital adequacy rules for financial conglomerates.

Double counting

5.2

Capital must not be included in:

(1)

a firm's conglomerate capital resources under PRU 8.4.29 R; or

(2)

the capital resources of the financial conglomerate for the purposes of PRU 8.4.26 R;

if:

(3)

it would involve double counting or multiple use of the same capital; or

(4)

it results from any inappropriate intra-group creation of capital.

Cross sectoral capital

5.3

In accordance with the second sub-paragraph of paragraph 2(ii) of Section I of Annex I of the Financial Groups Directive (Other technical principles and insofar as not already required in Parts 1-3):

(1)

the solvency requirements for each different financial sector represented in a financial conglomerate required by PRU 8.4.26 R or, as the case may be, PRU 8.4.29 R must be covered by own funds elements in accordance with the corresponding applicable sectoral rules; and

(2)

if there is a deficit of own funds at the financial conglomerate level, only cross sectoral capital (as referred to in that sub-paragraph) shall qualify for verification of compliance with the additional solvency requirement required by PRU 8.4.26 R or, as the case may be, PRU 8.4.29 R.

Application of sectoral rules

5.4

The following adjustments apply to the applicable sectoral rules as they are applied by the rules in this annex.

(1)

The scope of those rules will be extended to cover any mixed financial holding company and each other member of the overall financial sector.

(2)

If any of those rules would otherwise not apply to a situation in which they are applied by PRU 8 Ann 1R G, those rules nevertheless still apply (and in particular, any of those rules that would otherwise have the effect of disapplying consolidated supervision (or, in the case of the insurance sector, supplementary supervision) do not apply).

(3)

(If it would not otherwise have been included) an ancillary investment services undertaking is included in the investment services sector.

(4)

(If it would not otherwise have been included) an ancillary insurance services undertaking is included in the insurance sector.

(5)

(In relation to the insurance sector) to the extent that:

(a)

those rules merely require a report on whether or not a specified level of solvency is met (a soft limit); or

(b)

the requirements in those rules concern having certain net assets of an amount at or above certain levels;

those requirements are restated so as to include an obligation at all times actually to have capital at or above that level (a hard limit), thereby turning a soft limit drafted by reference to assets and liabilities into a hard limit requiring capital to be held at or above specified levels. If those rules apply both a hard and a soft limit, and the level of the soft limit is higher, that soft limit is applied under this annex, but translated into a hard limit in accordance with the earlier provisions of (5).

(6)

The scope of the those rules is amended so as to remove restrictions relating to where members of the financial conglomerate are incorporated or have their head office, so that the scope covers every member of the financial conglomerate that would have been included in the scope of those rules if those members had their head offices in an EEA State.

(7)

(For the purposes of Parts 1 to 3) those rules must be adjusted, if necessary, when calculating the capital resources, capital resources requirements or solvency requirements for a particular financial sector to exclude those for a member of another financial sector.

No capital ties

5.5

(1)

This rule deals with a financial conglomerate in which some of the members are not linked by capital ties at the time of the notification referred to in PRU 8.4.28 R (1) (Capital adequacy requirements: Compulsory application of Method 4 from Annex I of the Financial Groups Directive).

(2)

If:

(a)

PRU 8.4.26 R (Capital adequacy requirements: Application of Method 4 from Annex I of the Financial Groups Directive) would otherwise apply with respect to a financial conglomerate under PRU 8.4.28 R; and

(b)

all members of that financial conglomerate are linked directly or indirectly with each other by capital ties except for members that collectively are of negligible interest with respect to the objectives of supplementary supervision of regulated entities in a financial conglomerate (the "peripheral members");

PRU 8.4.28 R continues to apply. Otherwise PRU 8.4.28 R does not apply with respect to a financial conglomerate falling into (1).

(3)

If PRU 8.4.28 R applies with respect to a financial conglomerate in accordance with (2) the peripheral members must be excluded from the calculations under PRU 8.4.26 R.

(4)

If:

(a)

PRU 8.4.26 R applies with respect to a financial conglomerate falling into (1) under PRU 8.4.27 R (2) (Use of Part IV permission to apply Annex I of the Financial Groups Directive); or

(b)

PRU 8.4.49 (Capital adequacy requirements: Application of Methods 1, 2 or 3 from Annex I of the Financial Groups Directive) applies with respect to a financial conglomerate falling into (1);

then:

(c)

the treatment of the links in (1) (including the treatment of any solvency deficit) is as provided for in the requirement referred to in PRU 8.4.30 R; and

(d)

PRU 8.4.26 R or PRU 8.4.29 R, as the case may be, apply even if the applicable sectoral rules do not deal with how undertakings not linked by capital ties are to be dealt with for the purposes of consolidated supervision (or, in the case of the insurance sector, supplementary supervision).

(5)

Once PRU 8.4.26 R applies to a firm with respect to a financial conglomerate of which it is a member under PRU 8.4.27 R (1) (automatic application of Method 4 from Annex I of the Financial Groups Directive on satisfaction of the condition in PRU 8.4.28 R), the disapplication of PRU 8.4.28 R under (2) ceases to apply with respect to that financial conglomerate.

31/12/2004

PRU 8 Ann 1R 10

Table: PART 6: Definitions used in this Annex

Defining the financial sectors

6.1

For the purposes of Parts 1 to 3 of this annex (but, unless specified otherwise in paragraph 4.4, not for the purposes of the definition of most important financial sector):

(1)

the banking sector and the investment services sector are considered separately;

(2)

if a financial institution could otherwise fall into both the banking sector and the investment services sector, it must be allocated to the banking sector;

(3)

an asset management company is allocated in accordance with PRU 8.4.39 R; and

(4)

a mixed financial holding company must be treated as being a member of the most important financial sector.

Solo capital resources requirement: UK domestic firms

6.2

The solo capital resources requirement for a regulated entity that is a UK domestic firm is its solo regulatory capital requirement under the FSA's sectoral rules for its financial sector applicable to it.

Solo capital resources requirement: EEA firms

6.3

The solo capital resources requirement for an EEA regulated entity that is subject to the solo capital adequacy sectoral rules for its financial sector of the competent authority that authorised it is equal to the amount of capital resources it is obliged to hold under those sectoral rules.

Solo capital resources requirement: mixed financial holding company

6.4

The solo capital resources requirement for a mixed financial holding company is a notional capital requirement. It is the capital adequacy requirement that applies to regulated entities in the most important financial sector under the table in paragraph 6.8.

Solo capital resources requirement: non-EEA firms subject to equivalent regimes

6.5

The solo capital resources requirement for a regulated entity that:

(1)

does not fall into paragraphs 6.2 to 6.4;

(2)

is subject to any of the sectoral rules referred to in paragraph 6.6 applicable to its financial sector; and

(3)

is incorporated in and has its head office in:

(a)

(where the sectoral rules in (2) are for the banking sector or the investment services sector) the same state or territory as the regulator for those sectoral rules, as referred to in paragraph 6.6(1) or 6.6(2)); or

(b)

(where the sectoral rules in (2) are for the insurance sector) the designated state or territory in question, as referred to in 6.6(3);

is equal to the amount of capital resources it is obliged to hold under those sectoral rules. However, where 3(b) would otherwise apply, paragraph 6.7 may be applied instead.

6.6

The sectoral rules referred to in paragraph 6.5 are:

(1)

(for the banking sector) the sectoral rules of or administered by one of the regulators listed in Appendix D of chapter CS of IPRU(BANK);

(2)

(for the investment services sector) the sectoral rules of or administered by one of the regulators listed in Appendix 59 of chapter 10 of IPRU(INV); and

(3)

(for the insurance sector) the sectoral rules of the designated States or territories excluding EEA States.

Solo capital resources requirement: other members

6.7

The solo capital resources requirement for:

(1)

any of the following:

(a)

a UK domestic firm;

(b)

an EEA regulated entity; or

(c)

a regulated entity that is incorporated in and has its head office in one of the states or territories referred to in paragraph 6.5;

that is not subject to the solo capital adequacy sectoral rules referred to in paragraph 6.2, 6.3 or 6.6 (including in a case in which this paragraph applies under paragraph (i) of the definition of sectoral rules); and

(2)

any member of a financial conglomerate in the overall financial sector otherwise not treated under paragraphs 6.2 to 6.6;

is a notional capital requirement. It is the capital resources requirement that would apply to it under the following rules:

(3)

(in the case of an asset management company) the rules in Chapter 7 of IPRU(INV); and

(4)

(in any other case) the rules applicable to its financial sector under the table in paragraph 6.8.

01/06/2005
Past version of PRU 8 Ann 1R 10 before 01/06/2005

PRU 8 Ann 1R 11

Table: Paragraph 6.8: The FSA's sectoral rules for the solo capital resources requirement

Financial sector

FSA's sectoral rules

Banking sector

The FSA's sectoral rules for banks, except that e-money issuers are subject to ELM.

Insurance sector

The FSA's sectoral rules for insurance undertakings.

Investment services sector

(1) The rules in IPRU(INV) that would apply on the assumptions in paragraph 4.3(2).

(2) (If (1) does not result in the application of any rules in IPRU(INV)) the rules in IPRU(INV) that would be applied to it under rule 14.5.2 of Chapter 14 of IPRU(INV) (Group financial resources requirement).

31/12/2004

PRU 8 Ann 1R 12

Table

Solo capital resources requirement: the insurance sector

6.9

References to capital requirements in the provisions of PRU 8 Ann 1R G defining solo capital resources requirement must be interpreted in accordance with paragraph 5.4(5).

Applicable sectoral consolidation rules

6.10

The applicable sectoral consolidation rules for a financial sector are the FSA's sectoral rules about capital adequacy and solvency on a consolidated basis that are applied in the table in paragraph 6.11.

31/12/2004

PRU 8 Ann 1R 13

Table: Paragraph 6.11: Application of sectoral consolidation rules

Financial sector

Type of financial conglomerate

FSA's sectoral rules

Banking sector

Building society conglomerate

The rules for building societies.

Any other type

The rules for banks.

