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The Capital Requirements Regulations 2006 (revoked)

Changes over time for: The Capital Requirements Regulations 2006 (revoked) (without Schedules)

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Version Superseded: 10/06/2013

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PART 1 U.K.INTRODUCTION

Citation, commencement and interpretationU.K.

1.—(1) These Regulations may be cited as the Capital Requirements Regulations 2006 and come into force on 1st January 2007.

(2) In these Regulations—

“the Act” means the Financial Services and Markets Act 2000 M1;

“application” unless the context otherwise requires means an application—

(a)

for a permission;

(b)

to vary or revoke a permission; or

(c)

to vary or revoke the terms and conditions to which a permission is subject;

[F1“appropriate regulator” means the FCA or, as the case may be, the PRA;]

“banking consolidation directive” M2 means Council Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006 relating to the taking up and pursuit of the business of credit institutions [F2as last amended [F3on 24th November 2010 by Directives 2010/76/EU and 2010/78/EU] of the European Parliament and of the Council];

[F4“banking or investment group” means the group to which an EEA parent credit institution, EEA parent investment firm or EEA parent financial holding company belongs;]

“capital adequacy directive” M3 means Council Directive 2006/49/EC of the European Parliament and of the Council of 14 June 2006 relating to the capital adequacy of investment firms and credit institutions [F5as last amended [F6on 24th November 2010 by Directives 2010/76/EU and 2010/78/EU] of the European Parliament and of the Council];

“decision” means [F7, for the purposes of Part 2,] a decision made by the EEA consolidated supervisor in relation to an application or a proposal;

“EEA consolidated supervisor” means the competent authority responsible, under the banking consolidation directive or under the banking consolidation directive as applied by Articles 2(2) and 37(1) of the capital adequacy directive, for the exercise of supervision on a consolidated basis of—

(a)

an EEA parent credit institution;

(b)

an EEA parent investment firm; or

(c)

credit institutions or investment firms controlled by an EEA parent financial holding company where the parent is authorised in a different EEA State to at least one of the subsidiaries;

“EEA parent credit institution” means a parent credit institution in an EEA State which is not a subsidiary of another credit institution or investment firm authorised in any EEA State, or of a financial holding company set up in any EEA State;

“EEA parent investment firm” means a parent investment firm in an EEA State which is not a subsidiary of another credit institution or investment firm authorised in any EEA State or of a financial holding company set up in any EEA State;

“EEA parent financial holding company” means a parent financial holding company in an EEA State which is not a subsidiary of another credit institution or investment firm authorised in any EEA State or of another financial holding company set up in any EEA State;

[F8“ESRB” means the European Systemic Risk Board established by Regulation (EU) No. 1092/2010 of the European Parliament and of the Council of 24 November 2010 on European Union macro-prudential oversight of the financial system and establishing a European Systemic Risk Board;]

[F9“home EEA state” means the EEA state in which a credit institution or investment firm has been authorised in accordance with the banking consolidation directive or the capital adequacy directive;

“host EEA state” means the EEA state in which a credit institution or investment firm authorised in another EEA state has a branch;]

“joint decision” means [F10, for the purposes of Part 2,] a decision, made jointly by all relevant competent authorities and the EEA consolidated supervisor, in relation to an application or a proposal;

“national consolidated supervisor” means the competent authority responsible, under the banking consolidation directive or under the banking consolidation directive as applied by Articles 2(2) and 37(1) of the capital adequacy directive, for the exercise of supervision on a consolidated basis of—

(a)

a parent credit institution in an EEA State;

(b)

a parent investment firm in an EEA State; or

(c)

credit institutions or investment firms controlled by a parent financial holding company in an EEA State;

“parent credit institution in an EEA State” means a credit institution which has a credit institution, an investment firm or a financial institution as a subsidiary or which holds a participation in such an institution, and which is not itself a subsidiary of another credit institution or investment firm authorised in the same EEA State, or of a financial holding company set up in the same EEA State;

“parent investment firm in an EEA State” means an investment firm which has a credit institution, an investment firm or a financial institution as a subsidiary or which holds a participation in such an institution, and which is not itself a subsidiary of another credit institution or investment firm authorised in the same EEA State or of a financial holding company set up in the same EEA State;

“parent financial holding company in an EEA State” means a financial holding company which is not itself a subsidiary of a credit institution or investment firm authorised in the same EEA State, or of another financial holding company set up in the same EEA State;

“permission” means a permission referred to in Article 84(1) or 87(9) of the banking consolidation directive, an approval referred to in Article 105 or Annex III, Part 6 of the banking consolidation directive or recognition referred to in Annex V of the capital adequacy directive;

“proposal” means a proposal made by the EEA consolidated supervisor to vary or revoke a permission or vary or revoke the terms or conditions to which it is subject;

[F11“regulation establishing EBA” means Regulation (EU) No. 1093/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Banking Authority);]

“relevant competent authority” means a competent authority which is not the EEA consolidated supervisor and which has authorised a subsidiary of an EEA parent credit institution, a subsidiary of an EEA parent investment firm or a subsidiary of an EEA parent financial holding company.

[F12“relevant investment firm” means an investment firm which does not meet the conditions set out in Article 20(2) or (3) or the first paragraph of Article 46 of the capital adequacy directive;

“risk assessment” means, unless the context otherwise requires, an evaluation of the risks to which a credit institution or investment firm or a banking or investment group is or might be exposed, in accordance with Articles 123 and 124 of the banking consolidation directive;

“significant branch” has the meaning given by regulation 16A.]

(3) Save as provided by paragraph (2)—

(a)any expression used in these Regulations which is used in the banking consolidation directive or the capital adequacy directive shall have the meaning given by those directives; and

(b)any other expression used in these Regulations which is defined for the purposes of the Act has the meaning given by the Act.

