Prudential Regulation Authority Rulebook

5.1

This section clarifies the PRA’s expectations on firms when considering exposures to counterparties which act as a trustee, custodian or general partner of an investment trust, unit trust, venture capital or other investment fund, pension fund or a similar fund. 

5.2

If a firm has an exposure to a person (‘A’) when A is acting on his own behalf, and also an exposure to A when A acts in his capacity as trustee, custodian or general partner of an investment trust, unit trust, venture capital or other investment fund, pension fund or a similar fund (a ‘fund’), the firm may treat the latter exposure as if it was to the fund. This treatment may be adopted unless such a treatment would be misleading.

5.3

When considering whether the treatment described is misleading, factors a firm should consider include:

• the degree of independence of control of the fund, including the relation of the fund’s board and senior management to the firm or to other funds or to both;
• the terms on which the counterparty, when acting as trustee, is able to satisfy its obligation to the firm out of the fund of which it is trustee;

• whether the beneficial owners of the fund are connected to the firm, or related to other funds managed within the firm’s group, or both; and

• for a counterparty that is connected to the firm itself, whether the exposure arises from a transaction entered into on an arm’s length basis.

5.4

When a firm decides whether a transaction is at arm’s length, the PRA expects the following factors to be taken into account:

• the extent to which the person to whom the firm has an exposure (‘A’) can influence the firm’s operations, through for example the exercise of voting rights;
• the management role of A where A is also a director of the firm; and
• whether the exposure would be subject to the firm’s usual monitoring and recovery procedures if repayment difficulties emerged.