Insurance sector

N/A

The rules for insurance undertakings.

Investment services sector

N/A

The rules for investment firms.

Note 1: Paragraph 4.6 applies for the purposes of those rules.

31/12/2004

PRU 8 Ann 1R 14

Table:

Applicable sectoral consolidation rules (contd.)

6.12

The rules referred to in the third column of the table in paragraph 6.11 are as follows:

(1)

the rules for building societies are the ones for building society conglomerates listed in the table in paragraph 4.2;

(2)

the rules for banks are the ones for banking conglomerates listed in the table in paragraph 4.2 as adjusted under paragraph 4.7;

(3)

the rules for insurance undertakings are whichever of the ones for insurance conglomerates that are applied by the table in paragraph 4.2; and

(4)

the rules for investment firms are the ones for investment services conglomerates listed in the table in paragraph 4.2 as applied under paragraph 4.3 (How to apply chapter 14 of IPRU(INV)).

31/12/2004

PRU 8 Ann 2R

01/10/2005

Prudential rules for third country groups (PRU 8.5.8 R to PRU 8.5.9 R)

11/08/2004

PRU 8 Ann 2R 1

Table: PART 1: Third-country financial conglomerates

1.1

This Part of this annex sets out the rules with which a firm must comply under PRU 8.5.8 R with respect to a financial conglomerate of which it is a member.

1.2

A firm must comply, with respect to the financial conglomerate referred to in paragraph 1.1, with whichever of PRU 8.4.26 R and PRU 8.4.29 R is applied under paragraph 1.3.

1.3

For the purposes of paragraph 1.2:

(1) the rule in PRU 8.4 that applies as referred to in paragraph 1.2 is the one that is specified by the requirement referred to in PRU 8.5.8 R; (2) (where PRU 8.4.29 R is applied) the definitions of conglomerate capital resources and conglomerate capital resources requirement that apply for the purposes of that rule are the ones from whichever of Part 1, Part 2 or Part 3 of PRU 8 Ann 1R G is specified in that requirement; and (3) the rules so applied (including those in PRU 8 Ann 1R G) are adjusted in accordance with paragraph 3.1.

1.4

If the condition in Articles 7(4) and 8(4) of the Financial Groups Directive is satisfied (the financial conglomerate is headed by a mixed financial holding company) with respect to the financial conglomerate referred to in paragraph 1.1 the firm must also comply with PRU 8.4.35 R (as adjusted in accordance with paragraph 3.1) with respect to that financial conglomerate.

1.5

A firm must comply with the following with respect to the financial conglomerate referred to in paragraph 1.1:

(1)PRU 8.1 (as it applies to financial conglomerates and as adjusted under paragraph 3.1); and(2)PRU 8.4.25 R.

11/08/2004

PRU 8 Ann 2R 2

Table: PART 2: Third-country banking and investment groups

2.1

This Part of this annex sets out the rules with which a firm must comply under PRU 8.5.9 R with respect to a third-country banking and investment group of which it is a member.

2.2

A firm must comply with one of the sets of rules specified in paragraph 2.3 as adjusted under paragraph 3.1 with respect to the third-country banking and investment group referred to in paragraph 2.1.

2.3

The rules referred to in paragraph 2.2 are as follows:

(1)the applicable sectoral consolidation rules in IPRU(BANK); or (2) the applicable sectoral consolidation rules for the investment services sector; or(3)the rules in ELM 7.

2.4

The set of rules from paragraph 2.3 that apply with respect to a particular third-country banking and investment group (as referred to in paragraph 2.1) are those that would apply if they were adjusted in accordance with paragraph 3.1.

2.5

The sectoral rules applied by Part 2 of this annex cover all prudential rules applying on a consolidated basis including those relating to large exposures.

2.6

A firm must comply with PRU 8.1 (as it applies to banking and investment groups and as adjusted under paragraph 3.1) with respect to the third-country banking and investment group referred to in paragraph 2.1.

11/08/2004

PRU 8 Ann 2R 3

PART 3: Adjustment of scope

3.1

The adjustments that must be carried out under this paragraph are that the scope of the rules referred in Part 1 or Part 2 of this annex, as the case may be, are amended:

(1)so as to remove any provisions disapplying those rules for third-country groups;(2)so as to remove all limitations relating to where a member of the third-country group is incorporated or has its head office; and(3)so that the scope covers every member of the third-country group that would have been included in the scope of those rules if those members had their head offices in, and were incorporated in, an EEA State.

11/08/2004

PRU 8 Ann 3G

Guidance Notes for Classification of Groups

01/10/2005

This annex consists only of one or more forms or templates. Forms and templates are to be found through the 'Forms' link under Useful Links section at www.fsahandbook.info or on the Handbook CD-ROM.

Purpose and scope

11/08/2004

The form is designed to identify groups and sub-groups that are likely to be financial conglomerates under the Financial Groups Directive. A group may be a financial conglomerate if it contains both insurance and banking/investment businesses and meets certain threshold tests. The FSA needs to identify conglomerates with their head offices in the EEA and those with their head offices outside the EEA, although this does not necessarily mean that the latter will be subject to EEA conglomerate supervision.

11/08/2004

This form's purpose is to enable the FSA to obtain sufficient information so as to be able to determine how likely a group/sub-group is to be a financial conglomerate. In certain cases this can only be determined after consultation with the other EU relevant competent authorities. A second purpose of the form is therefore to identify any groups and sub-groups that may need such consultation so that this can be made as soon as possible. This should allow firms time to prepare to comply.

11/08/2004

The third purpose of the form is to gain information from firms on the most efficient way to implement the threshold calculations in detail (consistently with the directive). We have, therefore, asked for some additional information in part 4 of the form.

11/08/2004

A copy of this form can be found on the FSA's Financial Groups Website with current contact details.

11/08/2004

Please include workings showing the method employed to determine the percentages in part 2 (for the threshold conditions) and giving details of all important assumptions / approximations made in doing the calculations.

11/08/2004

The definition of financial conglomerate includes not only conventional groups made up of parent-subsidiary relationships but groups linked by control and "consolidation Article 12(1) relationships". If this is the case for your group, please submit along with this form a statement that this is the case. Please include in that statement an explanation of how you have included group members not linked by capital ties in the questionnaire calculations.

11/08/2004

A consolidation Article 12(1) relationship arises between undertakings in the circumstances set out in Article 12(1) of the Seventh Company Law Directive. These are set out in the Handbook Glossary (in the definition of consolidation Article 12(1) relationship). Broadly speaking, undertakings come within this definition if they do not form a conventional group but:

(a) are managed on a unified basis; or
(b) have common management.

11/08/2004

General guidance

11/08/2004

We would like this to be completed based on the most senior parent in the group, and, if applicable, for the company heading the most senior conglomerate group in the EEA. If appropriate, please also attach a list of all other likely conglomerate sub-groups.

11/08/2004

Please use the most recent accounts for the top level company in the group together with the corresponding accounts for all subsidiaries and participations that are included in the consolidated accounts. Please indicate the names of any significant subsidiaries with a different year-end from the group's year-end.

11/08/2004

Please note the following:

(a) Branches should be included as part of the parent entity.
(b) Include in the calculations overseas entities owned by the relevant group or sub-group.
(c) There are only two sectors for this purpose: banking/investment and insurance.
(d) You will need to assign non-regulated financial entities to one of these sectors:

• banking/investment activities are listed in - IPRU Banks CS 10 Appendix A
• insurance activities are listed in - IPRU Insurers Annex 11.1 and 11.2 p 163-168.
• Any operator of a UCITS scheme, insurance intermediary, mortgage broker and mixed financial holding company does not fall into the directive definitions of either financial sector or insurance sector. They should therefore be ignored for the purposes of these calculations.

11/08/2004

Threshold tests

11/08/2004

For the purpose of completing section 2 of the form relating to the threshold tests, the following guidance should be used. However, if you consider that for your group there is a more appropriate calculation then you may use this calculation so long as the method of computation is submitted with the form.

11/08/2004

Calculating balance sheet totals

11/08/2004

Generally, use total (gross) assets for the balance sheet total of a group/entity. However, investments in other entities that are part of the group will need to be deducted from the sector that has made the investment and the balance sheet total of the entity is added to the sector in which it operates.

11/08/2004

Our expectation of how this may be achieved efficiently is as follows:

(i) Off-balance-sheet items should be excluded.
(ii) Where off-balance sheet treatment of funds under management and on-balance sheet treatment of policy holders' funds may distort the threshold calculation, groups should consult the FSA on the appropriateness of using other measures under article 3.5 of the Financial Groups Directive.
(iii) If consolidated accounts exist for a sub-group consisting of financial entities from only one of the two sectors, these consolidated accounts should be used to measure the balance-sheet total of the sub-group (i.e. total assets less investments in entities in the other sector). If consolidated accounts do not exist, intra-group balances should be netted out when calculating the balance sheet total of a single sector (but cross-sector intra-group balances should not be netted out).
(iv) Where consolidated accounts are used, minority interests should be excluded and goodwill should be included.
(v) Where accounting standards differ between entities, groups should consult the FSA if they believe this is likely materially to affect the threshold calculation.
(vi) Where there is a subsidiary or participation in the opposite sector from its parent (i.e. insurance sector for a banking/investment firm parent and vice versa), the balance sheet amount of the subsidiary or participation should be allocated to its sector using its individual accounts.
(vii) The balance-sheet total of the parent entity/sub-group is measured as total assets of the parent/sub-group less the book value of its subsidiaries or participations in the other sector (i.e. the value of the subsidiary or participation in the parent's consolidated accounts is deducted from the parent's consolidated assets).
(viii) The cross-sector subsidiaries or participations referred to above, valued according to their own accounts, are allocated pro-rata, according to the aggregated share owned by the parent/sub-group, to their own sector.
(ix) If the cross-sector entities above themselves own group entities in the first sector (i.e. that of the top parent/sub-group) these should (in accordance with the methods above) be excluded from the second sector and added to the first sector using individual accounts.

