Prudential Regulation Authority Rulebook

1.

An institution may apply to the competent authority for permission to treat an asset and a liability as interdependent. For the purpose of this Article, an asset and a liability are interdependent where either conditions (a) to (f) below are met or where paragraph 2 applies:

1. (a) the institution acts solely as a pass-through unit to channel the funding from the liability into the corresponding interdependent asset;
2. (b) the individual interdependent assets and liabilities are clearly identifiable and have the same principal amount;
3. (c) the asset and interdependent liability have matched maturities;
4. (d) the interdependent liability has been requested pursuant to a legal, regulatory or contractual commitment and is not used to fund other assets;
5. (e) the principal payment flows from the asset are not used for other purposes than repaying the interdependent liability; and
6. (f) the counterparties for each pair of interdependent assets and liabilities are not the same.

[Note: This is a permission under section 144G of FSMA to which Part 8 of the Capital Requirements Regulations applies]

2.

This paragraph applies to an institution's unencumbered physical stock of precious metals and customer deposit accounts in precious metals where all of the following conditions are met:

1. (a) the institution’s unencumbered physical stock of each precious metal is used to cover customer deposit accounts in the same precious metal;
2. (b) the institution is not exposed to liquidity or market risk resulting from either the sale of precious metals by the customer or the physical settlement of customer transactions in precious metals; and
3. (c) the precious metals assets and liabilities are on the balance sheet of the institution.

3.

For the purpose of paragraph 2:

1. (a) precious metals means gold, silver, platinum or palladium;
2. (b) the interdependent asset and liability treatment shall only be available to the extent that the institution's unencumbered physical stock of each precious metal is matched by customer deposits of the same precious metal. Any excess physical stock or customer deposits in a precious metal shall not be treated as an interdependent asset or liability for the purpose of paragraph 1;
3. (c) an institution’s precious metals accounts at any other institution shall not be considered a part of the institution’s physical stock of precious metals.