Step-in Risk

1.1

Unless otherwise stated, this Part applies to:

1. (1) a firm that is a CRR firm but not an SDDT; and
2. (2) a CRR consolidation entity that is not an SDDT consolidation entity.

1.2

In this Part, the following definitions shall apply:

other contractual or non-contractual exposure

means where a firm is exposed to equity-like returns from the assets of an unconsolidated entity or risks related to that undertaking’s performance.

step-in risk policy

means the policies and procedures established in accordance with 8.

step-in sponsor

means a sponsor or a firm that manages or advises an unconsolidated entity, places its securities into the market or provides it with liquidity and/or credit enhancements.

1.3

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

1.4

Interpretation 2.13 does not apply to this Part.

2.1

A firm must comply with this Part on an individual basis.

2.2

2.1 does not apply where the firm is a member of a consolidation group.

2.3

A CRR consolidation entity must comply with this Part on the basis of its consolidated situation.

2.4

For the purposes of 2.3 and 2.6, references to a firm in this Part (other than in 1.1, 2.1, 2.2 and 2.5) means a CRR consolidation entity.

2.5

A firm that is required to comply with Parts Two and Three of the CRR on a sub-consolidated basis shall comply with this Part on the same basis.

2.6

A CRR consolidation entity that is required to comply with Parts Two and Three of the CRR on a sub-consolidated basis shall comply with this Part on the same basis.

3.1

A firm must identify, monitor and manage step-in risk.

3.2

A firm must take all reasonable steps to mitigate significant step-in risk in respect of its material step-in entities.

4.1

A firm must have in place sound, effective and comprehensive strategies, processes and systems that enable it to comply with 3.

4.2

The strategies, processes and systems required by 4.1 must be proportionate to the nature, scale and complexity of the firm’s activities.

5.1

A firm must prepare and regularly update its step-in risk assessment.

6.1

A firm must identify:

1. (1) all unconsolidated entities with which it has one or more of the following relationships:
   1. (a) step-in sponsor;
   2. (b) debt or equity investor (excluding investments that arise from market-making activities); or
   3. (c) other contractual or non-contractual exposure;
2. (2) immaterial step-in entities; and
3. (3) material step-in entities.

6.2

For the purpose of complying with 6.1, a firm is not required to identify a relationship with an SSPE where:

1. (1) the only relationship the firm has with the SSPE is in relation to a securitisation which the SSPE was established to carry out and in which the firm only holds a senior securitisation position; and
2. (2) the firm is not an original lender, originator or sponsor in relation to the securitisation.

7.1

A firm must assess whether step-in risk in respect of its material step-in entities is significant.

7.2

When undertaking the assessment required by 7.1, a firm must consider at least:

1. (1) the purpose and design of the material step-in entity; and
2. (2) the risk indicators set out in data item SI02.00 in the Regulatory Reporting Part.

7.3

A firm must assess the potential impact on the firm of providing financial support to a material step-in entity were step-in risk to materialise.

8.1

A firm must document its policies and procedures for assessing step-in risk.

8.2

A firm’s step-in risk policy must:

1. (1) set out the persons responsible for identifying, assessing, monitoring, and managing the firm’s step-in risk;
2. (2) describe the firm’s approach to identifying material step-in entities and immaterial step-in entities;
3. (3) describe the firm’s approach to the assessment required by 7; and
4. (4) describe the process used to obtain the necessary information to conduct the step-in risk assessment.

8.3

The content and level of detail of a firm’s step-in risk policy must be proportionate to the nature, scale and complexity of the firm’s activities.

8.4

A firm’s step-in risk policy must be reviewed:

1. (1) regularly, and at least every three years; and
2. (2) whenever there is any material change in the types of step-in entity or in the risk profile of unconsolidated entities to which the firm is, or may be, exposed.

8.5

A firm must be able to provide to the PRA on request a current version of its step-in risk policy, together with all versions that applied during the preceding three years.

9.1

A firm must ensure that its management body approves its step-in risk assessment.

9.2

A firm must ensure that its management body approves its step-in risk policy.

10.1

A firm must submit the data items representing its step-in risk assessment to the PRA in accordance with the applicable requirements in the Regulatory Reporting Part.