11/08/2004

Solvency (capital adequacy) requirements

11/08/2004

Generally, the solvency requirements should be according to sectoral rules (that is EEA prudential sectoral legislation - see Glossary). However, for convenience, you may choose to use either EEA rules, FSA rules or local rules. But if this choice makes a significant difference, either with respect to whether the group is a financial conglomerate or with respect to which sector is the biggest, you should consult with the FSA. Non-regulated financial entities should have proxy requirements calculated on the basis of the most appropriate sector. If sub-groups submit single sector consolidated returns then the solvency requirement may be taken from those returns.

11/08/2004

Our expectation of how this may be achieved efficiently is as follows:

(i) If you complete a solvency return for a sub-group consisting of financial entities from only one of the two sectors, the total solvency requirement for the sub-group should be used.
(ii) Solvency requirements taken must include any deductions from available capital so as to allow the appropriate aggregation of requirements.
(iii) Where there is a regulated subsidiary or participation in the opposite sector from its parent/sub-group, the solvency requirement of the subsidiary or participation should be from its individual regulatory return. If there is an identifiable contribution to the parent's solvency requirement in respect of the cross-sector subsidiary or participation, the parent's solvency requirement may be adjusted to exclude this.
(iv) Where there is an unregulated financial undertaking in the opposite sector from its parent/sub-group, the solvency requirement of the subsidiary or participation should be one of the following:

(a) (a) as if the entity were regulated by the FSA under the appropriate sectoral rules;
(b) (b) using EU minimum requirements for the appropriate sector; or
(c) (c) using non-EU local requirements* for the appropriate sector.
Please note on the form which of these options you have used, according to the country and sector, and whether this is the same treatment as in your latest overall group solvency calculation.

(v) For banking/investment requirements, use the total amount of capital required.
(vi) For insurance requirements, use the Required Minimum Margin:

(a) (a) UK firms, Form 9: for general insurance business = capital resources requirement [line 29]; for long-term insurance business = capital resources requirement (higher of Minimum Capital Requirement and Enhanced Capital Resources Requirement) [line 52].
(b) (b) Overseas firms, either:

• the local requirement*;• the EU minimum; or
• the FSA requirement.* N.B. local requirements may only be used if they are at least equivalent to the EU minimum (designated states or territories). However, local requirements of a non-designated state or territory may be used if the resulting ratio in F5 is significantly below the 10% threshold (for this purpose "significantly below" may be taken to mean <5%).

11/08/2004

Market share measures

11/08/2004

These are not defined by the directive. The aim is to identify any standard industry approaches to measuring market share in individual EU countries by sector, or any data sources which are commonly used as a proxy.

11/08/2004

Threshold tests

11/08/2004

Test F2

11/08/2004

Test F3/F4/F5

11/08/2004

The relevant percentage for the insurance sector is:

11/08/2004

(A% + C%)/2 = I %

11/08/2004

The relevant percentage for the banking/investment sector is:

11/08/2004

(B% + D%)/2 = BI %

11/08/2004

The smallest sector is the sector with the smallest relevant percentage.

11/08/2004

If I% < BI% then F3 is insurance, F4 = A%, and F5 = C%

11/08/2004

If BI% < I% then F3 is banking/investment, F4 = B% and F5 = D

11/08/2004

PRU 8 Ann 4R

PRU 8 Ann 4 (see PRU 8.4.5 R)

01/10/2005

PRU 8 Ann 4.1R

11/08/2004

Footnote: The conditions are that the EEA regulated entity at the head of the consolidation group:

(1)is a parent undertaking of a member of the consolidation group in the overall financial sector;(2)has a participation in a member of the consolidation group that is in the overall financial sector; or(3)has a consolidation Article 12(1) relationship with a member of the consolidation group that is in the overall financial sector.

11/08/2004

Export chapter as

Legal Instruments that change this Chapter Group risk

PRU 9

Insurance
mediation & mortgage mediation, lending and administration

PRU 9.1

Responsibility for insurance mediation activity

01/10/2005

Application

PRU 9.1.1

This section applies to a firm with Part IV permission to carry on insurance mediation activity.

31/10/2004

Purpose

PRU 9.1.2

The main purpose of PRU 9.1.3 R, PRU 9.1.8 R and PRU 9.1.10 R is to implement in part the provisions of the Insurance Mediation Directive as these apply to firms regulated by the FSA.

31/10/2004

Responsibility for insurance mediation activity

PRU 9.1.3

An insurance intermediary, other than a sole trader, must allocate the responsibility for the firm's insurance mediation activity to a director or senior manager.

31/10/2004

PRU 9.1.4

The firm may allocate the responsibility for its insurance mediation activity under PRU 9.1.3 R to an approved person (or persons) performing:

(1) a governing function (other than the non-executive director function); or
(2) the apportionment and oversight function; or
(3) the significant management (other business operations) function.

14/01/2005
Past version of PRU 9.1.4 before 14/01/2005

PRU 9.1.5

(1) Typically an insurance intermediary will appoint a person performing a governing function (other than the non-executive director function) to direct its insurance mediation activity. Where this responsibility is allocated to a person performing another function, the person performing the apportionment and oversight function with responsibility for the apportionment of responsibilities under SYSC 2.1.1 R must ensure that the firm's insurance mediation activity under PRU 9.1.3 R is appropriately allocated.
(2) The descriptions of significant influence functions, other than the required functions, do not extend to activities carried on by an insurance intermediary with permission only to carry on insurance mediation activity and whose principal purpose is to carry on activities other than regulated activities (see SUP 10.1.21 R). In this case, the firm may allocate the responsibility for the firm's insurance mediation activity under PRU 9.1.3 R to one or more of the persons performing the apportionment and oversight function who will be required to be an approved person.
(3) In the case of a sole trader, the sole trader will be responsible for the firm's insurance mediation activity, whether or not he is himself a person approved to perform the sole trader function.

14/01/2005
Past version of PRU 9.1.5 before 14/01/2005

PRU 9.1.6

Where a firm has appointed an appointed representative to carry on insurance mediation activity on its behalf, the person responsible for the firm's insurance mediation activity will also be responsible for the insurance mediation activity carried on by an appointed representative.

31/10/2004

PRU 9.1.7

The FSA will specify in the FSA Register the name of the persons to whom the responsibility for the firm's insurance mediation activity has been allocated under PRU 9.1.3 R by inserting after the relevant controlled function the words "(insurance mediation)". In the case of a sole trader, the FSA will specify in the FSA Register the name of the sole trader as the 'contact person' in the firm.

14/01/2005
Past version of PRU 9.1.7 before 14/01/2005

Knowledge, ability and good repute

PRU 9.1.8

An insurance intermediary must establish on reasonable grounds that:

(1) a reasonable proportion of the persons within its management structure who are responsible for insurance mediation activity; and
(2) all other persons directly involved in its insurance mediation activity;
demonstrate the knowledge and ability necessary for the performance of their duties; and
(3) all the persons in its management structure and any staff directly involved in insurance mediation activity are of good repute.

31/10/2004

PRU 9.1.9

In determining a person's knowledge and ability under PRU 9.1.8 R (1) and PRU 9.1.8 R (2), the firm should have regard to matters including, but not limited to, whether the person:

(1) has demonstrated by experience and training to be able, or that he will be able, to perform his duties related to the firm's insurance mediation activity; and
(2) satisfies the relevant requirements of the FSA's Training and Competence sourcebook (TC).

31/10/2004

PRU 9.1.10

In considering a person's repute under PRU 9.1.8 R (3), the firm must ensure that the person:

(1) has not been convicted of any serious criminal offences linked to crimes against property or other crimes related to financial activities (other than spent convictions under the Rehabilitation of Offenders Act 1974 or any other national equivalent); and
(2) has not been adjudged bankrupt (unless the bankruptcy has been discharged);

under the law of any part of the United Kingdom or under the law of a country or territory outside the United Kingdom.

31/10/2004

PRU 9.1.11

For the purposes of PRU 9.1.10 R (1), the firm should give particular consideration to offences of dishonesty, fraud, financial crime or other offences under legislation relating to banking and financial services, companies, insurance and consumer protection.

31/10/2004

PRU 9.1.12

Firms are reminded that Principle 3 requires firms to take reasonable care to organise and control their affairs responsibly and effectively. Principle 3 is amplified in SYSC 3.1.1 R which requires firms to take reasonable care to establish and maintain such systems and controls as are appropriate to its business. A firm's systems and controls should enable it to satisfy itself of the suitability of anyone who acts for it (SYSC 3.2.13 G). This includes the assessment of an individual's honesty and competence. In addition, TC lists some general, high level commitments to training and competence which every firm should make and fulfil.

31/10/2004

PRU 9.1.13

PRU 9 Ann 1 G gives an example of how the FSA would expect firms to comply with the requirements in PRU 9.1.3 R, PRU 9.1.4 R, PRU 9.1.8 R and PRU 9.1.10 R.

31/10/2004

PRU 9.2

Professional indemnity insurance requirements for insurance and mortgage mediation activities

01/10/2005

Application

PRU 9.2.1

(1) This section applies to a firm with Part IV permission to carry on any of the activities in (2) unless (3), (4), (5) or (6) applies.
(2) The activities are:

(a) insurance mediation activity;
(b) mortgage mediation activity.

(a) In relation to insurance mediation activity, this section does not apply to a firm if another authorised person which has net tangible assets of more than ?10 million provides a comparable guarantee.
(b) If the firm is a member of a group in which there is an authorised person with net tangible assets of more than ?10 million, the comparable guarantee must be from that person.
(c) A 'comparable guarantee' means a written agreement on terms at least equal to those in PRU 9.2.10 R to finance the claims that might arise as a result of a breach by the firm of its duties under the regulatory system or civil law.

(4) In relation to mortgage mediation activity, this section does not apply to a firm if:

(a) it has net tangible assets of more than ?1 million; or
(b) the comparable guarantee provisions of (3) apply (as if the firm was carrying on insurance mediation activity) but substituting ?1 million for ?10 million in (a) and (b).

