• BANK Division 3.2.C BANK Division 3.2.C Inclusion of third parties’ interests

    • BANK 3.2.15 Introduction

      This Division sets out the criteria and formulae for the inclusion, in a banking business firm's regulatory capital, of interests held by third parties.

      Derived from QFCRA RM/2014-2 (as from 1st January 2015).

    • BANK 3.2.16 Criteria for third party interests — common equity tier 1 capital

      (1) For rule 3.2.8 (e), a common share, issued by a consolidated subsidiary of a banking business firm and held by a third party as a non-controlling interest, may be included in the firm's CET 1 capital if:
      (a) the share would be included in the firm's CET 1 capital had it been issued by the firm; and
      (b) the subsidiary that issued the share is itself a deposit-taker or investment dealer (or an equivalent entity in its home jurisdiction).
      (2) The amount to be included in the consolidated CET 1 capital of a banking business firm is calculated in accordance with the following formula:

      NCI((CET1sMin) × SS)


      where:

      NCI is the total of the non-controlling interests of third parties in a consolidated subsidiary of the firm.

      CET1s is the amount of CET 1 capital of the subsidiary.

      Min is the lower of:

      (a) 1.07 × (minimum CET 1 capital requirement of the subsidiary); and
      (b) 1.07 × (the part of the consolidated minimum CET 1 capital requirement that relates to the subsidiary).
      SS means the percentage of the shares in the subsidiary (being shares included in CET 1 capital) held by those third parties.
      Amended by QFCRA RM/2015-3 (as from 1st January 2016).

    • BANK 3.2.17 Criteria for third party interests — additional tier 1 capital

      (1) For rule 3.2.10(c), an instrument (including a common share) issued by a consolidated subsidiary of a banking business firm and held by a third party as a non-controlling interest may be included in the firm's additional tier 1 capital if the instrument would be included in the firm's additional tier 1 capital had it been issued by the firm.

      Note Any amount al included in CET 1 capital must not be included in additional tier 1 capital — see rule 3.2.10(c).
      (2) The amount to be included in the consolidated additional tier 1 capital of a banking business firm is calculated in accordance with the following formula:

      NCI((T1sMin) × SS)

      where:

      NCI is the total of the non-controlling interests of third parties in a consolidated subsidiary of the firm.

      T1s is the amount of additional tier 1 capital of the subsidiary.

      Min is the lower of:

      (a) 1.07 × (minimum additional tier 1 capital requirement of the subsidiary); and
      (b) 1.07 × (the part of the consolidated minimum additional tier 1 capital requirement that relates to the subsidiary).
      SS means the percentage of the shares in the subsidiary (being shares included in additional tier 1 capital) held by those third parties.
      Derived from QFCRA RM/2014-2 (as from 1st January 2015).

    • BANK 3.2.18 Criteria for third party interests — tier 2 capital

      (1) For rule 3.2.12 (c), an instrument (including a common share and any other tier 1 capital instrument) issued by a consolidated subsidiary of a banking business firm and held by a third party as a non-controlling interest may be included in the firm's tier 2 capital if the instrument would be included in the firm's tier 2 capital had it been issued by the firm.

      Note Any amount al included in CET 1 capital or additional tier 1 capital must not be included in tier 2 capital — see rule 3.2.12 (c).
      (2) The amount to be included in the consolidated tier 2 capital of a banking business firm is calculated in accordance with the following formula:

      NCI((T2sMin) × SS)

      where:

      NCI is the total of the non-controlling interests of third parties in a consolidated subsidiary of the firm.

      T2s is the amount of tier 2 capital of the subsidiary.

      Min is the lower of:

      (a) 1.07 × (minimum tier 2 capital requirement of the subsidiary); and
      (b) 1.07 × (the part of the consolidated minimum tier 2 capital requirement that relates to the subsidiary).
      SS means the percentage of the shares in the subsidiary (being shares included in tier 2 capital) held by those third parties.
      Derived from QFCRA RM/2014-2 (as from 1st January 2015).

    • BANK 3.2.19 Treatment of third party interests from special purpose vehicles

      (1) An instrument issued out of a special purpose vehicle and held by a third party must not be included in a banking business firm's CET 1 capital. Such an instrument may be included in the firm's additional tier 1 or tier 2 capital (and treated as if it had been issued by the firm itself directly to the third party), if:
      (a) the instrument satisfies the criteria for inclusion in the relevant category of regulatory capital; and
      (b) the only asset of the special purpose vehicle is its investment in the capital of the firm and that investment satisfies the criterion in rule 3.2.11(16) or 3.2.13(11) for the immediate availability of the proceeds.
      (2) An instrument described in subrule (1) that is issued out of a special purpose vehicle through a consolidated subsidiary of a banking business firm may be included in the firm's consolidated additional tier 1 or tier 2 capital if the instrument satisfies the criteria in rule 3.2.17 or 3.2.18, as the case requires. Such an instrument is treated as if it had been issued by the subsidiary itself directly to the third party.
      Derived from QFCRA RM/2014-2 (as from 1st January 2015).