Textual Amendments

Marginal Citations

M2O.J. No L 771, 30.6.2006, p.1.

M3O.J. No L 771, 30.6.2006, p.201.

PART 2 U.K.APPLICATIONS FOR PERMISSIONS

Application for permissionU.K.

2.—(1) This regulation applies where [F13an appropriate regulator] is the EEA consolidated supervisor.

(2) An application may be made to [F14that appropriate regulator]—

(a)by an EEA parent credit institution and its subsidiaries;

(b)by an EEA parent investment firm and its subsidiaries; or

(c)jointly by the subsidiaries of an EEA parent financial holding company.

(3) An application must be made in such manner as [F14that appropriate regulator] may direct.

Textual Amendments

Applications to [F15an appropriate regulator] as EEA consolidated supervisorU.K.

3.—(1) This regulation applies where [F16an appropriate regulator] is the EEA consolidated supervisor and has received an application.

(2) [F17That appropriate regulator] must—

(a)forward the complete application to the relevant competent authorities without delay;

(b)work together, in full consultation with the relevant competent authorities, and do everything in its power to reach a joint decision within six months from the date on which it received the complete application; and

(c)provide the applicants with a document containing the fully reasoned joint decision, if any.

(3) If a joint decision is not made by [F18that appropriate regulator] and the relevant competent authorities within the period specified in paragraph (2)(b), [F18that appropriate regulator] must—

(a)make its own decision on the application, taking account of the views and reservations of the relevant competent authorities expressed during that period; and

(b)provide the applicant and the relevant competent authorities with a document containing the fully reasoned decision.

[F19(4) If, by the end of the six month period referred to in paragraph (2)(b), any of the relevant competent authorities has referred the matter to EBA in accordance with Article 19 of the regulation establishing EBA, [F18that appropriate regulator] must defer its decision and await any decision that EBA may take in accordance with Article 19(3) of that regulation on [F18that appropriate regulator]’s decision on the application.

(5) If EBA takes a decision in accordance with Article 19(3) of the regulation establishing EBA, [F18that appropriate regulator] must take its decision on the application in conformity with the decision of EBA.]

Textual Amendments

Applications forwarded to [F20an appropriate regulator] as a relevant competent authorityU.K.

4.—(1) This regulation applies where [F21an appropriate regulator] is a relevant competent authority and has been forwarded a complete application by the EEA consolidated supervisor.

(2) [F22That appropriate regulator] must work together, in full consultation with the EEA consolidated supervisor and the other relevant competent authorities, and do everything in its power to reach a joint decision within six months from the date on which the EEA consolidated supervisor received the complete application.

Textual Amendments

Proposals to vary or revoke a decision or joint decisionU.K.

5.—(1) This regulation applies where [F23an appropriate regulator] is the EEA consolidated supervisor and intends to make a proposal.

(2) [F24That appropriate regulator] must give written notice to those persons to whom the permission, which is the subject of the intended proposal, applies.

(3) The notice must—

(a)give details of the intended proposal; and

(b)inform the persons to whom the permission applies that they may make representations to [F25that appropriate regulator] within such period as may be specified in the notice.

(4) If after the period specified in the notice has expired [F25that appropriate regulator] makes the proposal, it must—

(a)send the proposal and forward any representations received during that period to the relevant competent authorities;

(b)work together, in full consultation with the relevant competent authorities, taking account of such representations and do everything in its power to reach a joint decision within six months from the date on which the proposal was made; and

(c)provide the persons to whom the permission applies with a document containing the fully reasoned joint decision, if any.

(5) If a joint decision is not made by [F25that appropriate regulator] and the relevant competent authorities within the period specified in paragraph (4)(b), [F25that appropriate regulator] must—

(a)make its own decision on the proposal, taking account of the views and reservations of the relevant competent authorities expressed during that period and of any representations made by the persons to whom the permission applies;

(b)provide the persons to whom the permission applies and the relevant competent authorities with a document containing the fully reasoned decision.

Textual Amendments

6.  Where [F26an appropriate regulator] is a relevant competent authority and receives a proposal from the EEA consolidated supervisor, it must work together, in full consultation with the EEA consolidated supervisor and the other relevant competent authorities, and do everything in its power to reach a joint decision within six months from the date on which the proposal was made.

Textual Amendments

Recognition and application of a decision or joint decisionU.K.

7.  [F27An appropriate regulator] must recognise a decision or a joint decision as determinative and apply it in respect of any authorised person to whom the banking consolidation directive or the capital adequacy directive applies.

Textual Amendments

Exercise of functions under [F28section 138A] of the Act for the purpose of applying a decision or a joint decisionU.K.

8.—(1) [F29An appropriate regulator] may exercise the powers conferred by [F30section 138A] of the Act (modification or waiver of rules) if it appears desirable to do so for the purpose of applying a decision or a joint decision.

(2) In such a case the requirements contained in—

(a)[F31subsections (1) and (7)(b) of section 138A for that appropriate regulator’s] powers to be exercisable only on the application or with the consent of an authorised person; and

(b)[F32section 138A(4)],

shall not apply.

Textual Amendments

9.—(1) Where [F33an appropriate regulator] proposes to exercise the powers conferred by [F34section 138A] of the Act in relation to an authorised person for the purpose of applying a decision or a joint decision, other than on the application or with the consent of that person, it must give him written notice and have regard to any representations received within such period as is specified in the notice.

(2) The notice must—

(a)give details of any proposed direction or variation of a direction;

(b)give details of any proposed conditions;

(c)inform the person that, within such period as may be specified in the notice, he may make representations to [F35that appropriate regulator];

(d)inform the person when the proposed direction, variation or condition takes effect.

