Prudential Regulation Authority Rulebook

1.1

Unless otherwise stated, this Part applies to a BRRD undertaking which is a CRR firm, a financial holding company, a mixed financial holding company or a mixed activity holding company.

1.2

This Part does not apply in relation to:

1. (1) financial arrangements, other than group financial support agreements, including funding arrangements and the operation of centralised funding arrangements, provided that no institution that is party to such arrangements meets the conditions for early intervention; and
2. (2) financial support provided by a BRRD undertaking to a member of its group that experiences financial difficulties if the BRRD undertaking decides to do so on a case-by-case basis and according to group policies if it does not represent a risk for the group.

[Note: Art. 19(2) and (3) of the BRRD]

1.3

In this Part, the following definitions shall apply:

competent authority

means a public authority or body officially recognised by national law which is empowered by national law to supervise institutions as part of the supervisory system in operation in the EEA State concerned or the European Central Bank with regard to the specific tasks conferred on it by Article 4 of Council Regulation (EU) No. 1024/2013 conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions.

conditions for early intervention

means circumstances in which an institution infringes or is likely in the near future to infringe the requirements of the CRR, the CRD, MiFID II or any of Articles 3 - 7, 14 - 17 and 24, - 26 of MiFIR.

EEA consolidating supervisor

means a competent authority responsible under the CRD for the exercise of supervision on a consolidated basis of:

1. (1) an EEA parent institution; or
2. (2) institutions controlled by an EEA parent financial holding company or an EEA parent mixed financial holding company.

EEA parent financial holding company

means a parent financial holding company in an EEA State which is not a subsidiary of an institution authorised in any EEA State or of another financial holding company or mixed financial holding company set up in any EEA State.

EEA parent institution

means a parent institution in an EEA State which is not a subsidiary of another institution authorised in an EEA State or of a financial holding company or mixed financial holding company set up in any EEA State.

EEA parent mixed financial holding company

means a parent mixed financial holding company in an EEA State which is not a subsidiary of an institution authorised in any EEA State or of another financial holding company or mixed financial holding company set up in any EEA State.

EEA parent undertaking

means an EEA parent institution, an EEA parent financial holding company or an EEA parent mixed financial holding company.

group

means a parent undertaking and its subsidiaries.

group financial support agreement

means an agreement between:

1. (1) a parent institution in an EEA State, an EEA parent institution or a qualifying parent undertaking, a financial holding company, mixed financial holding company or mixed-activity holding company established in an EEA State; and
2. (2) a subsidiary of an entity referred to in (1) set up in a different EEA State to that of the entity referred in (1) or in a third country and that is an institution or a financial institution covered by the consolidated supervision of the entity referred to in (1),

to provide financial support to a party that is an institution at a time when that institution meets the conditions for early intervention.

management body

means a BRRD undertaking’s body or bodies, which are appointed in accordance with national law, which are empowered to set the BRRD undertaking’s strategy, objectives and overall direction, and which oversee and monitor management decision-making, and include the persons who effectively direct the business of the BRRD undertaking.

own funds requirement

means the requirements laid down in Articles 92 - 98 of the CRR.

parent institution in an EEA State

means an institution authorised in an EEA State which has an institution or financial institution as subsidiary or which holds a participation in such an institution or financial institution, and which is not itself a subsidiary of another institution authorised in the same EEA State or of a financial holding company or mixed financial holding company set up in the same EEA State.

parent financial holding company in an EEA State

means a financial holding company which is not itself a subsidiary of an institution authorised in the same EEA State, or of a financial holding company or mixed financial holding company set up in the same EEA State.

parent mixed financial holding company in an EEA State

means a mixed financial holding company which is not itself a subsidiary of an institution authorised in the same EEA State, or of a financial holding company or mixed financial holding company set up in the same EEA State.

1.4

Unless otherwise defined, any italicised expression used in this Part and in the CRR has the same meaning as in the CRR.

2.1

A BRRD undertaking must not enter into a group financial support agreement unless the following conditions are satisfied:

1. (1) the group financial support agreement specifies the principles for the calculation of the consideration for any transaction made under it, which:
1. (a) need not take into account any anticipated temporary impact on market prices arising from events external to the group;
2. (b) may take into account information unavailable to the market in the possession of the party providing financial support based on it being in the same group as the party receiving financial support; and
3. (c) must require that the consideration is set at the time of the provision of financial support;
2. (2) each party acts freely in entering into the group financial support agreement;
3. (3) in entering into the group financial support agreement and in determining the consideration for the provision of financial support, each party acts in its own best interests which may take account of any direct or any indirect benefit that may accrue to a party as a result of the provision of the financial support;
4. (4) each party providing financial support has full disclosure of relevant information from any party receiving financial support prior to determination of the consideration for the provision of financial support and prior to any decision to provide financial support;
   [Note: Art. 19(7) of the BRRD]
   
