Prudential Regulation Authority Rulebook

1.1

This Part applies to every firm that is a CRR firm.

1.2

In this Part the following definitions shall apply:

exposure

has the meaning given to it in Article 389 of the CRR.

non-core large exposures group or NCLEG

means all counterparties that:

1. (a) are listed in a firm's NCLEG non-trading book permission or NCLEG trading book permission; and
2. (b) in relation to a firm, satisfy the conditions in 2.1 or 2.2.

NCLEG non-trading book exemption

means the exemption in 2.1.

NCLEG non-trading book permission

means a permission given by the PRA in respect of Article 400(2)(c) of the CRR to apply the NCLEG non-trading book exemption.

NCLEG trading book exemption

means the exemption in 2.2.

NCLEG trading book permission

means a permission given by the PRA in respect of Article 400(2)(c) of the CRR to apply the NCLEG trading book exemption.

resolution exemption

means the exemption in 2.4

resolution exposure

means an exposure to resolution liabilities that ensures that losses can be absorbed and passed from the firm to its resolution entity.

resolution liabilities

means liabilities that meet the following criteria:

1. (a) the instrument that creates the liabilities must be issued and fully paid up;
2. (b) the liabilities are not secured or guaranteed by, the firm, its parent undertaking or any subsidiaries of the firm or its parent undertaking;
3. (c) the liabilities have a minimum effective remaining maturity of one year (where liabilities include an incentive to redeem, the maturity date shall, for the purposes of determining eligibility, be considered to be the date at which the incentive arises);
4. (d) the liabilities do not depend on derivatives for their value (put or call options will not in and of themselves be sufficient to disqualify a liability for this purpose absent any other dependency on derivatives);
5. (e) the liabilities are not subject to contractual set-off or netting arrangements;
6. (f) the liabilities are able to absorb losses and recapitalise the issuer of the liability, such as through being written down and/or converted to equity, without the use of stabilisation or resolution powers at the level of the issuer of the liability;
7. (g) the liabilities are subordinated to the operating liabilities of the issuer; and
8. (h) the liabilities do not take the form of equity.

sovereign large exposures exemption

means the exemption in 3.1.

sovereign large exposures permission

means a permission given by the PRA in respect of Article 400(2)(g) or (h) of the CRR to apply the sovereign large exposures exemption.

trading book exposure allocation

means the allocation in 2.2

1.3

Unless otherwise defined:

1. (1) any italicised expression used in this Part and in the CRR has the same meaning as in the CRR; and
2. (2) any italicised expression used in this Part and in the CRD has the same meaning as in the CRD.

2.1

1. (1) A firm with an NCLEG non-trading book permission may (in accordance with that permission) exempt, from the application of Article 395(1) of the CRR, non-trading book exposures, including participations or other kinds of holdings, incurred by the firm to members of its NCLEG that are:
1. (a) its parent undertaking;
2. (b) other subsidiaries of that parent undertaking; or
3. (c) its own subsidiaries,
2. in so far as those undertakings are covered by the supervision on a consolidated basis to which the firm itself is subject, in accordance with the CRR, Directive 2002/87/EC or with equivalent standards in force in a third country.
3. (2) A firm may only use the NCLEG non-trading book exemption where the total amount of non-trading book exposures (whether or not exempted from Article 395(1) of the CRR) from the firm to its NCLEG does not exceed 100% of the firm's eligible capital.
4. A firm may calculate the total amount of such exposures after taking into account the effect of credit risk mitigation in accordance with Articles 399 to 403 of the CRR.
5. (3) With respect to the application of requirements laid down in Part Four of the CRR on a consolidated basis, a firm may treat the total amount of exposures that are exempt in accordance with an NCLEG non-trading book permission on an individual basis as exempt from the limit in Article 395(1) of the CRR on a consolidated basis.

[Note: Art 400(2)(c) of the CRR]

2.2

1. (1) A firm with an NCLEG trading book permission may (in accordance with that permission) exempt, from the application of Article 395(1) of the CRR, trading book exposures up to its trading book exposure allocation, including participations or other kinds of holdings, incurred by the firm to members of its NCLEG that are:
1. (a) its parent undertaking;
2. (b) other subsidiaries of that parent undertaking; or
3. (c) its own subsidiaries,
2. in so far as those undertakings are covered by the supervision on a consolidated basis to which the firm itself is subject, in accordance with the CRR, Directive 2002/87/EC or with equivalent standards in force in a third country;
3. (2) The trading book exposure allocation for a firm is 100% of the firm's eligible capital less the total amount of non-trading book exposures (whether or not exempted from Article 395(1) of the CRR) from the firm to its NCLEG.
4. (3) [deleted.]
5. (4) A firm may calculate its trading book exposure allocation after taking into account the effect of credit risk mitigation in accordance with Articles 399 to 403 of the CRR.
6. (5) A firm must allocate the trading book exposures it has to its NCLEG to its trading book exposure allocation in ascending order of specific-risk requirements in Part Three, Title IV, Chapter 2 and/or requirements in Article 299 and Part Three, Title V of the CRR.
7. (6) With respect to the application of requirements laid down in Part Four of the CRR on a consolidated basis, a firm may treat the amount of exposures that are exempt in accordance with an NCLEG trading book permission on an individual basis as exempt from the limit in Article 395(1) of the CRR on a consolidated basis.

[Note: Art 400(2)(c) of the CRR]

2.3

1. (1) A firm with a core UK group permission and an NCLEG trading book permission and/or an NCLEG non-trading book permission must give the PRA written notice whenever the firm:
1. (a) [deleted]
2. (b) becomes aware that the total amount of exposures from the core UK group (including the firm) to a particular member of the firm's NCLEG are likely to exceed, or have exceeded, 25% of the eligible capital of the PRA-regulated firm with the largest eligible capital base in the core UK group;
3. (c) becomes aware that the total exposures from the members of its core UK group (which are not firms) to the firm's NCLEG are likely to exceed, or have exceeded 25% of the eligible capital of the PRA-regulated firm with the largest eligible capital base in the core UK group.
2. (2) The written notice required under (1) must contain the following:
1. (a) details of the size and the expected duration of the relevant exposures; and
2. (b) an explanation of the reason for those exposures.
3. (3) [deleted.]

2.4

A firm must exclude from the limit in Article 395(1) of the CRR resolution exposures to:

1. (1) its parent undertaking;
2. (2) other subsidiaries of that parent undertaking; or
3. (3) its own subsidiaries,

in so far as those undertakings are covered by the supervision on a consolidated basis to which the firm itself is subject, in accordance with the CRR, Directive 2002/87/EC or with equivalent standards in force in a third country.

[Note: Art 400(2)(c) of the CRR]

3.1

1. (1) If a firm has a sovereign large exposures permission, the exposures specified in that permission are exempt from Article 395(1) of the CRR to the extent specified in that permission.
2. (2) For the purposes of the sovereign large exposures permission, and in relation to a firm, the exposures referred to in (1) are limited to the following:
1. (a) asset items constituting claims on central banks in the form of required minimum reserves held at those central banks which are denominated in their national currencies; and
2. (b) asset items constituting claims on central governments in the form of statutory liquidity requirements held in government securities which are denominated and funded in their national currencies provided that, at the discretion of the PRA, the credit assessment of those central governments assigned by a nominated ECAI is investment grade.

[Note: Art 400(2)(g)-(h) of the CRR]

4.1

[Deleted.]