(5) In relation to all the activities in (2), this section does not apply to:

(a) an insurer; or
(b) a managing agent; or
(c) a firm to which IPRU(INV) 13.1.4(1) (Financial resource requirements for personal investment firms: requirement to hold professional indemnity insurance) applies.

(6) In relation to mortgage mediation activity, this section does not apply to an authorised professional firm:

(a) which is subject to IPRU(INV) 2.3.1 (Professional indemnity insurance requirements for authorised professional firms); and
(b) whose mortgage mediation activity is incidental to its main business.

31/10/2004

PRU 9.2.2

The definition of insurance mediation activity is any of several activities 'in relation to a contract of insurance' which includes a contract of reinsurance. This section, therefore, applies to a reinsurance intermediary in the same way as it applies to any other insurance intermediary.

31/10/2004

Purpose

PRU 9.2.3

The purposes of this section are to:

(1) implement article 4.3 of the Insurance Mediation Directive in so far as it requires insurance intermediaries to hold professional indemnity insurance, or some other comparable guarantee, against any liability that might arise from professional negligence; and
(2) meet the regulatory objectives of consumer protection and maintaining market confidence by ensuring that firms have adequate resources to protect themselves, and their customers, against losses arising from breaches in its duties under the regulatory system or civil law.

31/10/2004

PRU 9.2.4

Any breach in the duty of a firm or of its agents under the regulatory system or civil law can give rise to claims being made against the firm. Professional indemnity insurance has an important role to play in helping to finance such claims. In so doing, this section amplifies threshold condition 4 (Adequate resources). This threshold condition provides that a firm must have, on a continuing basis, resources that are, in the opinion of the FSA, adequate in relation to the regulated activities that the firm carries on.

31/10/2004

PRU 9.2.5

Under Principles 3 and 4 a firm is required to take reasonable care to organise and control its affairs responsibly and effectively with adequate risk management systems and to maintain adequate financial resources. Under Principle 9 a firm is obliged to take reasonable care to ensure the suitability of its advice on investments and discretionary decisions for any customer who is entitled to rely upon its judgement.

31/10/2004

PRU 9.2.6

Although financial resources and appropriate systems and controls can generally mitigate operational risk, professional indemnity insurance has a role in mitigating the risks a firm faces in its day to day operations, including those arising from not meeting the legally required standard of care when advising on investments. The purpose of this section is to ensure that a firm has in place the type, and level, of professional indemnity insurance necessary to mitigate these risks.

31/10/2004

Requirement to hold professional indemnity insurance

PRU 9.2.7

A firm must take out and maintain professional indemnity insurance that is at least equal to the requirements of PRU 9.2.10 R from:

(1) an insurance undertaking authorised to transact professional indemnity insurance in the EEA; or
(2) a person of equivalent status in:

(i) a Zone A country; or
(ii) the Channel Islands, Gibraltar, Bermuda or the Isle of Man.

31/10/2004

PRU 9.2.8

The minimum limits of indemnity for a firm whose Part IV permission covers more than one regulated activity within the scope of this section is the higher of the limits of indemnity as set out in PRU 9.2.13 R and the limits of indemnity as set out in PRU 9.2.15 R. If the firm opts for a single comparable guarantee to finance the claims which might arise as a result of both activities, the provisions set out in PRU 9.2.1 R (3) apply.

14/01/2005
Past version of PRU 9.2.8 before 14/01/2005

PRU 9.2.9

A non-EEA firm (such as a captive insurance company outside the EEA) will be able to provide professional indemnity insurance only if it is authorised to do so in one of the countries or territories referred to in PRU 9.2.7 R (2). The purpose of this provision is to balance the level of protection required for the policyholder against a reasonable level of flexibility for the firm.

31/10/2004

Terms to be incorporated in the insurance

PRU 9.2.10

In relation to the activities referred to in PRU 9.2.1 R (2), the contract of professional indemnity insurance must incorporate terms which make provision for:

(1) cover in respect of claims for which a firm may be liable as a result of the conduct of itself, its employees and its appointed representatives (acting within the scope of their appointment);
(2) the minimum limits of indemnity per year as set out in PRU 9.2.13 R (in relation to insurance mediation activity) and PRU 9.2.15 R (in relation to mortgage mediation activity);
(3) an excess as set out in PRU 9.2.17 R to PRU 9.2.22 R;
(4) appropriate cover in respect of legal defence costs;
(5) continuous cover in respect of claims arising from work carried out from the date on which the firm was given Part IV permission in relation to any of the activities referred to in (2); and
(6) cover in respect of Ombudsman awards made against the firm.

01/01/2006
Past version of PRU 9.2.10 before 01/01/2006

PRU 9.2.11

In relation to PRU 9.2.10 R (1), a firm should be aware that it is responsible for the conduct of all of its employees. The firm's employees include, but are not limited to, its partners, directors, individuals that are self-employed or operating under a contract hire agreement and any other individual that is employed in connection with its business.

31/10/2004

PRU 9.2.12

In relation to PRU 9.2.10 R (1), a firm should be aware that it is responsible for the conduct of all of its appointed representatives.

31/10/2004

Minimum limits of indemnity: insurance intermediary

PRU 9.2.13

If the firm is an insurance intermediary, then the minimum limits of indemnity referred to in PRU 9.2.10 R (2) are:

(1) for a single claim, ?1 million; and
(2) in aggregate, ?1.5 million or, if higher, 10% of annual income (see PRU 9.3.42 R) up to ?30 million.

14/01/2005
Past version of PRU 9.2.13 before 14/01/2005

PRU 9.2.14

If a policy is denominated in any currency other than euros, a firm must take reasonable steps to ensure that the limits of indemnity are, when the policy is effected and at renewal, at least equivalent to those required in PRU 9.2.13 R.

31/10/2004

Minimum limits of indemnity: mortgage intermediary

PRU 9.2.15

If the firm is a mortgage intermediary, then the minimum limit of indemnity referred to in PRU 9.2.10 R (2) is the higher of 10% of annual income (see PRU 9.3.42 R) up to ?1 million, and:

(1) for a single claim, ?100,000; or
(2) in aggregate, ?500,000.

14/01/2005
Past version of PRU 9.2.15 before 14/01/2005

Excess

PRU 9.2.16

In this section, "client assets" includes a document only if it has value, or is capable of having value, in itself (such as a bearer instrument).

31/10/2004

PRU 9.2.17

For a firm which does not hold client money or other client assets, the excess referred to in PRU 9.2.10 R (3) is not more than the higher of:

(1) ?2,500; and
(2) 1.5% of annual income (see PRU 9.3.42 R).

31/10/2004

PRU 9.2.18

For a firm which holds client money or other client assets, the excess referred to in PRU 9.2.10 R (3) is not more than the higher of:

(1) ?5,000; and
(2) 3% of annual income (see PRU 9.3.42 R).

31/10/2004

Policies covering more than one firm

PRU 9.2.19

If a policy provides cover to more than one firm, then in relation to PRU 9.2.13 R, PRU 9.2.14 R and PRU 9.2.15 R:

(1) the limits of indemnity must be calculated on the combined annual income (see PRU 9.3.42 R) of all the firms named in the policy; and
(2) each firm named in the policy must have the benefit of the minimum limits of indemnity as required in PRU 9.2.13 R or PRU 9.2.15 R.

31/10/2004

Additional capital

PRU 9.2.20

If a firm seeks to have an excess which is higher than the limits in PRU 9.2.17 R (for a firm not holding client money or other client assets) or PRU 9.2.18 R (for a firm holding client money or other client assets), it must hold additional capital as calculated in PRU 9.2.21 R or PRU 9.2.22 R (as appropriate).

31/10/2004

PRU 9.2.21

Table: Calculation of additional capital for firm not holding client money or other client assets (?000's)

Income

Excess obtained up to and including:

More than

Up to

2.5

100

150

200+

100

200

300

400

500

600

100

600

700

104

700

800

107

800

900

109

900

1,000

111

1,000

1,500

118

1,500

2,000

121

2,000

2,500

126

2,500

3,000

101

130

3,000

3,500

101

132

3,500

4,000

101

133

4,000

4,500

101

134

4,500

5,000

134

5,000

6,000

133

6,000

7,000

131

7,000

8,000

126

8,000

9,000

120

9,000

10,000

113

10,000

100,000

n/a

31/10/2004

PRU 9.2.22

Table: Calculation of additional capital for firm holding client money or other client assets (?000's)

Income

Excess obtained up to and including:

More than

Up to

100

150

200+

100

200

300

400

500

600

700

800

900

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

6,000

7,000

8,000

9,000

10,000

100,000

n/a

31/10/2004

PRU 9.2.23

PRU 9.3.52 R sets out the items which are eligible to contribute to the capital resources of a firm for the purposes of PRU 9.2.20 R.

31/10/2004

PRU 9.3

Capital resources for insurance and mortgage mediation activity and mortgage lending and administration

01/10/2005

Application

PRU 9.3.1

(1) This section applies to a firm with Part IV permission to carry on any of the activities in (2) unless any of PRU 9.3.4 R to PRU 9.3.11 R applies.
(2) The activities are:

(a) insurance mediation activity;
(b) mortgage mediation activity;
(c) entering into a regulated mortgage contract (that is, mortgage lending);
(d) administering a regulated mortgage contract (that is, mortgage administration).

31/10/2004

PRU 9.3.2

As this section applies only to a firm with Part IV permission, it does not apply to an incoming EEA firm (unless it has a top-up permission). An incoming EEA firm includes a firm which is passporting into the United Kingdom under the IMD (see SUP 13A.4.2 G , in relation to branches, and SUP 13A.5.3 G , in relation to cross border services).

01/02/2006
Past version of PRU 9.3.2 before 01/02/2006

PRU 9.3.3

The definition of insurance mediation activity refers to several activities 'in relation to a contract of insurance' which includes a contract of reinsurance. This section, therefore, applies to a reinsurance intermediary in the same way as it applies to any other insurance intermediary.

31/10/2004

Application: banks, building societies, insurers and friendly societies

PRU 9.3.4

This section does not apply to:

(1) a bank; or
(2) a building society; or
(3) a solo consolidated subsidiary of a bank or a building society; or
(4) an insurer; or
(5) a friendly society.