5. (5) any right, claim or action arising from the group financial support agreement may be exercised only by the parties to the agreement; and
   [Note: Art. 19(9) of the BRRD]
   
6. (6) the terms of the group financial support agreement are consistent with the conditions for the provision of financial support in 4.1.
   [Note: Art. 20(3) of the BRRD]

2.2

A BRRD undertaking must not enter into a proposed group financial support agreement if:

1. (1) the EEA consolidating supervisor has not granted permission to do so; or
2. (2) at the time the proposed agreement is made, a competent authority has decided that a party to the agreement that is an institution meets the conditions for early intervention.

[Note: Art. 19(8) and Art. 20(3) of the BRRD]

3.1

This Chapter applies to a BRRD undertaking which is an EEA parent undertaking, unless the FCA is the EEA consolidating supervisor of its group.

3.2

If a BRRD undertaking or any member of its group intends to enter into a group financial support agreement, or amend a group financial support agreement previously authorised by an EEA consolidating supervisor, the BRRD undertaking must submit to the EEA consolidating supervisor an application for authorisation of the proposed agreement or amendment.

3.3

The application referred to in 3.2 must contain the text of the proposed group financial support agreement and identify any other persons in the same group as the BRRD undertaking that propose to be parties to the proposed agreement.

[Note: Art. 20(1) of the BRRD]

4.1

A BRRD undertaking must not provide financial support in accordance with a group financial support agreement unless the following conditions are met:

1. (1) there is a reasonable prospect that the financial support provided significantly redresses the financial difficulties of the group member receiving the support;
2. (2) the provision of financial support has the objective of preserving or restoring the financial stability of the group as a whole or any of the members of the group and is in the interests of the BRRD undertaking providing the support;
3. (3) the financial support is provided on terms, including consideration, in accordance with 2;
4. (4) there is a reasonable prospect, on the basis of the information available to the management body of the BRRD undertaking providing financial support at the time when the decision to grant financial support is taken, that the consideration for the financial support will be paid and, in particular:
1. (a) if the financial support is given in the form of a loan, the loan will be repaid by the group entity receiving the support; and
2. (b) if the financial support is given in the form of a guarantee or any form of security, the liability of the group entity receiving the support that arises in the event that the guarantee is called upon or the security is enforced, will be paid.
5. (5) the provision of the financial support would not jeopardise the liquidity or solvency of the BRRD undertaking providing the financial support;
6. (6) the provision of the financial support would not create a threat to financial stability, in particular in the UK;
7. (7) where a firm provides the financial support, it complies at the time the financial support is provided, with the requirements of the CRD relating to capital or liquidity and any requirements imposed pursuant to Article 104(2) of the CRD and the provision of the financial support does not cause the firm to infringe those requirements;
8. (8) where a firm provides the financial support, it complies at the time when the financial support is provided, with the requirements relating to large exposures laid down in the CRR and in the Large Exposures Part, and the provision of the financial support must not cause the firm to infringe those requirements; and
9. (9) the provision of the financial support would not undermine the resolvability of the BRRD undertaking providing the financial support.

[Note: Art. 23 of the BRRD]

5.1

A BRRD undertaking that intends to provide financial support in accordance with a group financial support agreement must ensure that the decision to provide financial support is taken by its management body.

5.2

The decision must be reasoned and indicate the objective of the proposed financial support; in particular, the decision must indicate how the provision of the financial support complies with the conditions in 4.1.

5.3

A firm that intends to accept financial support in accordance with a group financial support agreement must ensure that the decision to accept financial support is taken by its management body.

[Note: Art. 24 of the BRRD]

6.1

A BRRD undertaking that intends to provide financial support in accordance with a group financial support agreement must ensure that its management body notifies:

1. (1) the PRA;
2. (2) where different from the authorities in (1) and (3), where applicable, the EEA consolidating supervisor;
3. (3) where different from the authorities in (1) and (2), the competent authority of the group member receiving the financial support; and
4. (4) the EBA,

before it provides that financial support.

6.2

The notification must include the reasoned decision of the management body and details of the proposed financial support including a copy of the group financial support agreement.

[Note: Art. 25(1) of the BRRD]

7.1

7.2

[Note: Art. 25(5) of the BRRD]

7.3

Where the management body of a BRRD undertaking decides to provide the financial support, that BRRD undertaking must notify:

1. (1) the PRA;
2. (2) where different from the authorities in (1) and (3), where applicable, the EEA consolidating supervisor;
3. (3) where different from (1) and (2), the competent authority of the group member receiving the financial support; and
4. (4) the EBA.

[Note: Art. 25(6) of the BRRD]

8.1

8.2