Textual Amendments

PART 3U.K.EXERCISE OF SUPERVISION

[F36Duties of an appropriate regulator] as an EEA consolidated supervisorU.K.

[F3710.  Regulations 10A, 11, 12 and 12A apply where [F38an appropriate regulator] is the EEA consolidated supervisor.

Textual Amendments

F37Regs. 10-10B substituted for reg. 10 (31.12.2010) by The Capital Requirements (Amendment) Regulations 2010 (S.I. 2010/2628), regs. 1, 4

10A.—(1) The [F39appropriate regulator] must submit a report containing its risk assessment of a banking or investment group to the relevant competent authorities.U.K.

(2) Subject to paragraph (8), the [F39appropriate regulator] must take all reasonable steps to reach a joint decision with the relevant competent authorities, within four months of submitting its report, on—

(a)the application of Articles 123 and 124 of the banking consolidation directive to determine the adequacy of the consolidated level of own funds held by the group with respect to its financial situation and risk profile; and

(b)the required level of own funds for the application of Article 136(2) of the banking consolidation directive to each member of the group and to the group as a whole.

(3) The [F39appropriate regulator] must consider, for the purposes of reaching a joint decision, the risk assessments prepared in relation to subsidiaries by the relevant competent authorities.

(4) The [F39appropriate regulator] must provide the relevant institution with a document setting out the fully reasoned joint decision.

(5) Where a joint decision cannot be reached, the [F39appropriate regulator] must, at the request of any of the relevant competent authorities, consult [F40EBA], or may do so of its own initiative.

(6) Subject to paragraph (8), if a joint decision has not been made within four months of the [F39appropriate regulator] submitting its report in accordance with paragraph (1), the [F39appropriate regulator] must—

(a)after considering the risk assessments prepared in relation to subsidiaries by the relevant competent authorities and any advice given by [F41EBA], make a decision on the matters referred to in paragraph (2);

(b)where the [F39appropriate regulator]’s decision differs significantly from any advice given by [F42EBA], give reasons for the difference;

(c)provide all relevant competent authorities and the relevant institution with a document containing its decision and the decisions of the relevant competent authorities on the levels of own funds required to be held by subsidiaries on an individual or, where appropriate, sub-consolidated basis;

(d)recognise the decisions taken by the relevant competent authorities, mentioned in sub-paragraph (c), as determinative.

[F43(6A) If, by the end of the four month period referred to in paragraph (6), any of the relevant competent authorities has referred the matter to EBA in accordance with Article 19 of the regulation establishing EBA, the [F39appropriate regulator] must defer its decision and await any decision that EBA may take in accordance with Article 19(3) of that regulation on the [F39appropriate regulator]’s decision on the matters referred to in paragraph (2).

(6B) If EBA takes a decision in accordance with Article 19(3) of the regulation establishing EBA, the [F39appropriate regulator] must take its decision on the matters referred to in paragraph (2) in conformity with the decision of EBA.]

(7) The [F39appropriate regulator] must update the joint decision reached in accordance with paragraph (2) or its own decision made under paragraph (6)(a) [F44or (6B)]—

(a)annually; or

(b)in exceptional circumstances, on receipt of a fully reasoned written request by a relevant competent authority to update the decision on the application of Article 136(2) of the banking consolidation directive;

and, where sub-paragraph (b) applies, the updated decision may be made after consultation with the competent authority making the request, without consulting the other relevant competent authorities.

(8) Where the [F39appropriate regulator] submits a report in accordance with paragraph (1) before 1st January 2013, for “four months” in paragraphs [F45(2), (6) and (6A)] substitute “six months”.

(9) In this regulation “relevant institution” means the credit institution or investment firm for whose supervision on a consolidated basis the [F39appropriate regulator] is responsible.

Textual Amendments

F37Regs. 10-10B substituted for reg. 10 (31.12.2010) by The Capital Requirements (Amendment) Regulations 2010 (S.I. 2010/2628), regs. 1, 4

10B.—(1) This regulation applies where [F46an appropriate regulator] is a relevant competent authority and receives a report containing the risk assessment of a banking or investment group from the EEA consolidated supervisor.U.K.

(2) The [F47appropriate regulator] must submit to the EEA consolidated supervisor a report containing its risk assessment of each subsidiary of the group it has authorised.

(3) Subject to paragraph (7), the [F47appropriate regulator] must take all reasonable steps to reach a joint decision with the EEA consolidated supervisor and any other relevant competent authorities on the matters referred to in regulation 10A(2) within four months of the [F47appropriate regulator] receiving the report from the EEA consolidated supervisor.

(4) Where agreement on a joint decision cannot be reached, the [F47appropriate regulator] may request that the EEA consolidated supervisor consults [F48EBA].

(5) Subject to paragraph (7), if a joint decision has not been reached within four months of the [F47appropriate regulator] receiving the report from the EEA consolidated supervisor, the [F47appropriate regulator] must—

(a)make a decision on the level of own funds required to be held by each subsidiary it has authorised, on an individual or, where appropriate, sub-consolidated basis, in accordance with Articles 123, 124 and 136(2) of the banking consolidation directive, taking into account the views of the EEA consolidated supervisor and any advice given by [F49EBA];

(b)where the [F47appropriate regulator]’s decision differs significantly from any advice given by [F50EBA], give reasons for the difference;

(c)provide the EEA consolidated supervisor with a document containing its decision; and

(d)recognise the decisions taken by the EEA consolidated supervisor and any other relevant competent authorities on the levels of own funds required to be held by the banking or investment group or its subsidiaries outside the United Kingdom, as determinative.