31/10/2004

PRU 9.3.5

The capital resources of firms within PRU 9.3.4 R are calculated in accordance with the appropriate IPRU.

31/10/2004

Application: firms carrying on designated investment business only

PRU 9.3.6

This section does not apply to a firm whose Part IV permission is limited to regulated activities which are designated investment business.

31/10/2004

PRU 9.3.7

A firm which carries on designated investment business, and no other regulated activity, may disregard this section. For example, a firm with permission limited to dealing in investments as agent in relation to securities is only carrying on designated investment business and IPRU(INV) will apply. However, if its permission is varied to enable it to arrange motor insurance as well, this activity is not designated investment business so the firm will be subject to the higher of the requirements in this section and IPRU(INV) (see PRU 9.3.24 R).

31/10/2004

Application: credit unions

PRU 9.3.8

This section does not apply to:

(1) a 'small credit union', that is one with:

(a) assets of ?5 million or less; and
(b) a total number of members of 5,000 or less (see CRED 8.3.14 R); or

(2) a credit union whose Part IV permission includes mortgage lending or mortgage administration (or both) and no other activities in PRU 9.3.1 R (2).

31/10/2004

PRU 9.3.9

(1) For credit unions to which this section applies and which are not CTF providers, the capital requirements will be the higher of the requirements in this section and in CRED (see PRU 9.3.25 R).
(2) For credit unions to which this section applies and which are CTF providers with permission to carry on designated investment business, the capital requirements will be the highest of the requirements in this section, those in CRED and of IPRU(INV) Chapter 8 (see PRU 9.3.25 R).

01/12/2004

Application: professional firms

PRU 9.3.10

(1) This section does not apply to an authorised professional firm:

(a) whose main business is the practice of its profession; and
(b) whose regulated activities in PRU 9.3.1 R (2) are incidental to its main business.

(2) A firm's main business is the practice of its profession if the proportion of income it derives from professional fees is, during its annual accounting period, at least 50% of the firm's total income (a temporary variation of not more than 5% may be disregarded for this purpose).
(3) Professional fees are fees, commissions and other receipts receivable in respect of legal, accountancy or actuarial services provided to clients but excluding any items receivable in respect of regulated activities.

31/10/2004

Application: Lloyd's managing agents

PRU 9.3.11

This section does not apply to a managing agent.

31/10/2004

PRU 9.3.12

The reason for excluding managing agents from the provisions of this section is twofold: first, a member will have accepted full responsibility for those activities under the Society's managing agent agreement. Secondly, the member is itself subject to capital requirements which are equivalent to those applying to an insurer (to which this section is also disapplied - see PRU 9.3.4 R (4)).

31/10/2004

Application: social housing firms

PRU 9.3.13

There are special provisions for a social housing firm when it is carrying on mortgage lending or mortgage administration (see PRU 9.3.26 R).

31/10/2004

Purpose

PRU 9.3.14

This section amplifies threshold condition 4 (Adequate resources) by providing that a firm must meet, on a continuing basis, a basic solvency requirement (PRU 9.3.20 R) and a minimum capital resources requirement (PRU 9.3.21 R). This section also amplifies Principle 4 which requires a firm to maintain adequate financial resources by setting out capital requirements for a firm according to the regulated activity or activities it carries on.

31/10/2004

PRU 9.3.15

Capital has an important role to play in protecting consumers and complements the roles played by professional indemnity insurance (see PRU 9.2 (Professional indemnity insurance)) and client money protection (see the client money rules including, in particular, those in CASS 5 (Client money and mandates: insurance mediation activity)). Capital provides a form of protection for situations not covered by a firm's professional indemnity insurance and it provides the funds for the firm's PII excess, which it has to pay out of its own finances. The relationship between the firm's capital and its excess is set out in PRU 9.2.17 R.

31/10/2004

PRU 9.3.16

More generally, having adequate capital gives the firm a degree of resilience and some indication to consumers of creditworthiness, substance and the commitment of its owners. It reduces the possibility of a shortfall of funds and provides a cushion against disruption if the firm ceases to trade.

31/10/2004

PRU 9.3.17

There is a greater risk to consumers, and a greater adverse impact on market confidence, if a firm holding client money or other client assets fails. For this reason, the capital resources rules in this section clearly distinguish between firms holding client assets and those that do not.

31/10/2004

Purpose: social housing firms

PRU 9.3.18

Social housing firms undertake small amounts of mortgage business even though their main business consists of activities other than regulated activities. Their mortgage lending is only done as an adjunct to their primary purpose (usually the provision of housing) and is substantially different in character to that done by commercial lenders. Furthermore, they are subsidiaries of local authorities or registered social landlords which are already subject to separate regulation. The FSA does not consider that it would be proportionate to the risks involved with such business to impose significant capital requirements for these firms. PRU 9.3.26 R therefore simply provides that, where their Part IV permission is limited to mortgage lending and mortgage administration, their net tangible assets must be greater than zero.

31/10/2004

PRU 9.3.19

A registered social landlord is a non-profit organisation which provides and manages homes for rent and sale for people who might not otherwise be able to rent or buy on the open market. It can be a housing association, a housing society or a non-profit making housing company. The Housing Corporation, which was set up by Parliament in 1964, funds homes built by registered social landlords from money received from central government.

31/10/2004

Capital resources: general rules

PRU 9.3.20

A firm must at all times ensure that it is able to meet its liabilities as they fall due.

31/10/2004

PRU 9.3.21

A firm must at all times maintain capital resources equal to or in excess of its relevant capital resources requirement.

31/10/2004

Capital resources: relevant accounting principles

PRU 9.3.22

A firm must recognise an asset or liability, and measure its amount, in accordance with the relevant accounting principles applicable to it for the purpose of preparing its annual financial statements unless a rule requires otherwise.

21/04/2005
Past version of PRU 9.3.22 before 21/04/2005

Capital resources: client assets

PRU 9.3.23

In this section, "client assets" includes a document only if it has value, or is capable of having value, in itself (such as a bearer instrument).

31/10/2004

Capital resources requirement: firms carrying on regulated activities including designated investment business

PRU 9.3.24

The capital resources requirement for a firm (other than a credit union) carrying on regulated activities, including designated investment business, is the higher of:

(1) the requirement which is applied by this section according to the activity or activities of the firm (treating the relevant rules as applying to the firm by disregarding its designated investment business); and
(2) the financial resource requirement which is applied by IPRU(INV).

01/12/2004

Capital resources requirement: credit unions

PRU 9.3.25

The capital resources requirement for a credit union to which this section applies (see PRU 9.3.8 R) is the highest of:

(1) the requirement which is applied by PRU 9.3.30 R (Capital resources requirement: mediation activity only) treating that rule as applying to the credit union by disregarding activities which are not insurance mediation activity or mortgage mediation activity;
(2) the amount which is applied by CRED 8 (Capital requirements); and
(3) if the credit union is a CTF provider that has a permission to carry on designated investment business, the amount which is applied by IPRU(INV) Chapter 8.

01/12/2004

Capital resources requirement: social housing firms

PRU 9.3.26

The capital resources requirement for a social housing firm whose Part IV permission is limited to carrying on the regulated activities of:

(1) mortgage lender; or
(2) mortgage administration (or both);

is that the firm's net tangible assets must be greater than zero.

31/10/2004

PRU 9.3.27

If a social housing firm is carrying on mortgage lending or mortgage administration (and no other regulated activity), its net tangible assets must be greater than zero. However, if it carries on insurance mediation activity, or mortgage mediation activity, there is no special provision and PRU 9.3.24 R or PRU 9.3.30 R applies to it as appropriate.

31/10/2004

Capital resources requirement: application according to regulated activities

PRU 9.3.28

Unless any of PRU 9.3.24 R to PRU 9.3.26 R applies (firms carrying on designated investment business, credit unions and social housing firms), the table in PRU 9.3.29 R specifies the provisions for calculating the capital resources requirement for a firm according to the regulated activity or activities it carries on.

31/10/2004

PRU 9.3.29

Table: Application of capital resources requirements

Regulated activities

Provisions

(a) insurance mediation activity; or(b) mortgage mediation activity (or both);

and no other regulated activity.

PRU 9.3.30 R

(a) mortgage lending; or(b) mortgage lending and mortgage administration;

and no other regulated activity.

PRU 9.3.31 R to PRU 9.3.36 E

mortgage administration;

and no other regulated activity.

PRU 9.3.37 R to PRU 9.3.38 R

insurance mediation activity; and

(a)mortgage lending; or(b)mortgage administration (or both).

PRU 9.3.39 R

mortgage mediation activity; and

(a)mortgage lending, or(b)mortgage administration (or both).

PRU 9.3.40 R

Any combination of regulated activities not within rows 1 to 5.

PRU 9.3.41 R

31/10/2004

Capital resources requirement: mediation activity only

PRU 9.3.30

(1) If a firm (carrying on the activities in row 1 of the table in PRU 9.3.29 R) does not hold client money or other client assets in relation to its insurance mediation activity or mortgage mediation activity, its capital resources requirement is the higher of:

(a) ?5,000; and
(b) 2.5% of the annual income (see PRU 9.3.42 R) from its insurance mediation activity or mortgage mediation activity (or both).

(2) If a firm (carrying on the activities in row 1 of the table in PRU 9.3.29 R) holds client money or other client assets in relation to its insurance mediation activity or mortgage mediation activity, its capital resources requirement is the higher of:

(a) ?10,000; and
(b) 5% of the annual income (see PRU 9.3.42 R) from its insurance mediation activity or mortgage mediation activity (or both).

31/10/2004

Capital resources requirement: mortgage lending and administration (but not mortgage administration only)

PRU 9.3.31

(1) The capital resources requirement of a firm (carrying on the activities in row 2 of the table at PRU 9.3.29 R) is the higher of:

(a) ?100,000; and
(b) 1% of:

(i) its total assets plus total undrawn commitments; less:
(ii) loans excluded by PRU 9.3.33 R plus intangible assets (see Note 1 in the table in PRU 9.3.53 R).

