BANK 5.1.3 Connected parties

(1) A party is connected to another party if they are linked by:
(a) cross guarantees;
(b) common ownership;
(c) common management;
(d) one having the ability to exercise control over the other, whether direct or indirect;
(e) financial interdependency — that is, the financial soundness of one may affect the financial soundness of the other; or
(f) any combination of the factors mentioned in paragraphs (a) to (e).
Guidance

1 Parties would be connected if the same persons significantly influence the governing body of each of them.
2 Parties would be connected if one of them has an exposure to the other that was not incurred for the clear commercial advantage of both of them and is not on arm's length terms.
3 Parties would be connected if they are so closely linked that:
(a) the insolvency or default of 1 is likely to be associated with the insolvency or default of the other;
(b) it would be prudent when assessing the financial condition or creditworthiness of 1 to consider that of the other; or
(c) there is, or is likely to be, a close relationship between their financial performance.
4 Parties would be connected if a banking business firm has exposures to them and any loss to the firm on any of the exposures to 1 of the parties is likely to be associated with a loss to the firm with respect to at least 1 exposure to each of the others.
(2) A counterparty may be connected to another counterparty by other linkages that, in the banking business firm's assessment, connect the counterparties as constituting a single risk. A connected party can be an individual or other entity.

Guidance

1 Two or more individuals or legal persons would constitute a single risk if they are so connected that, if 1 of them were to experience financial problems, the other or others would be likely to encounter repayment difficulties.
2 Connected counterparties should be identified and the procedures to manage the combined credit risk considered. A banking business firm may need to monitor and report the gross exposure to connected counterparties against combined limits in addition to monitoring the exposure to each counterparty.
Derived from QFCRA RM/2014-2 (as from 1st January 2015).