[F51(5A) If, by the end of the four month period referred to in paragraph (5), any of the relevant competent authorities has referred the matter to EBA in accordance with Article 19 of the regulation establishing EBA, the [F47appropriate regulator] must defer its decision and await any decision that EBA may take in accordance with Article 19(3) of that regulation.

(5B) If EBA takes a decision in accordance with Article 19(3) of the regulation establishing EBA, the [F47appropriate regulator] must take its decision on the matters referred to in paragraph (5)(a) in conformity with the decision of EBA.]

(6) The [F47appropriate regulator] may, in exceptional circumstances, make a fully reasoned written request to the EEA consolidated supervisor to update the decision on the level of own funds required to be held by any subsidiary of the group within the United Kingdom in accordance with article 136(2) of the banking consolidation directive.

(7) Where the [F47appropriate regulator] receives the report from the EEA consolidated supervisor before 1st January 2013, for “four months” in paragraphs [F52(3), (5) and (5A)] substitute “six months”.]

Textual Amendments

F37Regs. 10-10B substituted for reg. 10 (31.12.2010) by The Capital Requirements (Amendment) Regulations 2010 (S.I. 2010/2628), regs. 1, 4

11.—[F53(1) The [F54appropriate regulator] must take such steps as it considers appropriate—

(a)in going-concern situations—

(i)to co-ordinate the gathering and dissemination of relevant or essential information;

(ii)to plan and co-ordinate supervisory activities in co-operation with other relevant competent authorities;

(b)in preparation for and during emergency situations, including adverse developments in credit institutions or relevant investment firms or in financial markets—

(i)to co-ordinate the gathering and dissemination of relevant or essential information;

(ii)to plan and co-ordinate supervisory activities, including exceptional measures, preparation of risk assessments, implementation of contingency plans and communication to the public, in co-operation with other relevant competent authorities and, where necessary, central banks.]

(2) The [F54appropriate regulator] must provide a relevant competent authority with all information which the [F54appropriate regulator] considers to be essential for the exercise of the relevant competent authority's supervisory tasks.

(3) For the purposes of this regulation, information shall be regarded as essential if it could materially influence the assessment of the financial soundness of a credit institution, financial institution or investment firm in another EEA State. In particular essential information shall include:

(a)the group structure of all major credit institutions or investment firms in a group;

(b)the relevant competent authorities of the credit institutions or investment firms in a group;

(c)procedures for the collection and verification of information from credit institutions or investment firms in a group;

(d)adverse developments in credit institutions or investment firms or in other entities of a group, which could seriously affect other credit institutions or investment firms of that group;

(e)major sanctions and exceptional measures taken by the EEA consolidated supervisor or any of the relevant competent authorities under the banking consolidation directive or under the banking consolidation directive as applied by Articles 2(2) and 37(1) of the capital adequacy directive.

[F55(4) Where a relevant competent authority fails to co-operate with the [F54appropriate regulator] to the extent required, the [F54appropriate regulator] may refer the matter to EBA, which may act in accordance with Article 19 of the regulation establishing EBA.]

Textual Amendments

12.—(1) On request, the [F56appropriate regulator] must provide a relevant competent authority with all the information which the [F56appropriate regulator] considers to be relevant for the exercise of the relevant competent authority's supervisory tasks.

(2) In determining the extent of relevant information, the [F56appropriate regulator] must have regard to the importance of the subsidiary within the financial system of the EEA State in which it is authorised.

Textual Amendments

[F5712A.—(1) Where a credit institution or investment firm belongs to a group whose members include at least one other credit institution or investment firm which is established in another EEA state, the [F58appropriate regulator] must, acting on the basis of agreements entered into pursuant to regulation 15, establish a college of supervisors to–U.K.

(a)facilitate its duties as an EEA consolidated supervisor; and

(b)ensure appropriate co-ordination and co-operation with competent authorities outside the EEA where appropriate.

(2) The college of supervisors shall facilitate the EEA consolidated supervisor and the other relevant competent authorities carrying out the following tasks—

(a)exchanging relevant information;

(b)agreeing on the voluntary allocation of tasks and the voluntary delegation of responsibilities where appropriate;

(c)determining supervisory examination programmes based on a risk assessment of the relevant banking or investment group in accordance with Article 124 of the banking consolidation directive;

(d)increasing the efficiency of supervision by removing unnecessary duplication of supervisory requirements;

(e)where appropriate, applying the prudential requirements under the banking consolidation directive on a consistent basis to all members of a banking or investment group;

(f)planning and co-ordination of supervisory activities in preparation for and during emergency situations, taking into account the work of any other relevant bodies established for such purposes.

(3) The following bodies may participate in the college of supervisors—

(a)the relevant competent authorities;

(b)the competent authorities of a host EEA state in which a significant branch is established;

(c)central banks;

(d)competent authorities situated outside the EEA, provided that, in the opinion of the [F58appropriate regulator] and all relevant competent authorities, they are subject to confidentiality requirements equivalent to the requirements of section 2 of Chapter 1 of Title V of the banking consolidation directive.

(4) The [F58appropriate regulator] must co-operate closely with [F59EBA and] the other competent authorities participating in the college of supervisors.

(5) The [F58appropriate regulator] must—

(a)inform members in advance about the organisation of and agenda for any meeting of the college of supervisors, including any activities to be considered at that meeting;

(b)decide which competent authorities may attend any meeting or participate in any activity;

(c)chair any meeting;

(d)inform members in a timely manner of the actions taken at any meeting or any activities carried out.

(6) When making a decision under paragraph (5)(b), the [F58appropriate regulator] must take into account the relevance to each competent authority of the supervisory activity to be planned or co-ordinated, and in particular—

(a)the potential impact on the stability of the financial system in the EEA state concerned; and

(b)the competent authority’s obligations as the competent authority of the home EEA state under Article 42a(2) of the banking consolidation directive.

