Finance Act 2011

Chargeable equity and liabilities of UK resident banks and building societies which are not members of groups

22 (1) This paragraph applies for the purposes of paragraph 21(2) if—

(a) the relevant entity has liabilities to another entity (“N”) and N has assets which correspond to those liabilities (“the relevant entity’s liabilities”),

(b) the relevant entity also has assets which correspond to liabilities which N has to the relevant entity (“N’s liabilities”),

(c) there is in place an agreement between the relevant entity and N which makes provision for there to be a single net settlement of all the relevant entity’s liabilities (so far as covered by the provision) and all N’s liabilities (so far as covered by the provision) if the netting event occurs, and

(d) the provision mentioned in paragraph (c) is legally effective and enforceable.

(2) For the purposes of sub-paragraph (1)—

(a) “agreement” includes an agreement which forms part of a multi-lateral agreement, arrangement or trading facility,

(b) references to assets of one party which correspond to liabilities of another party are to amounts receivable by that first party which correspond to amounts due from that other party,

(c) a liability which the relevant entity has to N to which sub-paragraph (3) applies is to be treated as a liability to which an asset of N corresponds, and

(d) “the netting event occurs” if the insolvency or bankruptcy of the relevant entity or N gives rise to the termination of any arrangements under which any liability covered by the provisions mentioned in sub-paragraph (1)(c) arises.

(3) This sub-paragraph applies to a liability which the relevant entity has to N if—

(a) as at the end of the chargeable period, the assets of the relevant entity include a financial asset in respect of an advance of cash made by the relevant entity to N,

(b) underlying that asset, as collateral, are securities which have been transferred by the relevant entity to another person,

(c) the liability is a financial liability in respect of the relevant entity’s obligation to return the securities or similar securities to N, and

(d) the provision mentioned in sub-paragraph (1)(c) covers both the financial asset mentioned in paragraph (a) and that financial liability.

Section 556 of CTA 2009 (meaning of securities and similar securities) applies for the purposes of this sub-paragraph as it applies for the purposes of Chapter 10 of Part 6 of that Act.

(4) The amount of the relevant entity’s net settlement liabilities is to be reduced (but not below nil) by the amount of the relevant entity’s net settlement assets.

(5) The relevant entity’s “net settlement liabilities” are the relevant entity’s liabilities so far as they—

(a) are covered by the provision mentioned in sub-paragraph (1)(c), and

(b) are not excluded liabilities.

(6) The relevant entity’s “net settlement assets” are its assets so far as corresponding to N’s net settlement liabilities.

(7) “N’s net settlement liabilities” means N’s liabilities so far as they are covered by the provision mentioned in sub-paragraph (1)(c).

(8) If the relevant entity’s net settlement liabilities exceed the entity’s net settlement assets, and a proportion (A%) of those liabilities is long term liabilities and a proportion (B%) of those liabilities is short term liabilities, under sub-paragraph (4)—

(a) the long term liabilities are reduced by A% of the entity’s net settlement assets, and

(b) the short term liabilities are reduced by B% of those assets.