(2) Undrawn commitments in (1)(b)(i) means the total of those amounts which a borrower has the right to draw down from the firm but which have not yet been drawn down, excluding those under an agreement:

(a) which has an original maturity of up to one year; or
(b) which can be unconditionally cancelled at any time by the lender.

31/10/2004

PRU 9.3.32

When considering what is an undrawn commitment, the FSA takes into account an amount which a borrower has the right to draw down, but which has not yet been drawn down, whether the commitment is revocable or irrevocable, conditional or unconditional.

31/10/2004

PRU 9.3.33

When calculating total assets for the purposes of PRU 9.3.31 R, the firm may exclude a loan which has been transferred to a third party only if it meets the following conditions:

(1) the loan must have been transferred in a legally effective manner by one of the following means:

(a) novation; or
(b) legal or equitable assignment; or
(c) sub-participation; or
(d) declaration of trust; and

(2) the lender:

(a) retains no material economic interest in the loan; and
(b) has no material exposure to losses arising from it.

31/10/2004

PRU 9.3.34

(1) When seeking to rely on the condition in PRU 9.3.33 R (2), a firm should ensure that the loan qualifies for the 'linked presentation' accounting treatment under Financial Reporting Standard 5 (Reporting the substance of transactions) issued in April 1994, and amended in December 1994 and September 1998 (if applicable to the firm).
(2) Compliance with (1) may be relied upon as tending to establish compliance with PRU 9.3.33 R (2).

31/10/2004

PRU 9.3.35

PRU 9.3.34 E is aimed at those firms which report according to FRS 5. Other firms which report under other standards, including International Accounting Standards, need not adopt FRS 5 in order to meet the condition in PRU 9.3.33 R (2).

31/10/2004

PRU 9.3.36

(1) When seeking to rely on the condition in PRU 9.3.33 R (2), a firm should not provide material credit enhancement in respect of the loan unless it deducts the amount of the credit enhancement from its capital resources before meeting its capital resources requirement.
(2) Credit enhancement includes:

(a) any holding of subordinated loans or notes in a transferee that is a special purpose vehicle; or
(b) over collateralisation by transferring loans to a larger aggregate value than the securities to be issued; or
(c) any other arrangement with the transferee to cover a part of any subsequent losses arising from the transferred loan.

(3) Contravention of (1) may be relied upon as tending to establish contravention of PRU 9.3.33 R (2).

31/10/2004

Capital resources requirement: mortgage administration only

PRU 9.3.37

The capital resources requirement of a firm (carrying on the activities in row 3 of the table in PRU 9.3.29 R), which has all or part of the regulated mortgage contracts that it administers on its balance sheet, is the amount which is applied to a firm by PRU 9.3.31 R.

31/10/2004

PRU 9.3.38

The capital resources requirement of a firm (carrying on the activities in row 3 of the table in PRU 9.3.29 R), which has all the regulated mortgage contracts that it administers off its balance sheet, is the higher of:

(1) £100,000; and
(2) 10% of its annual income (see PRU 9.3.42 R and PRU 9.3.48 R).

31/10/2004

Capital resources requirement: insurance mediation activity and mortgage lending or mortgage administration

PRU 9.3.39

The capital resources requirement for a firm (carrying on the activities in row 4 of the table in PRU 9.3.29 R) is the sum of the requirements which are applied to the firm by:

(1) PRU 9.3.30 R; and
(2)

(a) PRU 9.3.31 R; or
(b) if, in addition to its insurance mediation activity, the firm carries on only mortgage administration and has all the assets that it administers off balance sheet, PRU 9.3.38 R.

31/10/2004

Capital resources requirement: mortgage mediation activity and mortgage lending or mortgage administration

PRU 9.3.40

(1) If a firm (carrying on the activities in row 5 of the table in PRU 9.3.29 R) does not hold client money or other client assets in relation to its mortgage mediation activity, the capital requirement is the amount applied to a firm, according to the activities carried on by the firm, by:

(a) PRU 9.3.31 R; or
(b) if, in addition to its mortgage mediation activity, the firm carries on only mortgage administration and has all the assets that it administers off balance sheet, PRU 9.3.38 R.

(2) If a firm (carrying on the activities in row 5 of the table in PRU 9.3.29 R) holds client money or other client assets in relation to its mortgage mediation activity, the capital resources requirement is:

(a) the amount calculated under (1); plus
(b) the amount which is applied to a firm by PRU 9.3.30 R (2).

31/10/2004

Capital resources requirement: other combinations of activities

PRU 9.3.41

The capital resources requirement for a firm (carrying on the activities in row 6 of the table in PRU 9.3.29 R) is the amount which is applied to a firm by PRU 9.3.39 R.

31/10/2004

Annual income

PRU 9.3.42

PRU 9.3.43 R to PRU 9.3.50 R contain provisions relating to the calculation of annual income for the purposes of:

(1) PRU 9.2.13 R (2), PRU 9.2.15 R, PRU 9.2.17 R (2) and PRU 9.2.18 R (2) (all concerning the limits of indemnity for professional indemnity insurance); and
(2) PRU 9.3.30 R (1)(b) and PRU 9.3.30 R (2)(b), and PRU 9.3.38 R (2).

31/10/2004

PRU 9.3.43

'Annual income' is the annual income given in the firm's most recent annual financial statement from the relevant regulated activity or activities.

31/10/2004

PRU 9.3.44

For a firm which carries on insurance mediation activity or mortgage mediation activity, annual income in PRU 9.3.43 R is the amount of all brokerage, fees, commissions and other related income (for example, administration charges, overriders, profit shares) due to the firm in respect of or in relation to those activities.

31/10/2004

PRU 9.3.45

(1) The purpose of PRU 9.3.44 R is to ensure that the capital resources requirement is calculated on the basis only of brokerage and other amounts earned by a firm which are its own income.
(2) For the purposes of PRU 9.3.43 R and PRU 9.3.44 R, a firm's annual income includes commissions and other amounts the firm may have agreed to pay to other persons involved in a transaction, such as sub-agents or other intermediaries.
(3) A firm's annual income does not, however, include any amounts due to another person (for example, the product provider) which the firm has collected on behalf of that other person.

14/01/2005
Past version of PRU 9.3.45 before 14/01/2005

PRU 9.3.46

If a firm is a principal, its annual income includes amounts due to its appointed representative in respect of activities for which the firm has accepted responsibility.

31/10/2004

PRU 9.3.47

If a firm is a network, it should include the relevant income due to all of its appointed representatives in its annual income.

31/10/2004

Annual income for mortgage administration

PRU 9.3.48

For the purposes of PRU 9.3.38 R (2) (Mortgage administration only) annual income is the sum of:

(1) revenue (that is, commissions, fees, net interest income, dividends, royalties and rent); and
(2) gains;
(3) arising in the course of the ordinary activities of the firm, less profit:

(a) on the sale or termination of an operation;
(b) arising from a fundamental reorganisation or restructuring having a material effect on the nature and focus of the firm's operation; and
(c) on the disposal of fixed assets, including investments held in a long-term portfolio.

31/10/2004

Annual income: periods of less than 12 months

PRU 9.3.49

If the firm's most recent annual financial statement does not cover a 12 month period, the annual income is taken to be the amount in the statement converted, proportionally, to a 12 month period.

31/10/2004

Annual income: no financial statement

PRU 9.3.50

If the firm does not have an annual financial statement, the annual income is to be taken from the forecast or other appropriate accounts which the firm has submitted to the FSA.

31/10/2004

The calculation of a firm's capital resources

PRU 9.3.51

(1) A firm must calculate its capital resources only from the items in PRU 9.3.52 R from which it must deduct the items in PRU 9.3.53 R.
(2) If the firm is subject to IPRU(INV) or CRED, the capital resources are the higher of:

(a) the amount calculated under (1); and
(b) the financial resources calculated under IPRU(INV) or the capital calculated under CRED 8 (Capital requirements).

31/10/2004

PRU 9.3.52

Table: Items which are eligible to contribute to the capital resources of a firm

Item

Additional explanation

Share capital

This must be fully paid and may include:

(1)

ordinary share capital; or

(2)

preference share capital (excluding preference shares redeemable by shareholders within two years).

Capital other than share capital (for example, the capital of a sole trader, partnership or limited liability partnership)

The capital of a sole trader is the net balance on the firm's capital account and current account.

The capital of a partnership is the capital made up of the partners':

(1)

capital account, that is the account:

(a)

into which capital contributed by the partners is paid; and

(b)

from which, under the terms of the partnership agreement, an amount representing capital may be withdrawn by a partner only if:

(i)

he ceases to be a partner and an equal amount is transferred to another such account by his former partners or any person replacing him as their partner; or

(ii)

the partnership is otherwise dissolved or wound up; and

(2)

current accounts according to the most recent financial statement.

For the purpose of the calculation of capital resources, in respect of a defined benefit occupational pension scheme:

(1)

a firm must derecognise any defined benefit asset;

(2)

a firm may substitute for a defined benefit liability the firm's deficit reduction amount, provided that the election is applied consistently in respect of any one financial year.

Reserves (Note 1)

These are, subject to Note 1, the audited accumulated profits retained by the firm (after deduction of tax, dividends and proprietors' or partners' drawings) and other reserves created by appropriations of share premiums and similar realised appropriations. Reserves also include gifts of capital, for example, from a parent undertaking.

For the purposes of calculating capital resources, a firm must make the following adjustments to its reserves, where appropriate:

(1)

a firm must deduct any unrealised gains or, where applicable, add back in any unrealised losses on debt instruments held in the available-for-sale financial assets category;

(2)

a firm must deduct any unrealised gains or, where applicable, add back in any unrealised losses on cash flow hedges of financial instruments measured at cost or amortised cost;

(3)

in respect of a defined benefit occupational pension scheme:

(a)

a firm must derecognise any defined benefit asset;

(b)

a firm may substitute for a defined benefit liability the firm's deficit reduction amount, provided that the election is applied consistently in respect of any one financial year.

