Waivers: BIPRU 12 Intra-Group Liquidity Modifications – ILAS BIPRU firms

Find out about Intra-Group Liquidity Modifications and how firms should apply for them.

IFPR

Before considering the information on this page, please note that on 1 January 2022 a new prudential regime for UK investment firms authorised under MIFID (the Investment Firm Prudential Regime (IFPR)) will come into force.

This means: 

  • the majority of existing waivers and modifications to prudential rules in the FCA handbook will no longer apply
  • the majority of existing CRR permissions will no longer apply to FCA investment firms
  • the new rules contain transitional provisions that give some existing waivers and permissions status under the new regime − firms should consider the transitional provisions in the IFPR rules for more details
  • firms will need to consider applying for permissions, or rule waivers and modifications, of rules in the new sourcebook (MIFIDPRU)

Find out more about IFPR.

Intra-Group Liquidity Modifications

An Intra-Group Liquidity Modification is our process for granting and maintaining modifications of the self-sufficiency requirement for UK ILAS BIPRU firms. Such modifications can result in:

  1. the overall liquidity adequacy rule (BIPRU 12.2.1R) being applied at a UK group level, thereby creating a self-sufficient ILAS group of UK ILAS BIPRU firms (a UK Defined Liquidity Group (DLG) by modification for reporting purposes), and/or
  2. permission being granted to an ILAS BIPRU firm or a UK DLG by modification to place a degree of reliance on a foreign entity in order to satisfy the overall liquidity adequacy rule, thereby creating a non-UK DLG by modification (firm level) or a non-UK DLG by modification (DLG level), respectively (for reporting purposes).

An Intra-Group Liquidity Modification to allow reliance on another ILAS BIPRU firm (resulting in a UK DLG by modification) extends the scope of BIPRU 12.3 and BIPRU 12.4 such that each ILAS BIPRU firm in the UK DLG must ensure compliance with their requirements on a UK DLG group-wide basis as well as on a solo basis.

If your firm is relationship-managed, please contact your FCA supervisor about the appropriateness of your application before you apply.

Firms to include on the application

UK ILAS BIPRU firms subject to the BIPRU 12 regime can apply for an Intra-Group Liquidity Modification. Applications to create a self-sufficient ILAS group (a UK DLG by modification) should be made jointly by all the UK ILAS BIPRU firms within the group.

Applications to rely on support from an overseas entity to create a non-UK DLG by modification must be made by the ILAS BIPRU firm(s) proposing to rely on the overseas entity for support.

Liquidity regime

BIPRU 12.8.15G sets out a number of factors which we expect to be satisfied for an overseas regulatory regime before granting an Intra-Group Liquidity Modification to allow an ILAS BIPRU firm or a UK DLG by modification to place a degree of reliance on a foreign entity (creating a non-UK DLG by modification (firm level) or a non-UK DLG by modification (DLG level)).

  • If you are applying to rely on liquidity support from an entity regulated outside the UK we will conduct an equivalence assessment of that regulator’s liquidity regime. The equivalence assessment is one of the factors that we will take into account in considering a modification application, but on its own it does not determine whether a modification is likely to be approved or rejected.
  • During the modification process, we will contact the entity’s home state regulator and we will seek to establish a continuing dialogue about the entity’s liquidity risks.

If you are a UK ILAS BIPRU firm applying to rely on liquidity support from another UK ILAS BIPRU firm, we will apply the approach outlined in BIPRU 12.8.14G to BIPRU 12.8.20G where relevant and by analogy (as indicated in BIPRU 12.8.9G).

What we need to see from firms applying for an Intra-Group Liquidity Modification resulting in a non-UK DLG by modification at the firm or the DLG level

The following list, based on BIPRU 12.8.18G, sets out the minimum information we expect to see in an Intra-Group Liquidity Modification application to allow an ILAS BIPRU firm or UK DLG by modification to place a degree of reliance on a foreign entity, thereby creating a non-UK DLG by modification at the firm level, or a non-UK DLG by modification at the DLG level.

It is not sufficient merely to state that a condition has been met. Please include an explanation of how it has been met and list the relevant documents you have provided in support of your explanation.