(7) Subject to confidentiality requirements under section 2 of Chapter 1 of Title V of the banking consolidation directive, the [F58appropriate regulator] must—

(a)inform [F60EBA] of the activities of the college of supervisors, including in emergency situations; and

(b)provide [F61EBA] with all information that is of particular relevance for the purposes of supervisory convergence.]

Textual Amendments

[F62Duties of an appropriate regulator] as EEA consolidated supervisor or national consolidated supervisorU.K.

13.  Regulations 14, 15 and 16 apply where [F63an appropriate regulator] is either the EEA consolidated supervisor or the national consolidated supervisor.

Textual Amendments

[F6414.—(1) Where an emergency situation, including adverse developments in financial markets, arises in the United Kingdom, which potentially jeopardises the market liquidity and the stability of the financial system in any other EEA state where an entity belonging to a banking or investment group has been authorised or where a significant branch is established, the [F65appropriate regulator] must notify as soon as practicable—

(a)the European Central Bank;

[F66(aa)EBA;

(ab)ESRB;]

(b)the central bank of the EEA state; and

(c)the central government departments of the EEA state which are responsible for legislation on the supervision of credit institutions, financial institutions, investment services and insurance companies.

(2) The [F65appropriate regulator], in notifying any body under paragraph (1), must provide all information that is essential for the purpose of that body’s tasks, which it is not prevented from disclosing.]

Textual Amendments

15.—[F67(1)] The [F68appropriate regulator] must, so far as necessary to facilitate and establish effective supervision and wherever possible, have written co-ordination and co-operation agreements in place with other competent authorities.

[F69(2) Where the agreements referred to in paragraph (1) relate to the establishment of colleges of supervisors, they shall be entered into by the [F68appropriate regulator] after consultation with the relevant competent authorities.]

Textual Amendments

16.—(1) Where the [F70appropriate regulator] is considering, in relation to a credit institution, an investment firm or a financial institution, whether to take action against that person which it considers will impose a major sanction or exceptional measure it must, before making a decision, consult the EEA consolidated supervisor, and where its decision would be of importance to a competent authority's supervisory tasks, that authority.

(2) Paragraph (1) does not apply where the [F70appropriate regulator] considers that—

(a)there is an urgent need to act; or

(b)such consultation may jeopardise the effectiveness of the decision referred to in paragraph (1).

(3) Where paragraph (1) does not apply by virtue of paragraph (2), the [F70appropriate regulator] must, without delay, inform the EEA consolidated supervisor and the other competent authorities referred to in paragraph (1) of the action that it has taken.

(4) In this regulation, the [F70appropriate regulator] may impose a major sanction or exceptional measure by—

(i)varying a [F71Part 4A] permission;

(ii)exercising any of the powers conferred on it by [F72section 138A] of the Act;

(iii)publishing a statement under section 205 of the Act (public censure);

(iv)imposing a penalty in respect of a contravention under section 206 of the Act (financial penalties);

(v)exercising any of its powers (other than its powers under section 381, 383 or 384(2)) under Part XXV of the Act (injunctions and restitution).

Textual Amendments

[F73Significant branchesU.K.

16A.—(1) This regulation applies where a credit institution or relevant investment firm authorised in another EEA state has established a branch in the United Kingdom.

(2) The [F74relevant regulator] may make a request to the competent authority of the home EEA state or, where appropriate, to the EEA consolidated supervisor (in which case a copy of the request shall be sent to the competent authority of the home EEA state), for the branch to be designated as significant.

(3) A request made under paragraph (2) must include reasons for considering the branch to be significant with particular regard to—

(a)the likely impact of a suspension or closure of the operations of the credit institution or investment firm on market liquidity and the payment, clearing and settlement systems in the United Kingdom;

(b)the size and importance of the branch in terms of the number of clients within the context of the banking or financial system of the United Kingdom; and

(c)in relation to a branch of a credit institution, whether the market share of the branch in terms of deposits exceeds 2% in the United Kingdom.

(4) The [F74relevant regulator] must—

(a)do everything in its power to reach a joint decision with the competent authority of the home EEA state and, where appropriate, the EEA consolidated supervisor, on the designation of the branch as significant; and

(b)if a joint decision is made, provide the competent authorities concerned with a document containing the fully reasoned joint decision.

(5) If a joint decision has not been reached within two months of receipt of a request made by the [F74relevant regulator] under paragraph (2), the [F74relevant regulator] must—

(a)make a decision within a further period of two months on whether or not to designate the branch as significant, taking into account any views and reservations of the competent authority of the home EEA state and, where appropriate, the EEA consolidated supervisor; and

(b)provide the competent authorities concerned with a document containing the fully reasoned decision.

[F75(6) If, by the end of the first two month period referred to in paragraph (5), any of the relevant competent authorities has referred the matter to EBA in accordance with Article 19 of the regulation establishing EBA, the [F74relevant regulator] must defer its decision and await any decision that EBA may take in accordance with Article 19(3) of that regulation on the [F74relevant regulator]’s decision on the designation of the branch as significant.

(7) If EBA takes a decision in accordance with Article 19(3) of the regulation establishing EBA, the [F74relevant regulator] must take its decision on the designation of the branch as significant in conformity with the decision of EBA.]

[F76(8) In this regulation, “the relevant regulator” in relation to a branch established in the United Kingdom means—

(a)if the branch is a PRA-authorised person, the PRA;

(b)in any other case, the FCA.]

