• BANK Chapter 10 BANK Chapter 10 Group risk

    • BANK Part 10.1 BANK Part 10.1 General

      • BANK 10.1.1 Introduction

        (1) This Chapter sets out the requirements for a banking business firm’s management of corporate group risk and the measurement of financial group capital requirement and resources.
        (2) Group membership can be a source of both strength and weakness to a banking business firm. The purpose of group risk requirements is to ensure that the firm takes into account the risks related to its membership of a corporate group and maintains adequate capital resources so as to exceed its financial group capital requirement.
        Derived from QFCRA RM/2014-2 (as from 1st January 2015).

      • BANK 10.1.2 BANK 10.1.2 Corporate group and financial group

        (1) A banking business firm's corporate group is made up of:
        (a) the firm;
        (b) any parent entity of the firm;
        (c) any subsidiary (direct or indirect) of the firm; and
        (d) any subsidiary (direct or indirect) of a parent entity of the firm.
        (2) A banking business firm's financial group is made up of:
        (a) the firm;
        (b) any subsidiary (direct or indirect) of the firm, if the subsidiary belongs to a sector of the financial industry; and
        (c) any entity that the Regulatory Authority directs the firm to include.
        Note The instructions for preparing returns divide the financial industry into the following sectors: banking, non-life insurance, life insurance, financial services, equity investments and non-equity investments.
        (3) A banking business firm may apply to the Regulatory Authority for approval to exclude an entity from its financial group. The authority will grant such an approval only after the firm satisfies the authority that inclusion of the entity would be misleading or inappropriate for the purposes of supervision.
        Derived from QFCRA RM/2014-2 (as from 1st January 2015).

        • BANK 10.1.2 Guidance

          The Regulatory Authority would consider a range of factors when requiring a banking business firm to treat another entity as part of its financial group. These factors would include regulatory risk factors, including direct and indirect participation, influence or contractual obligations, interconnectedness, intra-group exposures, intra-group services, regulatory status and legal framework.

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

      • BANK 10.1.3 Requirements — group risk

        (1) A banking business firm must effectively manage risks arising from its membership in a corporate group.
        (2) A banking business firm that is a member of a corporate group must establish and maintain systems and controls to monitor:
        (a) the effect on the firm of its membership in the group;
        (b) the effect on the firm of the activities of other members of the group;
        (c) compliance with group supervision and reporting requirements; and
        (d) funding within the group.
        Guidance

        A banking business firm may take into account its position within its corporate group. It would be reasonable for a small firm within a larger group to place some reliance on its parent to ensure that there are appropriate systems and controls to manage group risk.
        (3) The firm must also have systems to enable it to calculate its financial group capital requirement and resources. The systems must include a means of analysing realistic scenarios and the effects on the financial group's capital requirement and resources if those scenarios occurred.
        Derived from QFCRA RM/2014-2 (as from 1st January 2015).

      • BANK 10.1.4 Role of governing body — group risk

        A banking business firm’s governing body must ensure that the firm’s group risk management policy addresses, on a group-wide basis, all risks arising from the firm’s relationship with every other member of its group.

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

    • BANK Part 10.2 BANK Part 10.2 Group capital requirement and resources

      • BANK 10.2.1 Application of Part 10.2

        (1) This Part does not apply to a banking business firm if:
        (a) the firm is al subject to group prudential supervision by the Regulatory Authority because another member of its group is an authorised firm; or
        (b) the Regulatory Authority has confirmed in writing, in response to an application from the firm, that the authority is satisfied that the group is the subject of consolidated prudential supervision by an appropriate regulator.
        (2) A banking business firm that has received confirmation must immediately inform the authority in writing if any circumstance on which the confirmation was based changes.
        Derived from QFCRA RM/2014-2 (as from 1st January 2015).

      • BANK 10.2.2 BANK 10.2.2 Financial group capital requirement and resources

        (1) A banking business firm must ensure at all times that its financial group capital resources exceed its financial group capital requirement.
        (2) In calculating its financial group capital resources, the firm must not include capital resources or adjusted capital resources (as the case may be) of subsidiaries or participations of that group to the extent that those capital resources or adjusted capital resources exceed the capital requirement for that subsidiary or participation and are not freely transferable within the group.
        Derived from QFCRA RM/2014-2 (as from 1st January 2015).

        • BANK 10.2.2 Guidance

          1 Capital resources or adjusted capital resources would not be freely transferable if they are subject to an obligation to maintain minimum capital requirements to meet domestic solvency requirements, or to comply with debt covenants.
          2 If a banking business firm breaches rule 10.2.2(1), the Regulatory Authority would take into account the circumstances of the case, including any remedial steps taken by another regulator or the firm, in deciding what enforcement action to take.
          Derived from QFCRA RM/2014-2 (as from 1st January 2015).

      • BANK 10.2.3 Solo limits to apply to group

        Unless the Regulatory Authority directs otherwise, a prudential limit in these rules that applies to a banking business firm also applies to the firm's financial group.

        Examples

        1 The restriction in rule 5.3.3 (2) (that the total of a banking business firm's net exposures to a counterparty or connected counterparties must not exceed 25% of its regulatory capital) applies to the firm's financial group, so that the group's net exposures to a counterparty or connected counterparties must not exceed 25% of the group's regulatory capital.
        2 Similarly, the restriction in rule 5.3.3 (2A) (that the total of all of the firm's net large exposures must not exceed 800% of its regulatory capital) applies to the firm's financial group, so that the group's total net large exposures to counterparties or connected counterparties must not exceed 800% of the group's regulatory capital.
        Amended by QFCRA RM/2015-3 (as from 1st January 2016).