Prudential Regulation Authority Rulebook

1.

An institution shall not incur an exposure, after taking into account the effect of the credit risk mitigation in accordance with Articles 399 to 403, to a client or group of connected clients the value of which exceeds 25% of its Tier 1 capital. Where that client is an institution or an investment firm or where a group of connected clients includes one or more institutions or investment firms, that value shall not exceed 25% of the institution's Tier 1 capital or GBP 130 million, whichever is higher, provided that the sum of exposure values, after taking into account the effect of the credit risk mitigation in accordance with Articles 399 to 403, to all connected clients that are not institutions does not exceed 25% of the institution's Tier 1 capital.

[Note: IFR 2019/2033 added “or an investment firm” and “or investment firms” to 1]

Where the amount of GBP 130 million is higher than 25% of the institution's Tier 1 capital, the value of the exposure, after having taken into account the effect of credit risk mitigation in accordance with Articles 399 to 403 of this Part, shall not exceed a reasonable limit in terms of the institution's Tier 1 capital. That limit shall be determined by the institution in accordance with the policies and procedures referred to in Internal Capital Adequacy Assessment 6.1 required to address and control concentration risk. That limit shall not exceed 100% of the institution's Tier 1 capital.

By way of derogation from the first subparagraph of this paragraph, a G-SII shall not incur an exposure to another G-SII or to a non-UK G-SII, the value of which, after taking into account the effect of the credit risk mitigation in accordance with Articles 399 to 403, exceeds 15% of its Tier 1 capital. A G-SII shall comply with such limit no later than 12 months from the date on which it came to be identified as a G-SII. Where the G-SII has an exposure to another institution or group which comes to be identified as a G-SII or as a non-UK G-SII, it shall comply with such limit no later than 12 months from the date on which that other institution or group came to be identified as a G-SII or as a non-UK G-SII.

1A.

[Note: Provision left blank]

3.

Subject to Article 396, an institution shall at all times comply with the relevant limit laid down in paragraph 1.

4.

Assets constituting claims and other exposures to third-country investment firms may be subject to the same treatment as set out in paragraph 1.

5.

The limits laid down in this Article may be exceeded for the exposures in the institution's trading book, provided that all the following conditions are met:

1. (a) the exposure in the non-trading book to the client or group of connected clients in question does not exceed the limit laid down in paragraph 1, this limit being calculated with reference to Tier 1 capital, so that the excess arises entirely in the trading book;
2. (b) the institution meets an additional own funds requirement on the part of the exposure in excess of the limit laid down in paragraph 1 of this Article which is calculated in accordance with Articles 397 and 398;
3. (c) where 10 days or less have elapsed since the excess referred to in point (b) occurred, the trading-book exposure to the client or group of connected clients in question does not exceed 500% of the institution's Tier 1 capital;
4. (d) any excesses that have persisted for more than 10 days do not, in aggregate, exceed 600% of the institution's Tier 1 capital.

Each time the limit has been exceeded, the institution shall report to the competent authority without delay the amount of the excess and the name of the client concerned and, where applicable, the name of the group of connected clients concerned.

6.

[Note: Provision left blank]

[Note: This rule corresponds to Article 395 of the CRR as it applied immediately before revocation by the Treasury.]