Waivers form

waiver form

Waiver application form [doc]

 

Sourcebooks and related rules

BIPRU 2.1.

What is solo consolidation?

Solo consolidation is a method of allowing a regulated firm to treat an unregulated subsidiary (or subsidiaries) as an operating division. The result is that, for the purposes of solo capital requirements, the regulated firm and its unregulated subsidiary (or subsidiaries) are treated as one entity. The benefit for the regulated firm is that, rather than fully deducting its investment in these subsidiaries (which would be required under the normal application of solo capital rules), the subsidiaries’ assets are risk weighted as if they were the regulated firm’s own assets.

Applying for a waiver

Since the implementation of the Capital Requirements Directive (CRD) in 2007, a firm that wishes to solo consolidate an entity or entities needs to apply for a waiver.

Under the relevant European Directive, the FSA must be able to satisfy itself that capital/assets that are held in solo consolidated subsidiaries can and will be transferred to the regulated firm promptly and without impediment in order to protect depositors/customers in times of stress.

In processing a waiver application for solo consolidation, the FSA will consider, in particular;

  1. the control the regulated firm has over the unregulated subsidiary;
  2. the transferability of capital/assets from the subsidiary to the regulated firm; and
  3. the total amount of capital/assets solo consolidated by the regulated firm.

When applying for such a waiver, the normal FSA waiver application procedures should be followed. We will also need the following information to be submitted with the application:

  • an up-to-date structure chart for the whole group;
  • information about the entities you wish to solo consolidate, including the names of entities, where the head offices of the entities are located, their regulatory status (and the names of their regulators if they are regulated) and brief descriptions of the business these entities conduct;
  • a list of any entities that are already solo consolidated, whether by means of a waiver or (if before CRD implementation) a notification;
  • the reason(s) for the waiver application, in particular, setting out perceived benefits of a waiver and impact on the regulated firm if a waiver is not granted;
  • (if a waiver application is made for a specific transaction), the rationale for the transaction and the reasons why alternative structures are less suitable;
  • (if a waiver application is made for a specific transaction), a flowchart/diagram showing the movements of funds within the transaction;
  • calculations showing the firm’s capital position with and without the waiver being granted;
  • calculations showing the firm’s capital position with and without any other solo consolidations already in place.

Therefore firms must demonstrate to the FSA that the conditions in BIPRU 2.1.19R to BIPRU 2.1.24R are met. Firms will need to consider and explain how the criteria in BIPRU 2.1.25G impact on their responses to the condition in BIPRU 2.1.24R.

We will consider the information provided in the following table in which you are requested to demonstrate fully how the firm meets the minimum standards that are set out in BIPRU 2.1.19R - 2.1.24R and the criteria in BIPRU 2.1. 25G:

Rule/guidance

 

2.1.19R. A firm must not apply BIPRU 2.1 to a subsidiary undertaking to which the firm's solo consolidation waiver applies BIPRU 2.1 unless in addition it meets the conditions in BIPRU 2.1.20 to BIPRU 2.1.24R.

 

 

2.1.20R.

The risk evaluation, measurement and control procedures of the parent undertaking cover the subsidiary.

 

 

BIPRU 2.1.21R. The firm must hold more than 75% of the voting rights attaching to the shares in the capital of the subsidiary undertaking referred to in BIPRU 2.1.19R  and must have the right to appoint or remove a majority of the members of the management body of the subsidiary.

 

2.1.22R The subsidiary's material exposures or material liabilities are to the parent. 

 

2.1.23R  Where a firm is the parent institution in a Member State it must have measures in place that ensure satisfactory allocation of risks within the group consisting of the firm and each subsidiary undertaking to which BIPRU 2.1 is applied. 

 

 

2.1.24R A firm must be able to demonstrate fully to the FSA the circumstances and arrangements including legal arrangements, by virtue of which there are no material practical or legal impediments, and none are foreseen, to the prompt transfer of the capital resources of the subsidiary undertaking referred to in BIPRU 2.1.19R or repayment of liabilities when due by the subsidiary undertaking to the firm.

 

2.1.25G The following are the criteria that the FSA will take into account when considering whether the condition in BIPRU 2.1.24R is going to be met:

 

(1) the speed at which funds can be transferred or liabilities repaid and the simplicity of the method for the transfer or repayment.

 

(2) whether there are any interests other than those of the firm in the subsidiary undertaking and what impact those other interests may have on the firm's control over the subsidiary undertaking and on the ability to require a transfer of funds or repayment of liabilities.

 

(3) whether the prompt transfer of funds or repayment of liabilities to the firm might harm the reputation of the firm or its subsidiary undertakings.

 

(4)whether there are any tax disadvantages for the firm or the subsidiary undertaking as a result of the transfer of funds or repayment of liabilities.

 

(5) whether there are any exchange controls that may have an impact on the transfer of funds or repayment of liabilities.

 

(6) whether there are assets in the subsidiary undertaking available either to be transferred or liquidated for the purposes of the transfer of funds or repayment of liabilities.

 

(7) whether any regulatory requirements impact on the ability of the subsidiary to transfer funds or repay liabilities.

 

(8) whether the purpose of the subsidiary prejudices the prompt transfer of funds or repayment of liabilities.

 

(9) and (10)  whether the legal structure or contractual relationships of the subsidiary with the firm and other third parties prejudices the prompt transfer of funds of repayment of liabilities. 

 

(11) whether past and proposed flows of funds between subsidiary and firm demonstrate the ability to make prompt transfer of funds or repayment of liabilities. 

 

(12) whether the degree of solo consolidation by the firm undermines the FSA'S ability to assess the soundness of the firm as a legal entity (taking into account any other subsidiary undertakings to which BIPRU 2.1 is being applied).