The Financial Services and Markets Act 2000 (Excluded Activities and Prohibitions) Order 2014

Prohibitions: financial institution exposures

14.—(1) A ring-fenced body is prohibited from incurring a financial institution exposure unless at least one of the exemptions set out in paragraphs (2) to (6) or in articles 15 to 19 applies, and, for the avoidance of doubt, provided that one of these exemptions applies in relation to a particular exposure, it is irrelevant whether the conditions for any other exemption are satisfied by that exposure.

(2) A ring-fenced body may incur a financial institution exposure if the sole or main purpose of the transaction giving rise to the exposure (by itself or in combination with other transactions) is to limit the extent to which—

(a) the ring-fenced body,

(b) any subsidiary undertaking of the ring-fenced body,

(c) any sponsored structured finance vehicle of the ring-fenced body,

(d) any conduit vehicle of the ring-fenced body, or

(e) any combination of the undertakings referred to in sub-paragraphs (a), (b), (c) and (d),

will be adversely affected by any of the factors specified in paragraph (3).

(3) The specified factors are—

(a) changes in interest rates, exchange rates or commodity prices;

(b) changes in any index of retail prices or of residential or commercial property prices;

(c) changes in any index of the price of shares;

(d) default risk.

(4) A ring-fenced body may incur a financial institution exposure where the relevant financial institution concerned is a member of the same group as the ring-fenced body, provided that—

(a) the exposure concerned is not prohibited under rules made by the FCA or the PRA under the Act; and

(b) the exposure arises as a result of—

(i) a commercial transaction conducted on arm’s length terms, or

(ii) a holding of shares or other securities issued by a subsidiary undertaking of the ring-fenced body.

(5) A ring-fenced body may incur a financial institution exposure in the course of buying, selling or subscribing for investments for the purposes of a transaction falling within paragraph (2).

(6) A ring-fenced body may incur a financial institution exposure where—

(a) the exposure concerned is a payment exposure, and

(b) the ring-fenced body has complied with any rules made or requirements imposed by the FCA or the PRA under the Act in relation to payment exposures.