In relation to an applicant firm wishing to rely on liquidity support from an overseas parent entity undertaking, the FCA will, before granting an Intra-Group Liquidity Modification, ordinarily expect to have reached agreement with that parent entity undertaking that:

  1. it will make available liquidity resources at all times to that applicant firm if needed
  2. it will enter into an undertaking in a suitable form with an applicant firm, committing it to provide liquidity support to that firm on the occurrence of certain defined events
  3. it will ensure that the applicant firm maintains liquidity resources of appropriate size and quality in the United Kingdom for the purposes of meeting the liquidity needs of that firm
  4. it will maintain arrangements, including having adequate liquidity resources, to ensure that it, the applicant firm and any other entities in its group to which it provides liquidity support are able to wind down their businesses in an orderly and controlled manner in circumstances where its, or their, businesses cease to be viable
  5. it will make information on group liquidity available to the FCA in an appropriate format (Liquidity Metric Monitor - LMM)

In evidencing that the above conditions have been met, we would expect to receive the following:

  1. A liquidity support undertaking in a suitable form, which would be, where there is reliance placed on a foreign parent entity, a legally binding, one-way, multi-currency commitment from the overseas parent entity to the FCA regulated subsidiary applying for support, for at least the amount of reliance the firm is permitted by the FCA to place upon the overseas parent entity in satisfying the overall liquidity adequacy rule.

    Find out more in form and content of the liquidity support undertaking between a UK firm and the foreign parent entity on which it relies for liquidity support. The foreign parent entity must also provide certain confirmations to the FCA – see point 7 below.

  2. Full details and explanation (including procedural documentation) of how the group liquidity risks are managed. This should include:
    • internal liquidity policy
    • details of the limits, methods and systems used to manage and monitor liquidity risk, including whether each entity’s management is able to use this to monitor the branch’s (if applicable) individual risks
    • details of any internal limits set regarding liquidity risk
  3. A copy of the stress-testing procedures and the results of carrying out those procedures.
  4. A copy of the contingency funding plans.
  5. In applications requesting the modification of the self-sufficiency principle to allow liquidity support from an overseas parent entity you will need to provide a completed LMM return on a sterling equivalent basis for the solo UK BIPRU entities and Defined Liquidity Group (Non-UK DLG) (as approved by the FCA).

    ​​​Guidance notes for completing the Main Details (FSA048) and Daily Flows (FSA047) sections of LMM are available in SUP 16 Annex 25G. MI output will be automatically generated under the tab GAP results.

    • If the DLG has not yet been approved, please calculate the LMM based on what your proposed DLG would be under the modification (the definition of DLG should follow the Handbook definition). Your proposed DLG will form part of the discussion during the modification application process and the final agreed form will be set out in the modification direction.
    • Please also provide a list of all material affiliates not included in your proposed DLG, with the firm’s assessment of the liquidity risks posed to the DLG.
  6. For firms applying for Intra-Group Liquidity Modifications to rely on an overseas parent entity operating in a regime where the local currency is non-convertible, we expect two LMMs (FSA047 and FSA048) for the non-UK DLG: one in convertible currencies and another in the non-convertible/restricted currencies. For both sets of data, firms should also set out the list of currencies included in each of the data items. This will be required as part of the modification application and as an on-going modification condition.

    A ‘non-convertible’ currency is a currency of a regime where exchange controls and/or other laws or regulations prevent or restrict the ability of an on-shore entity or person to convert (through a deliverable FX transaction) the currency in question into any of the currencies listed in
    BIPRU 12.7.4R(2)(b), such as by requiring specific approvals from authorities or by limiting the amount that can be converted in any single transaction.

The submitted data items required under points 5 and 6 above should be completed as at a date no earlier than two weeks before you submit your application for new applications.

  1. If your application includes a request to modify the self-sufficiency principle to allow liquidity support from an overseas parent entity, the FCA expects to receive written confirmation in the form of an irrevocable letter from the overseas parent entity that:
    • it will make liquidity resources available at all times to the applicant firm if needed
    • it will ensure that the liquidity support undertaking (see above) put in place as a condition of the FCA granting the Intra-Group Liquidity Modification is maintained and not varied without obtaining the prior consent of the FCA
    • it will ensure that the applicant firm will maintain liquidity resources of an appropriate size and quality for the purposes of meeting its liquidity needs
    • it will maintain arrangements to ensure that it, the applicant firm, and any other entities in its group to which it provides liquidity support, are able to wind down their businesses in an orderly and controlled manner in circumstances where its, or their, businesses cease to be viable
    • it will make information on group liquidity available to the FCA by completing data items at a frequency and in a format to be determined by the FCA
    • it will promptly notify the FCA where any legal, regulatory or other constraints on the provision of liquidity from it to the applicant firm are imposed in the future

      Guidance as to the form and content of the written confirmation to be provided

The information requested above is not an exhaustive list. You should expect to be asked to provide further clarifications and information throughout the application process.

We will process your application within 3 months from the date of receipt of a complete application (including all of the details outlined above). In doing so we will aim to meet any relevant dates you notify us of where possible.