Textual Amendments

16B.—(1) This regulation applies where [F77an appropriate regulator] is the competent authority of the home EEA state or the EEA consolidated supervisor and has received a request (or a copy of a request) from the competent authority of a host EEA state for a branch of a credit institution or relevant investment firm established in that state to be designated as significant.

(2) The [F78appropriate regulator] must do everything in its power to reach a joint decision with the competent authority of the host EEA state and, where appropriate, the EEA consolidated supervisor, on the designation of the branch as significant.

(3) Where a joint decision has not been reached and the competent authority of the host EEA state has made and notified to the [F78appropriate regulator] its own decision to designate the branch as significant, the [F78appropriate regulator] must recognise that decision as determinative.

Textual Amendments

16C.—(1) This regulation applies where [F79an appropriate regulator] is the competent authority of the home EEA state and a decision has been made to designate a branch of a credit institution or relevant investment firm established in another EEA state as significant.

(2) The [F80appropriate regulator] must—

(a)in relation to the credit institution or relevant investment firm for which it is the home EEA state competent authority, communicate to the competent authority of the host EEA state the information referred to in regulation 11(3)(d) and (e);

(b)in preparation for and during an emergency situation, plan and co-ordinate supervisory activities in cooperation with the competent authority of the host EEA state and if necessary its central bank.

Textual Amendments

16D.—(1) This regulation applies where [F81an appropriate regulator] is the competent authority of the home EEA state and decisions have been made to designate branches of a credit institution or relevant investment firm established in at least two other EEA states as significant.

(2) Where a college of supervisors has not been established in relation to the credit institution or investment firm whose branches have been designated as significant, the [F82appropriate regulator] must establish a college of supervisors acting on the basis of agreements entered into pursuant to regulation 15.

(3) Where a college of supervisors has been established by the [F82appropriate regulator] under paragraph (2), the requirements in regulation 12A(5) and (6) apply.

Textual Amendments

[F83General duties of FCA and PRA] U.K.

16E.  [F84An appropriate regulator] must in the exercise of its duties as [F85a competent authority] under the banking consolidation directive and the capital adequacy directive—

(a)consider the potential impact of its decisions on the stability of the financial system in other EEA states, such consideration, in particular in emergency situations, to be based on information available at the relevant time;

(b)participate in the activities of [F86EBA];

(c)follow the guidelines, recommendations, standards and other measures agreed by [F87EBA], unless it considers that there are good reasons not to do so, in which case it must set out those reasons.

Textual Amendments

The Bank of England’s general dutiesU.K.

16F.  Where—

(a)an entity belonging to a banking or investment group has been authorised, or a significant branch is established, in the United Kingdom; and

(b)an emergency situation, including [F88a situation as defined in Article 18 of the regulation establishing EBA or a situation of] adverse developments in financial markets, arises, which potentially jeopardises the market liquidity and the stability of the financial system in the United Kingdom,

the Bank of England must notify as soon as practicable the national consolidated supervisor or, where appropriate, the EEA consolidated supervisor [F89and EBA].]

Textual Amendments

[F90[F91The relevant regulator’s] duties in relation to employee remunerationU.K.

16G.—[F92(1)] [F93The relevant regulator] must—

(a)use the information collected in accordance with the criteria for disclosure established in paragraph 15(f) of Part 2 of Annex XII of the banking consolidation directive to benchmark remuneration trends and practices;

(b)collect the information specified in Article 22(5) of the banking consolidation directive; and

(c)provide EBA with the information referred to in paragraphs (a) and (b).

[F94(2) In this regulation, the “relevant regulator” in relation to an authorised person means—

(a)if the authorised person is a PRA-authorised person, the PRA;

(b)in any other case, the FCA.]]

Textual Amendments

Disclosed informationU.K.

17.—(1) Where [F95an appropriate regulator] is the EEA consolidated supervisor or a national consolidated supervisor and it needs information which has already been given to another competent authority, it must, wherever possible, obtain that information by requesting that the other competent authority which holds the information disclose it to [F96that appropriate regulator].

(2) Where [F97an appropriate regulator] is the competent authority which has authorised a subsidiary of an EEA parent credit institution or a subsidiary of an EEA parent investment firm, and it needs information regarding the implementation of approaches and methodologies set out in the banking consolidation directive or the capital adequacy directive which may already be available to the EEA consolidated supervisor, it must, wherever possible, obtain that information by requesting that the EEA consolidated supervisor discloses the information to [F98that appropriate regulator].

Textual Amendments

Amendment of the Financial Services and Markets Act 2000 (Consultation with Competent Authorities) Regulations 2001U.K.

18.  The Financial Services and Markets Act 2000 (Consultation with Competent Authorities) Regulations 2001 M4 are amended as follows.

Marginal Citations

M4SI 2001/2509 as amended by SI 2003/2066 and SI 2004/1862.

19.  In regulation 2, at the appropriate place, insert—

““capital adequacy directive” means Council Directive 2006/49/EC of the European Parliament and of the Council of 14 June 2006 relating to the capital adequacy of investment firms and credit institutions;

“EEA consolidated supervisor” means the competent authority responsible, under Articles 71 or 72 of the banking consolidation directive or under Articles 71 or 72 of the banking consolidation directive as applied by Articles 2(2) and 37(1) of the capital adequacy directive, for the exercise of supervision of—

(a)

an EEA parent credit institution;

(b)

an EEA parent investment firm; or

(c)

credit institutions or investment firms controlled by an EEA parent financial holding company where the parent is authorised in a different EEA State to at least one of the subsidiary undertakings;

“EEA parent credit institution” means a parent credit institution in an EEA State which is not a subsidiary undertaking of another credit institution or investment firm authorised in any EEA State, or of a financial holding company set up in any EEA State;

“EEA parent investment firm” means a parent investment firm in an EEA State which is not a subsidiary undertaking of another credit institution or investment firm authorised in any EEA State or of a financial holding company set up in any EEA State;

“EEA parent financial holding company” means a parent financial holding company in an EEA State which is not a subsidiary undertaking of a credit institution or investment firm authorised in any EEA State or of another financial holding company set up in any EEA State;

“financial holding company” has the meaning given by Article 4(19) of the banking consolidation directive;

“relevant competent authority” means a competent authority which is not the EEA consolidated supervisor and which has authorised a subsidiary undertaking of an EEA parent credit institution, a subsidiary undertaking of an EEA parent investment firm or a subsidiary undertaking of an EEA parent financial holding company.”.

