Prudential Regulation Authority Rulebook

5.1

Where any shares are held by a firm in a regulated affiliated company, the value of the shares may be taken as, and in any event must not exceed:

1. (1) the value; or
2. (2) where the shareholding, whether held directly or indirectly, is less than 100%, the relevant proportional share of the value,

determined in accordance with this Part (other than 17.2(1) to (3)), of the surplus assets of that regulated affiliated company.

5.2

Where any shares are held by a firm in an affiliated company other than a regulated affiliated company, the value of the shares must not exceed the greater of:

1. (1) the value (or, where the shareholding, whether held directly or indirectly, is less than 100%, the relevant proportional share of the value), determined in accordance with this Part (other than 17.2(1) to(3)), of the affiliated company's surplus assets; and
2. (2) the value of those shares as determined under 12 reduced:
1. (a) by an appropriate amount, to the extent that the shares cannot effectively be made available or realised to meet losses (if any) arising in the firm;
2. (b) by an appropriate amount, to the extent needed to exclude value attributable to goodwill generated from business with the firm or any regulated affiliated company of the firm; and
3. (c) by the amount by which the value of any shares held by the affiliated company in a regulated affiliated company of the firm exceeds the value (or proportional share), determined in accordance with this Part (other than 17.2(1) to(3)), of the surplus assets of the affiliated company.

5.3

The surplus assets of an affiliated company are its total assets excluding:

1. (1) the assets that are selected to cover liabilities and, in the case of a regulated affiliated company, to cover any capital requirement imposed by any relevant provisions of the PRA Rulebook or FCA Handbook;
2. (2) assets that are interests directly or indirectly held in the affiliated company’s own capital (as defined by any relevant provisions of the PRA Rulebook or FCA Handbook for that affiliated company);
3. (3) where the affiliated company carries on long-term insurance business, profit reserves and future profits;
4. (4) assets which represent either a long-term insurance fund or a fund the allocation of which as between policyholders and other purposes has yet to be determined;
5. (5) amounts due, or to become due, in respect of share capital, or other contributions from members of the affiliated company, subscribed or called for but not fully paid up; and
6. (6) assets that cannot effectively be made available or realised to meet losses (if any) arising in the firm, including assets that represent capital not owned, directly or indirectly, by the firm.

5.4

The assets selected pursuant to 5.3(1) and which are excluded from the total assets:

1. (1) where the affiliated company is an insurance undertaking, must be identified and valued in accordance with any relevant provision of the PRA Rulebook or FCA Handbook as to the value, admissibility, nature, location or matching that apply to the assets available to cover its liabilities (determined under any relevant provision of the PRA Rulebook or FCA Handbook);
2. (2) where the group undertaking is a regulated affiliated company (excluding an insurance undertaking), must be identified and valued in accordance with the relevant provisions of the PRA Rulebook or FCA Handbook applicable to the regulated affiliated company as to cover its liabilities and the applicable regulatory requirement identified in 5.3(1);
3. (3) where the group undertaking is not a regulated affiliated company, must be of a value at least equal to the amount of its liabilities, determining that value and that amount in accordance with this Part (other than 17.2(1) to(3)) and Friendly Society - Liability Valuation Part; and
4. (4) in all cases, must not include:
1. (i) assets falling within 5.3(2), or
2. (ii) assets falling within 5.3(5) where the amount is due, or to become due, from an affiliated company; but
5. (5) notwithstanding 5.1, 5.2 and 5.3, a liability of an affiliated company which is a debt due to the firm is not required to be determined at an amount which is higher than the value placed on that debt as an asset of the firm.

5.5

For the purposes of 5.4, the relevant provisions of the PRA Rulebook or FCA Handbook must be treated as if 17.2(1) to (3) do not apply for the purpose of valuing shares in affiliated companies that are not dependants.

5.6

For the purposes of this Part, any value attributed to any shares held directly or indirectly in an affiliated company which is an ancillary services undertaking must be deducted from the assets of the firm.