Interim net profits (Note 1)

If a firm seeks to include interim net profits in the calculation of its capital resources, the profits have, subject to Note 1, to be verified by the firm's external auditor, net of tax, anticipated dividends or proprietors' drawings and other appropriations.

Revaluation reserves

General/collective provisions (Note 1)

These are provisions that a firm carrying on mortgage lending or mortgage administration holds against potential losses that have not yet been identified but which experience indicates are present in the firm's portfolio of assets. Such provisions must be freely available to meet these unidentified losses wherever they arise. Subject to Note 1, general/collective provisions must be verified by external auditors and disclosed in the firm's annual report and accounts.

Subordinated loans

Subordinated loans must be included in capital on the basis of the provisions in PRU 9.3.56 R and PRU 9.3.57 R.

Note :

Reserves must be audited and interim net profits, general and collective provisions must be verified by the firm's external auditor unless the firm is exempt from the provisions of Part VII of the Companies Act 1985 relating to the audit of accounts(section 249A (Exemptions from audit)).

07/10/2006
Past version of PRU 9.3.52 before 07/10/2006

PRU 9.3.52A

A firm should keep a record of and be ready to explain to its supervisory contacts in the FSA the reasons for any difference between the deficit reduction amount and any commitment the firm has made in any public document to provide funding in respect of a defined benefit occupational pension scheme.

21/04/2005

PRU 9.3.53

Table: Items which must be deducted from capital resources

Investments in own shares

Intangible assets (Note 1)

Interim net losses (Note 2)

Excess of drawings over profits for a sole trader or a partnership (Note 2)

Notes

1. Intangible assets are the full balance sheet value of goodwill (but not until 14 January 2008 - see transitional provision 2), capitalised development costs, brand names, trademarks and similar rights and licences.

2. The interim net losses in row 3, and the excess of drawings in row 4, are in relation to the period following the date as at which the capital resources are being computed.

31/10/2004

Personal assets

PRU 9.3.54

In relation to a sole trader's firm or a firm which is a partnership, the sole trader or a partner in the firm may use personal assets to meet the requirements of PRU 9.3.20 R or PRU 9.3.21 R, or both, to the extent necessary to make up any shortfall in meeting those requirements, unless:

(1) those assets are needed to meet other liabilities arising from:

(a) personal activities; or
(b) another business activity not regulated by the FSA; or

(2) the firm holds client money or other client assets.

31/10/2004

PRU 9.3.55

The purpose of PRU 9.3.54 R is to enable a sole trader or a partner to use any personal assets, including property, to meet the capital requirements of this section, but only to the extent necessary to make up a shortfall. The requirements are the solvency requirement (PRU 9.3.20 R) and the capital resources requirement (PRU 9.3.21 R).

31/10/2004

Subordinated loans

PRU 9.3.56

In row 7 in the table at PRU 9.3.52 R, subordinated debt must not form part of the capital resources of the firm unless it meets the following conditions:

(1) (for a firm which carries on insurance mediation activity or mortgage mediation activity (or both) but not mortgage lending or mortgage administration) it has an original maturity of:

(a) at least two years; or
(b) it is subject to two years' notice of repayment;

(2) (for all other firms) it has an original maturity of:

(a) at least five years; or
(b) it is subject to five years' notice of repayment;

(3) the claims of the subordinated creditors must rank behind those of all unsubordinated creditors;
(4) the only events of default must be non-payment of any interest or principal under the debt agreement or the winding up of the firm;
(5) the remedies available to the subordinated creditor in the event of non-payment or other default in respect of the subordinated debt must be limited to petitioning for the winding up of the firm or proving the debt and claiming in the liquidation of the firm;
(6) the subordinated debt must not become due and payable before its stated final maturity date except on an event of default complying with (4);
(7) the agreement and the debt are governed by the law of England and Wales, or of Scotland or of Northern Ireland;
(8) to the fullest extent permitted under the rules of the relevant jurisdiction, creditors must waive their right to set off amounts they owe the firm against subordinated amounts owed to them by the firm;
(9) the terms of the subordinated debt must be set out in a written agreement or instrument that contains terms that provide for the conditions set out in (1) to (8); and
(10) the debt must be unsecured and fully paid up.

31/10/2004

PRU 9.3.57

(1) This rule applies to a firm which:

(a) carries on:

(i) insurance mediation activity; or
(ii) mortgage mediation activity (or both); and

(b) in relation to those activities, holds client money or other client assets;

but is not carrying on mortgage lending or mortgage administration.
(2) In calculating its capital resources under PRU 9.3.51 R (1), the firm must exclude any amount by which the aggregate amount of its subordinated loans and its redeemable preference shares exceeds the amount calculated under (3).
(3) The calculation for (2) is:

four times (a - b - c);

where:

items 1 to 5 in the Table at PRU 9.3.52 R

the firm's redeemable preference shares; and

the amount of its intangible assets (but not goodwill until 14 January 2008 - see transitional provision 2).

31/10/2004

PRU 9.3.58

If a firm wishes to see an example of a subordinated loan agreement which would meet the conditions in PRU 9.3.56 R, it should refer to the Forms page.

31/10/2004

PRU 9.4

Insurance undertakings and mortgage lenders using insurance or mortgage mediation services

01/10/2005

Application

PRU 9.4.1

This section applies to a firm with a Part IV permission to carry on:

(1) insurance business; or
(2) mortgage lending;
(3) and which uses, or proposes to use, the services of another person consisting of:

(a) insurance mediation; or
(b) insurance mediation activity; or
(c) mortgage mediation activity.

31/10/2004

Purpose

PRU 9.4.2

The purpose of PRU 9.4 is to implement article 3.6 of the Insurance Mediation Directive in relation to insurance undertakings. The provisions of this section have been extended to mortgage lenders in relation to insurance mediation activity, and to insurance undertakings and mortgage lenders in relation to mortgage mediation activity, to ensure that firms using these services are treated in the same way and to ensure that clients have the same protection. To avoid the loss of protection where an intermediary itself uses the services of an unauthorised person, PRU 9.4.4 R has the effect of ensuring that each person in the chain of those providing services is authorised.

31/10/2004

PRU 9.4.3

PRU 9.4 supports the more general duties in Principles 2 and 3, and SYSC 3.1.1 R.

31/10/2004

Use of intermediaries

PRU 9.4.4

A firm must not use, or propose to use, the services of another person consisting of:

(1) insurance mediation; or
(2) insurance mediation activity; or
(3) mortgage mediation activity;

unless the conditions in PRU 9.4.5 R and PRU 9.4.7 R are satisfied.

31/10/2004

PRU 9.4.5

The first condition in PRU 9.4.4 R is that the person, in relation to the activity:

(1) has permission; or
(2) is an exempt person; or
(3) is an exempt professional firm; or
(4) is registered in another EEA State for the purposes of the IMD; or
(5) in relation to insurance mediation activity, is not carrying this activity on in the EEA; or
(6) in relation to mortgage mediation activity, is not carrying this activity on in the United Kingdom.

31/10/2004

PRU 9.4.6

(1) A firm should:

(a) before using the services of the intermediary, check:

(i) the FSA Register; or
(ii) in relation to insurance mediation carried on by an EEA firm, the register of its Home State regulator;

for the status of the person; and

(b) use the services of that person only if the relevant register indicates that the person is registered for that purpose.

(a) Compliance with (1)(a)(i) and (b) may be relied on as tending to establish compliance with:

(i) PRU 9.4.5 R (1); or
(ii) in relation to insurance mediation activity, also PRU 9.4.5 R (2) and PRU 9.4.5R (3).

(b) Compliance with (1)(a)(ii) and (b) may be relied on as tending to establish compliance with PRU 9.4.5 R (4).

31/10/2004

PRU 9.4.7

The second condition in PRU 9.4.4 R is that the firm takes all reasonable steps to ensure that the person in PRU 9.4.5 R in relation to the activity, is not, directly or indirectly, carrying out the activity as a consequence of the activities of another person which:

(1) contravene section 19 of the Act (The general prohibition); or
(2) in the case of activities provided from an establishment in an EEA State, contravene the IMD registration requirements.

14/01/2005
Past version of PRU 9.4.7 before 14/01/2005

PRU 9.4.8

In order to comply with PRU 9.4.7 R, a firm may rely on a confirmation provided by the other person in writing if:

(1) the confirmation is provided by a person within PRU 9.4.5 R;
(2) the firm checked that this is the case; and
(3) the firm is not aware that the confirmation is inaccurate and has no grounds for reasonably being aware that the confirmation is inaccurate.

31/10/2004

PRU 9.4.9

The FSA Register can be accessed through the FSA website under the link www.fsa.gov.uk/register.