20.  After regulation 7, insert—

“8.—(1) Where paragraph (3) applies, the requirement specified by paragraph (5) is prescribed for the purposes of section 183(2) of the Act and so must be complied with by the Authority before it determines whether to approve the change of control or give a warning notice under section 183(3) or 185(3) of the Act.

(2) Where paragraph (4) applies, the requirement specified by paragraph (5) is prescribed for the purposes of section 188(2) of the Act and so must be complied with by the Authority before it gives a warning notice under section 188(1) of the Act.

(3) This paragraph applies where—

(a)a person (“the acquirer”) proposes to acquire or has acquired control or an additional kind of control over a UK authorised person in circumstances falling within section 178(1) or (2) of the Act;

(b)that UK authorised person is, or is controlled by, an EEA parent credit institution or an EEA parent investment firm or is controlled by an EEA parent financial holding company which is subject to supervision on a consolidated basis in accordance with the banking consolidation directive or with the banking consolidation directive as applied by Articles 2(2) and 37(1) of the capital adequacy directive.

(4) This paragraph applies where—

(a)a circumstance has arisen in respect of which the Authority may give a decision notice to a UK authorised person under section 187 of the Act;

(b)that UK authorised person is, or is controlled by, an EEA parent credit institution or an EEA parent investment firm or is controlled by an EEA parent financial holding company which is subject to supervision on a consolidated basis in accordance with the banking consolidation directive or with the banking consolidation directive as applied by Articles 2(2) and 37(1) of the capital adequacy directive.

(5) The requirement specified by this paragraph is that the Authority must consult—

(a)the EEA consolidated supervisor where it considers that the action it proposes to take constitutes a major sanction or an exceptional measure; and

(b)a relevant competent authority where it considers that the action it proposes to take constitutes a major sanction or an exceptional measure which is of importance for the supervisory tasks of that relevant competent authority.

(6) Paragraphs (1) and (2) of this regulation do not apply where the Authority considers that—

(a)there is an urgent need to act; or

(b)such consultation may jeopardise the effectiveness of the actions referred to in paragraph (5),

but in such a case the Authority must, without delay, inform the EEA consolidated supervisor and the relevant competent authorities referred to in paragraph (5)(b) of the action that it has taken.”.

PART 4U.K.CREDIT INSTITUTIONS AND EXTERNAL CREDIT ASSESSMENT INSTITUTIONS

InterpretationU.K.

21.  In this Part—

“assessment methodology” means a methodology for assigning credit assessments;

[F99“EC Regulation” means Regulation (EC) No 1060/2009 of the European Parliament and of the Council of 16 September 2009 on credit rating agencies[F100, as amended by Regulation (EU) No. 513/2011 of the European Parliament and of the Council of 11 May 2011 amending Regulation (EC) No. 1060/2009 on credit rating agencies];]

“ECAI” means an external credit assessment institution;

“exposure risk-weighting purposes” means the purposes of determining the risk weight of an exposure in accordance with Article 80 of the banking consolidation directive;

“securitisation risk-weighting purposes” means the purposes of determining the risk weight of a securitisation position in accordance with Article 96 of the banking consolidation directive.

Textual Amendments

Recognition for exposure risk-weighting purposesU.K.

22.—[F101(1) [F102Subject to paragraph (6) below,] the [F103PRA] must recognise an ECAI as eligible for exposure risk-weighting purposes only if the [F103PRA] is satisfied—

(a)where the requirements of Article 2(3) of the EC Regulation apply to the ECAI, that the ECAI has complied with those requirements; and

(b)taking into account the requirements set out in Schedule 1, that—

(i)the ECAI’s assessment methodology complies with the requirements of objectivity, independence, ongoing review and transparency; and

(ii)the ECAI’s credit assessments meet the requirements of credibility and transparency.]

(2) The [F103PRA] may recognise an ECAI as eligible for exposure risk-weighting purposes without carrying out its own evaluation process if the ECAI has been recognised as eligible for those purposes by a competent authority of another EEA State.

(3) Where the [F103PRA] recognises an ECAI as eligible for exposure risk-weighting purposes, it must determine, taking into account the requirements set out in Schedule 2, with which of the credit quality steps set out in Part 1 of Annex VI of the banking consolidation directive the relevant credit assessments of the ECAI are to be associated.

(4) The [F103PRA]'s determinations must be objective and consistent.

(5) The [F103PRA] may recognise, without carrying out its own determination process, a determination of the kind mentioned in paragraph (3) which has been made by a competent authority of another EEA State.

[F104(6) The [F103PRA] must consider that the ECAI’s assessment methodology complies with the requirements of objectivity, independence, ongoing review and transparency for the purposes of paragraph (1)(b)(i) if the ECAI is registered as a credit rating agency in accordance with the EC Regulation.]

Textual Amendments

Recognition for securitisation risk-weighting purposesU.K.