If the modification is granted we will issue a Direction, which in most cases we expect to publish on our website. Should you wish to apply for your direction to not be published, you must show that the tests in SUP 8.6 are met.

What we need to see from firms applying for an Intra-Group Liquidity Modification resulting in a UK DLG by modification

Where the application is for an Intra-Group Liquidity Modification to create a self-sufficient ILAS group of UK ILAS BIPRU firms (a UK DLG by modification) we will follow BIPRU 12.8.9G and apply the approach outlined in BIPRU 12.8.14G to BIPRU 12.8.20G where relevant and by analogy. Accordingly, the minimum information we would expect in such an application is set out below. 

It is not sufficient merely to state that a condition has been met. Please include an explanation of how it has been met and list the relevant documents you have provided in support of your explanation.

In relation to an applicant firm wishing to rely on liquidity support from a UK parent undertaking, the FCA will, before granting an Intra-Group Liquidity Modification, ordinarily expect to have reached agreement with that parent undertaking that:

  1. it will make available liquidity resources at all times to that applicant firm if needed
  2. it will enter into an undertaking in a suitable form with an applicant firm, committing it to provide liquidity support to that firm on the occurrence of certain defined events;
  3. it will maintain arrangements, including having adequate liquidity resources, to ensure that it, the applicant firm and any other entities in its group to which it provides liquidity support are able to wind down their businesses in an orderly and controlled manner in circumstances where its, or their, businesses cease to be viable
  4. it will make information available to the FCA in an appropriate format (Liquidity Metric Monitor - LMM) on group liquidity

In evidencing that the above conditions have been met, we would expect to receive the following:

  1. A liquidity support undertaking in a suitable form, which would be, for firms within a UK DLG by modification, legally binding, two-way (i.e. cross-committed), multi-currency loan facilities between the firms within the UK DLG, such that liquidity can flow freely between all those firms.

    Find out more in form and content of UK DLG liquidity support undertakings for Intra-Group Liquidity Modifications. Note that, in determining whether a proposed liquidity support agreement is suitable, we will have regard to whether it ensures that liquidity will remain able to move freely throughout the UK DLG in the event that any entity fails. 

  2. Full details and explanation (including procedural documentation) of how the group liquidity risks are managed. This should include:
    • internal liquidity policy
    • details of the limits, methods and systems used to manage and monitor liquidity risk, including whether each entity’s management is able to use this to monitor the branch’s (if applicable) individual risks
    • details of any internal limits set regarding liquidity risk
  3. A copy of the stress-testing procedures and the results of carrying out those procedures.
  4. A copy of the contingency funding plans.
  5. If your application includes a request to modify the self-sufficiency principle to create a UK DLG (i.e. a UK liquidity group) without liquidity support from an overseas entity you will need to provide a completed LMM return on a sterling equivalent basis for the solo UK BIPRU entities (where unlimited guarantees or unlimited commitments exist between firms within the proposed ILAS group you are not required to provide the above data items). 

    Guidance notes for completing the Main Details (FSA048) and Daily Flows (FSA047) sections of the LMM are available in SUP 16 Annex 25G. MI output will be automatically generated under the tab GAP results.

The submitted data item required under point 5 above should be completed as at a date no earlier than two weeks before you submit your application. The information requested above is not an exhaustive list. You should expect to be asked to provide further clarifications and information throughout the application process.

We will process your application within 3 months from the date of receipt of a complete application (including all of the details outlined above). In doing so we will aim to meet any relevant dates you notify us of where possible.

If the modification is granted we will issue a Direction, which in most cases we expect to publish on our website. Should you wish to apply for your direction to not be published, you must show that the tests in SUP 8.6 are met.

How firms should apply for these modifications

Please apply for Intra-Group Liquidity Modifications using the normal FCA modification application procedures and submit your application to the centralwaiversteam@fca.org.uk.

How firms should apply to renew their existing Intra-Group Liquidity modification

Firms with existing Intra-Group Liquidity Modifications will be required to submit a new waiver application no later than 3 months before the expiry date of their existing modification. This application should include all of the details outlined above. Firms are required to submit up to date LMM's regardless of how frequently they submit the FSA047 and FSA048 data items. Firms must use LMM v4.1 and not make any changes to the document aside from inputting data for the main page (FSA048) tab and the daily flows (FSA047) tab. All components of the DLG and the DLG itself must submit a properly completed LMM as at the same dates, ideally the date closest to the application date.

Download the LMM template

NB: Failure to submit a renewal application in a timely manner may result in the expiry of the existing direction and the requirement to comply with the unmodified rules, before the FCA is able to determine the decision for the renewal application.

Page updates

27/07/2021: Information added Investment Firms Prudential Regime (IFPR)