31/10/2004

PRU 9 Annex 1

Example of the application of PRU 9.1.3 R, PRU 9.1.4 R, PRU 9.1.8 R and PRU 9.1.10 R

01/10/2005

31/10/2004

Export chapter as

Legal Instruments that change this Chapter Insurance mediation

Transitional Provisions and Schedules

PRU Sch 1

Record keeping requirements

01/10/2005

PRU Sch 1.1

1 The aim of the guidance in the following table is to give the reader a quick overall view of the relevant record keeping requirements.
2 It is not a complete statement of those requirements and should not be relied on as if it were.
3 Table

31/12/2004

Handbook reference

Subject of Record

Contents of record

When record must be made

Retention period

PRU 1.2.37 R, PRU 1.2.38 R

Firm's assessment of the adequacy of its financial resources

(1) The major sources of risk identified in accordance with PRU 1.2.31 R

(2) How the firm intends to deal with those risks

(3) Details of the stress tests and scenario analyses carried out and the resulting financial resources estimated to be required in accordance with PRU 1.2.35 R

Not specified

At least 3 years

PRU 1.4.53 R

Prudential risk management and systems and controls

Accounting and other records that are sufficient to enable the firm to demonstrate to the FSA:

(1) that the firm is financially sound and has appropriate systems and controls;

(2) the firm's financial position and exposure to risk (to a reasonable degree of accuracy);

(3) the firm's compliance with the rules in PRU

Not specified

3 years, or longer as appropriate

PRU 7.3.20 R

Mathematical reserves

(1) The methods and assumptions used in establishing the firm's mathematical reserves, including the margins for adverse deviation, and the reasons for their use

(2) The nature of, reasons for, and effect of, any change in approach, including the amount by which the change in approach increases or decreases its mathematical reserves

Not specified

An appropriate period

PRU 7.4.17 R, PRU 7.4.19 R

Calculation of with-profits insurance capital component

(1) The methods and assumptions used in making any calculation required for the purposes of PRU 7.4 (and any subsequent changes) and the reasons for their use

(2) Any change in practice (in particular changes in those items which will or may be significant in relation to the eventual claim values) and the nature of, reasons for, and effect of, any change in approach with respect to those methods and assumptions

Not specified

An appropriate period

PRU 7.6.23 R

Long-term insurance funds

A separate accounting record in respect of each of a firm's long-term insurance funds

Not specified

PRU 7.6.56 R, PRU 7.6.57 R

Branch accounting records in the United Kingdom

A record of the activities carried on from a non-EEA direct insurer's United Kingdom branch and, if it is an EEA-deposit insurer, from its branches in other EEA states including a record of:

(1) the income, expenditure and liabilities arising from activities of the branch or branches

(2) the assets identified under PRU 7.2.20 R as available to meet those liabilities

Not specified

31/12/2004

PRU Sch 2

Notification requirements

01/10/2005

PRU Sch 2.1

There are no notification requirements in PRU 1 or PRU 8. This Schedule does not cover any other chapter of PRU.1 The aim of the guidance in the following table is to give the reader a quick overall view of the relevant notification requirements.

11/08/2004

2 It is not a complete statement of those requirements and should not be relied on as if it were.

11/08/2004

3 Table

11/08/2004

Handbook reference

Matter to be notified

Contents of notification

Trigger event

Time allowed

PRU 2.1.38 R

Breach or expected breach of PRU 2.1.9 R

Fact of breach or expectation of breach

Breach or expectation of breach

Immediately

PRU 2.2.71 R

Intention to include any perpetual non-cumulative preference shares or innovative tier one instruments in the firm's tier one capital resources for the purposes of PRU 2.2

Fact of intention

Intention to include

At least one month before the firm first includes the relevant items in its tier one capital resources

PRU 2.2.72 R

Intention to redeem a tier one capital instrument that a firm has included in its tier one capital resources for the purpose of PRU 2.2

Fact of intention

Intention to redeem

At least one month before the intended redemption

PRU 2.2.116 R

Proposed amendment to the terms of the debt and the documents referred to in PRU 2.2.108R (8)

Details of the proposed amendment and confirmation that the legal opinions referred to in PRU 2.2.108R (11) and, if applicable, PRU 2.2.105 R and PRU 2.2.111 R, continue in full force and effect in relation to the terms of the debt and the documents notwithstanding any proposed amendment

Proposal to amend

At least one month before the amendment is due to take effect

PRU 2.2.117 R

Intention to repay a tier two instrument (unless the firm intends to repay an instrument on its contractual repayment date)

Fact of intention and details of how the firm will meet its capital resources requirement after such a repayment

Intention to repay

At least six months before the proposed date of repayment

PRU 3.2.23 R

That a reinsurance exposure to a reinsurer or group of closely related reinsurers is reasonably likely to exceed, or has exceeded, 100% of the firm's capital resources excluding capital resources held to cover property-linked liabilities

Fact that the limit is reasonably likely to be, or has been, exceeded
Note: upon notification under PRU 3.2.23 R the firm must:
(1) demonstrate that prudent provision has been made for the reinsurance exposure in excess of the 100% limit, or explain why in the opinion if the firm no provision is required, and
(2) explain how the reinsurance exposure if being safely managed (see PRU 3.2.24 R

(1) A reasonable likelihood that the limit will be exceeded, or
(2) if (1) does not apply , the limit being exceeded

As soon as the firm first becomes aware of the matter required to be notified

PRU 3.2.29 R

That the firm has exceeded, or anticipates exceeding, the limit expressed in PRU 3.2.28 E (in each financial year a firm should restrict the gross earned premiums which it pays to a reinsurer or group of closely related reinsurers to the higher of (a) 20% of the firm's projected gross earned premiums for that financial year and (b) ?4 million)

Fact that the limit has been exceeded, or that the firm anticipates exceeding the limit
Note: upon notification under PRU 3.2.29 R the firm must explain to the FSA how, despite the excess reinsurance concentration, the credit risk is being safely managed (see PRU 3.2.30 R)

The limit being exceeded, or an anticipation that the limit will be exceeded

Immediately

11/08/2004

PRU Sch 3

Fees and other required payments

01/10/2005

Notification Requirements

PRU PRI Sch 3.1

There are no requirements for fees or other payments in PRU 1 or PRU 8. This Schedule does not cover any other chapter of PRU.There are no requirements for fees or other payments in PRU.

31/12/2004

PRU Sch 4

Powers exercised

01/10/2005

Powers Exercised

PRU Sch 4.1

The following powers and related provisions in the Act have been exercised by the FSA to make the rules in PRU:

(1)

section 138 (General rule-making power);

(2)

section 141 (Insurance business rules);

(3)

section 149 (Evidential provisions);

(4)

section 150(2) (Actions for damages); and

(5)

section 156 (General supplementary powers).

31/12/2004

PRU Sch 4.2

The following power in the Act has been exercised by the FSA to give the guidance in PRU :

Section 157(1) (Guidance).

31/12/2004

PRU Sch 5

Rights of action for damages

01/10/2005

Rights of action for damages

PRU Sch 5.1

The table below sets out the rules in PRU contravention of which by an authorised person may be actionable under section 150 of the Act (Actions for damages) by a person who suffers loss as a result of the contravention.

11/08/2004

PRU Sch 5.2

If a "Yes" appears in the column headed "For private person", the rule may be actionable by a private person under section 150 (or, in certain circumstances, his fiduciary or representative; see article 6(2) and (3)(c) of the Financial Services and Markets Act 2000 (Rights of Action) Regulations 2001 (SI 2001/2256)). A "Yes" in the column headed "Removed" indicates that the FSA has removed the right of action under section 150(2) of the Act. If so, a reference to the rule in which it is removed is also given.

11/08/2004

PRU Sch 5.3

The column headed "For other person" indicates whether the rule may be actionable by a person other than a private person (or his fiduciary or representative) under article 6(2) and (3) of those Regulations. If so, an indication of the type of person by whom the rule may be actionable is given.

11/08/2004

PRU Sch 5.4

Chapter/Appendix

Section/Annex

Rights of action under section 150

For private person

Removed

For other person

All rules in PRU

Yes (PRU 1.8.1 R)

11/08/2004

PRU Sch 6

Rules that can be waived

01/10/2005

Rules that can be waived

PRU Sch 6.1

The rules in PRU can be waived by the FSA under section 148 of the Act (Modification or waiver of rules), except for PRU 1.8.1 R (actions for damages).

31/12/2004

Export chapter as

Legal Instruments that change this Chapter Transitional Provisions and Schedules

Our website uses cookies

PRU Integrated Prudential sourcebook

Used in

Export part as

Application and general requirements

to follow

Adequacy of financial resources

Valuation

to follow

to follow

to follow

Capital

Capital resources

Fund for future appropriations

Liquidity

Liquidity risk systems and controls

Firms with group liquidity management

Stress testing and scenario analysis

Contingency funding plans

Documentation

Insurance risk

PRU 7.3 (Mathematical reserves) and PRU 7.4 (With-profits insurance capital component)

Group risk

Group risk systems and controls requirement

Application

Purpose

General rules

Financial conglomerates

Credit institutions and investment firms

Insurance undertakings

Nature and extent of requirements and allocation of responsibilities within the group

to follow

Group Risk: Insurance Groups

Application

Purpose

Requirement to calculate GCR and GCRR

Requirement to maintain group capital

Scope - undertakings whose group capital is to be calculated and maintained

Optional alternative method of calculation for firms subject to supplementary supervision by another EEA competent authority

Non-EEA ultimate insurance parent undertakings

Proportional holdings

Calculation of the GCRR

Calculation of GCR

Calculation of GCR - Limits on the use of different forms of capital

Calculation of GCR - Total group tier one capital

Calculation of GCR - Total group tier two capital

Calculation of GCR - Innovative tier one capital resources, lower tier two capital resources and core tier one capital

Calculation of GCR - Inadmissible assets

Calculation of GCR - Deductions under requirement deduction method from group capital resources

Calculation of GCR - Deductions of ineligible surplus capital

Calculation of GCR - Assets in excess of market risk and counterparty exposure limits

Cross sector groups

Application

Purpose

Introduction: identifying a financial conglomerate

Introduction: The role of other competent authorities

Definition of financial conglomerate: basic definition

Definition of financial conglomerate: sub-groups

Definition of financial conglomerate: the financial sectors: general

Definition of financial conglomerate: adjustment of the percentages

Definition of financial conglomerate: balance sheet totals

Definition of financial conglomerate: solvency requirement

Definition of financial conglomerate: discretionary changes to the definition

Capital adequacy requirements: introduction

Capital adequacy requirements: high level requirement

Capital adequacy requirements: application of Method 4 from Annex I of the Financial Groups Directive

Capital adequacy requirements: compulsory application of Method 4 from Annex I of the Financial Groups Directive

Capital adequacy requirements: application of Methods 1, 2 or 3 from Annex I of the Financial Groups Directive

Capital adequacy requirements: use of Part IV permission to apply Annex I of the Financial Groups Directive

Risk concentration and intra-group transactions: introduction

Risk concentration and intra-group transactions: application

Risk concentration and intra group transactions: the main rule

Risk concentration and intra-group transactions: Table of applicable sectoral rules

Application of sectoral rules

This table belongs to PRU 8.4.35 R

The financial sectors: asset management companies

Third-country groups

Application

Purpose

Equivalence

Insurance
mediation & mortgage mediation, lending and administration