Prudential Regulation Authority Rulebook

1.

Institutions shall calculate the risk-weighted exposure amount for their exposures in the form of units or shares in a CIU by multiplying the risk-weighted exposure amount of the CIU's exposures, calculated in accordance with the approaches referred to in the first subparagraph of paragraph 2, with the percentage of units or shares held by those institutions.

2.

Where the conditions set out in paragraph 3 of this Article are met, institutions may apply the look-through approach in accordance with Article 132a(1) or the mandate-based approach in accordance with Article 132a(2).

Subject to Article 132b (2), institutions that do not apply the look-through approach or the mandate-based approach shall assign a risk weight of 1,250% ('fall-back approach') to their exposures in the form of units or shares in a CIU.

Institutions may calculate the risk-weighted exposure amount for their exposures in the form of units or shares in a CIU by using a combination of the approaches referred to in this paragraph, provided that the conditions for using those approaches are met.

3.

Institutions may determine the risk-weighted exposure amount of a CIU's exposures in accordance with the approaches set out in Article 132a where all the following conditions are met:

1. (a) [Note: provision left blank];
2. (b) the CIU's prospectus or equivalent document includes the following:
1. (i) the categories of assets in which the CIU is authorised to invest;
2. (ii) where investment limits apply, the relative limits and the methodologies to calculate them;
3. (c) reporting by the CIU or the CIU management company to the institution complies with the following requirements:
1. (i) the exposures of the CIU are reported at least quarterly;
2. (ii) the granularity of the financial information is sufficient to allow the institution to calculate the CIU's risk-weighted exposure amount in accordance with the approach chosen by the institution;
3. (iii) where the institution applies the look-through approach, information about the underlying exposures is verified by an independent third party.

By way of derogation from point (c)(i) of the first subparagraph, where the institution determines the risk-weighted exposure amount of a CIU's exposures in accordance with the mandate- based approach, the reporting by the CIU or the CIU management company to the institution may be limited to the investment mandate of the CIU and any changes thereof and may be done only when the institution incurs the exposure to the CIU for the first time and when there is a change in the investment mandate of the CIU.

4.

Institutions that do not have adequate data or information to calculate the risk-weighted exposure amount of a CIU's exposures in accordance with the approaches set out in Article 132a may rely on the calculations of a third party, provided that all the following conditions are met:

1. (a) the third party is one of the following:
1. (i) the depository institution or the depository financial institution of the CIU, provided that the CIU exclusively invests in securities and deposits all securities at that depository institution or depository financial institution;
2. (ii) for CIUs not covered by point (i) of this point, the CIU management company;
2. (b) the third party carries out the calculation in accordance with the approaches set out in Article 132a(1), (2) or (3), as applicable;
3. (c) an external auditor has confirmed the correctness of the third party's calculation.

Institutions that rely on third-party calculations shall multiply the risk-weighted exposure amount of a CIU's exposures resulting from those calculations by a factor of 1.2.

By way of derogation from the second subparagraph, where the institution has unrestricted access to the detailed calculations carried out by the third party, the factor of 1.2 shall not apply. The institution shall provide those calculations to its competent authority upon request.

5.

Where an institution applies the approaches referred to in Article 132a for the purpose of calculating the risk-weighted exposure amount of a CIU's exposures ('level 1 CIU'), and any of the underlying exposures of the level 1 CIU is an exposure in the form of units or shares in another CIU ('level 2 CIU'), the risk-weighted exposure amount of the level 2 CIU's exposures may be calculated by using any of the three approaches described in paragraph 2 of this Article. The institution may use the look-through approach to calculate the risk-weighted exposure amounts of CIUs' exposures in level 3 and any subsequent level only where it used that approach for the calculation in the preceding level. In any other scenario it shall use the fall-back approach.

6.

The risk-weighted exposure amount of a CIU's exposures calculated in accordance with the look-through approach and the mandate-based approach set out in Article 132a(1) and (2) shall be capped at the risk-weighted amount of that CIU's exposures calculated in accordance with the fall-back approach.

7.

By way of derogation from paragraph 1 of this Article, institutions that apply the look-through approach in accordance with Article 132a(1) may calculate the risk-weighted exposure amount for their exposures in the form of units or shares in a CIU by multiplying the exposure values of those exposures, calculated in accordance with Article 111, with the risk weight (RW*_i ) calculated in accordance with the formula set out in Article 132c, provided that the following conditions are met:

1. (a) the institutions measure the value of their holdings of units or shares in a CIU at historical cost but measure the value of the underlying assets of the CIU at fair value if they apply the look-through approach;
2. (b) a change in the market value of the units or shares for which institutions measure the value at historical cost changes neither the amount of own funds of those institutions nor the exposure value associated with those holdings.

8.

1. (a) An institution must notify the competent authority if either:
1. (i) the total risk weighted exposure amounts for all of its exposures in the form of units or shares in relevant CIUs exceed 0.5% of the institution's total risk weighted exposures for credit risk and dilution risk calculated in accordance with Title II of Part Three of the CRR; or
2. (ii) the total exposure values for all of its exposures in the form of units or shares in relevant CIUs exceed £500 million;
2. in each case calculated on an individual or consolidated basis.
3. (b) Institutions must make the notification in (a) promptly if:
1. (i) at any time either of the thresholds in (a) (i) or (ii) is reached; and
2. (ii) until such time as it makes a notification under (c), on an annual basis thereafter.
4. (c) Institutions which have made or are required to have made a notification under (a) must also notify the competent authority promptly when both the total risk weighted exposure amounts and total exposure values are below the relevant thresholds set out in (a) (i) and (ii).
5. (d) Institutions must include in the notification made under (a):
1. (i) a list of the countries in which fund managers of all relevant CIUs to which it is exposed are located; and
2. (ii) the total exposure values and total risk weighted exposure amounts in respect of its exposures in the form of units or shares in relevant CIUs for each of those countries.

[Note: This rule corresponds to Article 132 of the CRR as it applied immediately before revocation by the Treasury.]