23.—(1) [F105Subject to paragraph (9) below,] the [F103PRA] must recognise an ECAI as eligible for securitisation risk-weighting purposes only if the [F103PRA] is satisfied—

[F106(za)where the requirements of Article 2(3) of the EC Regulation apply to the ECAI, that the ECAI has complied with those requirements;]

(a)taking into account the requirements set out in Schedule 1, that—

(i)the ECAI's assessment methodology complies with the requirements of objectivity, independence, ongoing review and transparency; and

(ii)the ECAI's credit assessments meet the requirements of credibility and transparency; and

(b)that the ECAI has a demonstrated ability in the area of securitisation.

(2) A demonstrated ability in the area of securitisation may be evidenced by a strong market acceptance.

(3) The [F103PRA] may recognise an ECAI as eligible for securitisation risk-weighting purposes without carrying out its own evaluation process if the ECAI has been recognised as eligible for those purposes by a competent authority of another Member State.

(4) Where the [F103PRA] recognises an ECAI as eligible for securitisation risk-weighting purposes, it must determine with which of the credit quality steps set out in Part 4 of Annex IX of the banking consolidation directive the relevant credit assessments of the ECAI are to be associated.

(5) The [F103PRA]'s determinations must be objective and consistent.

(6) The [F103PRA] must, when making its determination—

(a)differentiate between the relative degrees of risk expressed by each assessment; and

(b)consider—

(i)quantitative factors (such as default rates and loss rates); and

(ii)qualitative factors (such as the range of transactions assessed by the ECAI and the meaning of the credit assessment).

(7) The [F103PRA] must seek to ensure that securitisation positions to which the same risk weight is applied on the basis of credit assessments of eligible ECAIs are subject to equivalent degrees of credit risk and, for this purpose the [F103PRA] may modify its determination as to the credit quality step with which a credit assessment is to be associated.

(8) The [F103PRA] may recognise, without carrying out its own determination process, a determination of the kind mentioned in paragraph (4) which has been made by a competent authority of another EEA State.

[F107(9) The [F103PRA] must consider that the ECAI’s assessment methodology complies with the requirements of objectivity, independence, ongoing review and transparency for the purposes of paragraph (1)(a)(i) if the ECAI is registered as a credit rating agency in accordance with the EC Regulation.]

Textual Amendments

Publishing recognition process and list of ECAIsU.K.

24.  The [F103PRA] must make publicly available—

(a)an explanation of its recognition process, and

(b)a list of eligible ECAIs.

Textual Amendments

Revoking recognitionU.K.

25.  The [F103PRA] may revoke the recognition of an ECAI—

(a)where the ECAI is recognised in accordance with paragraph (1) of regulation 22 or, as the case may be, paragraph (1) of regulation 23, if the [F103PRA] considers that the requirements of the applicable paragraph are no longer met; and

(b)where an ECAI is recognised in accordance with paragraph (2) of regulation 22 or, as the case may be, paragraph (3) of regulation 23, if the condition in the applicable paragraph is no longer met.

Textual Amendments

PART 5U.K.MISCELLANEOUS

Restriction on disclosureU.K.

26.—(1) This regulation applies where—

(a)a credit institution or investment firm does not meet a requirement of the banking consolidation directive, and

(b)by adopting a relevant measure, [F108an appropriate regulator] requires the credit institution or investment firm to take the necessary action or steps at an early stage to address the situation.

(2) A measure is relevant if its adoption—

(a)obliges the credit institution or investment firm to hold own funds in excess of the minimum level laid down in Article 75 of the banking consolidation directive;

(b)reinforces the arrangements, processes, mechanisms and strategies implemented to comply with Articles 22 and 123 of the banking consolidation directive;

(c)requires the credit institution or investment firm to apply a specific provisioning policy or treatment of assets in terms of own funds requirements;

(d)restricts or limits the business, operations or network of the credit institution or investment firm; F109...

(e)requires the reduction of the risk inherent in the credit institution's or investment firm's activities, products and systems.

[F110(f)requires the credit institution to limit variable remuneration as a percentage of total net revenues where such variable remuneration is inconsistent with the maintenance of a sound capital base; or

(g)requires the credit institution to use net profits to strengthen the capital base.]

(3) In such circumstances, sections 348, 349 and 352 of the Act apply to information about the adoption of the relevant measure—

(a)in the same way as they apply in relation to confidential information within the meaning of section 348(2) of the Act (subject to paragraph (4) of that section), and

(b)as if [F111that appropriate regulator] were a recipient of such information.

Textual Amendments

Functions of [F112the FCA and PRA] U.K.

27.  Any function conferred by Part 2, 3 or 4 of these Regulations on [F113an appropriate regulator] (whether in the capacity of an EEA consolidated supervisor, a national consolidated supervisor, a relevant competent authority or otherwise) is to be treated as a function conferred on [F114that appropriate regulator] by a provision of the Act.

Textual Amendments

Service of noticesU.K.

28.  The Financial Services and Markets Act 2000 (Service of Notices) Regulations 2001 M5 applies to any document given under regulation 3, 5 or 9 as they apply to any notice, direction or document of any kind under the Act.

Marginal Citations

Consequential amendments to primary and secondary legislationU.K.

29.—(1) Schedule 3 (which amends the Act in consequence of the adoption of the banking consolidation directive) has effect.

(2) Schedule 4 (which amends other primary legislation in consequence of the adoption of the banking consolidation directive) has effect.

(3) Schedule 5 (which amends the Financial Conglomerates and other Financial Groups Regulations 2004 M6 in consequence of the adoption of the banking consolidation directive and the capital adequacy directive) has effect.

(4) Schedule 6 (which amends other secondary legislation in consequence of the adoption of the banking consolidation directive and the capital adequacy directive) has effect.

Marginal Citations

Dave Watts

Frank Roy

Two Lords Commissioners of Her Majesty's Treasury

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