Find out how the new large exposure waivers work and how to apply for them.
Our new rules governing large exposures came into force on 31 December 2010.
The large exposure regime is designed as a back stop to a firm’s large exposures. The basic large exposure limit is set at 25% of a firm’s capital resources, unless the firm has one or more of the waivers outlined here.
Core UK group waiver – BIPRU 3.2.25R to BIPRU 3.2.27R
Core UK group waivers
The core UK group will replace the UK integrated group in relation to the following, if conditions over fungibility of capital, centralised risk management and consolidated supervision are met:
- the application of a 0% risk weight under the standardised approach for credit risk to intra-group exposures within the UK; and
- the exemption from the basic large exposure limit of 25% for these intra-group UK exposures.
Firms will be able to apply for a core UK group waiver to enable it to fully exempt intra-group exposures within the UK from the credit risk requirements and the basic large exposure limit.
Core UK groups
An undertaking is a member of a firm’s core UK group if, in relation to the firm, that undertaking satisfies the following conditions:
1. it is a core concentration risk group counterparty included within the scope of consolidation on a full basis with respect to the same UK consolidation group;
2. it is an institution, financial holding company, financial institution, asset management company or ancillary services undertaking;
3. (in relation to a subsidiary undertaking) 100% of the voting rights attaching to the shares in its capital is held by the firm or a financial holding company (or a subsidiary undertaking of the financial holding company), whether individually or jointly, and that firm or financial holding company (or its subsidiary undertaking) must have the right to appoint or remove a majority of the members of the board of directors, committee of management or other governing body of the undertaking;
4. it is subject to the same risk evaluation, measurement and control procedures as the firm;
5. it is incorporated in the United Kingdom; and
6. there is no current or foreseen material practical or legal impediment to the prompt transfer of capital resources or repayment of liabilities from the counterparty to the firm. Please provide a complete list of all the entities that you wish to form part of the core UK group
If firms wish to apply for this waiver, as well as completing a waiver application, a firm should also provide evidence that the above conditions are met and further guidance can be found in BIPRU 3.2.25AG and BIPRU 3.2.28G – 3.2.34G.
Publication of waiver directions
As set out in our Consultation Paper on Strengthening Capital Standards 3 (CP10/17) published in July 2010, it is important for interested parties to understand the prudential regime a firm operates under. The waiver process allows for this transparency. Therefore, we propose to publish these waiver directions in full, including the identity of each counterparty to whom the waiver and any new limits will apply.