Related Party Transaction Risk

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Application Provision

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1

Application and Definitions

1.1

This Part applies to:

  1. (1) a UK bank;
  2. (2) a building society;
  3. (3) an overseas firm that:
    1. (a) [deleted.]
    2. (b) has a Part 4A permission that includes permission to carry out accepting deposits; and
  4. (4) a CRR consolidation entity as if it were a firm.

1.2

In this Part the following definitions shall apply:
means in relation to a natural person (“A”):
      1. (a) A’s spouse or civil partner;
      2. (b) any other person with whom A lives as partner in an enduring family relationship;
      3. (c) A’s children or step-children;
      4. (d) any children or step-children of a person within (b) (and who are not children or step-children of A) who live with A and have not attained the age of 18; and
      5. (e) A’s parents.
means in relation to a firm:
      1. (a) any person that it controls;
      2. (b) its affiliated companies;
      3. (c) its and its affiliated companies’ controllers;
      4. (d) its and its affiliated companies’ directors;
      5. (e) its and its affiliated companies’ senior management;
      6. (f) its and its affiliated companies’ key employees;
      7. (g) close family members of any natural person listed in (a) to (f) above;
      8. (h) direct and related interests of any person listed in (a) to (g) above, which includes a commercial entity in which a member of the management body or any of their close family members:
        1. (i) has a qualifying holding of 10% or more of capital or of voting rights;
        2. (ii) exercises significant influence;
        3. (iii) holds a senior management position; or
        4. (iv) is a member of management body; and
      9. (i) any person that would fall into (a) to (h) above after the relevant transaction has occurred.

[Note: Art. 88(1) of the CRD]

means any transaction or arrangement including:
      1. (a) any arrangement or circumstance that gives rise to or varies an on-balance sheet or off-balance sheet asset or liability (whether contingent or otherwise);
      2. (b) dealings such as service contracts, as set acquisitions and disposals, construction contracts, lease agreements, derivative transactions, borrowings and write-offs.

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2

Related Party Transaction Risk

2.1

A firm must enter into transactions with related parties at market value or on terms no more favourable than would be agreed if the transaction was not with a related party.

2.2

2.1 does not apply to beneficial terms that are part of an overall remuneration package such as favourable interest rates for employee loans.

2.3

A firm must establish, implement and maintain effective policies and procedures to identify, evaluate and manage risks arising out of transactions with its related parties.

2.4

In meeting 2.3, a firm’s policies and procedures on related party transactions must:
  1. (1) prevent a related party from taking part in the firm’s decision making process in relation to any transactions with that related party;
  2. (2) set a materiality threshold above which transactions with related parties receive prior approval from the firm’s management body;
  3. (3) ensure that the firm records and monitors the details and amounts of any related party transactions using an independent credit review or audit process; and
  4. (4) only permit exceptions to those policies and procedures if reported to the firm’s senior management or management body as appropriate.

2.5

A firm must provide the PRA with details on exposures to related parties if requested by the PRA. The details must be provided by the date set by the PRA at the time of the request.

[Note: Art. 88(1) of the CRD]

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