PS21/17: Implementation of Investment Firms Prudential Regime

Implementation of Investment Firms Prudential Regime Policy Statement PS21/17 November 2021

2 PS21/17 Financial Conduct Authority Implementation of Investment Firms Prudential Regime Moving around this document Use your browser’s bookmarks and tools to navigate. To search on a PC use Ctrl+F or Command+F on MACs. This relates to Consultation Paper 21/26 which is available on our website at www.fca.org.uk/publications Telephone: 020 7066 1000 Email: cp21-26@fca.org.uk Sign up for our news and publications alerts See all our latest press releases, consultations and speeches. Contents 1 Summary 3 2 Disclosure 10 3 Own funds – excess drawings by partners and members 28 4 Technical Standards 29 5 Depositaries 36 6 Our approach to the UK resolution regime 40 7 Consequential changes to the Handbook 42 8 Our approach to Enforcement 45 9 Applications and notifications 46 10 Explanation of how we meet our obligations under section 143H (2) of the Financial Services and Markets Act when making Part 9C prudential rules 49 11 Summary of amendments to Handbook text 62 Annex 1 List of non‑confidential respondents 77 Annex 2 Amendments to the Investment Firms Prudential Regime Instrument 2021 since publication of the Near Final Version in PS21/9 78 Annex 3 Abbreviations used in this paper 80 Appendix 1 Made rules (legal instrument) Appendix 2 Made rules (technical standards instrument)

3 PS21/17 Chapter 1 Financial Conduct Authority Implementation of Investment Firms Prudential Regime 1 Summary Introduction 1.1 This policy statement (PS) is our third about the UK Investment Firms Prudential Regime (IFPR). The IFPR is a single prudential regime for all solo‑regulated investment firms in the UK (FCA investment firms) authorised under the UK Markets in Financial Instruments Directive (MiFID). 1.2 In August 2021 we consulted, in consultation paper CP21/26, on the third set of our proposals to introduce the IFPR. This PS summarises the feedback we received to CP21/26 and sets out our responses and final rules. 1.3 The IFPR represents a major change for FCA investment firms and it is critical that they adequately prepare for it. The IFPR will take effect on 1 January 2022. Who this affects 1.4 The rules will apply to: • any MiFID investment firm authorised and regulated by the FCA that is currently subject to any part of the Capital Requirements Directive (CRD) and the Capital Requirements Regulation (CRR) including: – investment firms that are currently subject to BIPRU and GENPRU – ‘full scope’, ‘limited activity’ and ‘limited licence’ investment firms currently subject to IFPRU and CRR – ‘local’ investment firms – matched principal dealers – specialist commodities derivatives investment firms that use the current exemption on capital requirements and large exposures including: – oil market participants (OMPS) – energy market participants (EMPS) – exempt‑CAD firms – investment firms that would be exempt from MiFID under Article 3 but have ‘opted‑in’ to MiFID • Collective Portfolio Management Investment firms (CPMIs) • regulated and unregulated holding companies of groups that contain an investment firm authorised and regulated by the FCA and that is currently authorised under MiFID and/or a CPMI

4 PS21/17 Chapter 1 Financial Conduct Authority Implementation of Investment Firms Prudential Regime The wider context of this policy statement Our consultation 1.5 This is the third in a series of PSs that set out our rules to introduce the IFPR. It summarises the feedback we received to CP21/26. 1.6 We published the first CP (CP20/24) in December 2020 and the accompanying PS (PS 21/6) in June 2021. We published the second CP (CP21/7) in April 2021 and the accompanying PS (PS21/9) in August 2021. This third PS covers a miscellaneous set of topics necessary to complete our rules for introducing the IFPR. 1.7 When the UK was a member of the EU, we were heavily involved in the policy discussion to create the Investment Firm Directive (IFD) and Investment Firm Regulation (IFR). We support the aims of the EU’s IFD and IFR. The IFPR will achieve the same overall outcomes. 1.8 However, we are introducing our regime after the UK has exited the EU. We believe it is right that we consider any appropriate changes to account for the specifics of the UK market and our duties to have regard to certain factors, including those set out in the Financial Services Act 2021 (FS Act). 1.9 Given this context, our baseline approach is for consistency with the EU regime, unless we have specific reasons for diverging to reflect the nature of the UK market or otherwise comply with our duties under Part 9C of FSMA (as inserted by the FS Act). How it links to our objectives Market integrity 1.10 Our rules accompanying this PS, in particular those on disclosure, excess drawings from own funds by partners and members, technical standards and depositaries, form part of how FCA investment firms should consider the potential harm they can cause to clients, markets and others. For example, disclosure rules help provide important market discipline through greater transparency. Competition 1.11 Our rules for introducing IFPR, including those accompanying this PS, ensure that there is 1 overarching regime for all FCA investment firms. They are proportionate according to the firm’s size and the type and scale of their activities. For example, our removal of the need for a fund depositary to hold permission to deal on own account should help to simplify matters for new entrants. Protecting consumers 1.12 Together with the rules already made for IFPR, our requirements in this PS on excess drawings of own funds, and on relevant technical standards that supplement those rules, help ensure FCA investment firms consider the potential harm they can cause to their retail customers, as well as to their wholesale and financial services clients. Although the Treasury is removing from the UK resolution regime those FCA

5 PS21/17 Chapter 1 Financial Conduct Authority Implementation of Investment Firms Prudential Regime investment firms currently within its scope, this should not weaken protection because under the IFPR the focus is upon recovery and wind‑down planning under MIFIDPRU 7 (as set out in CP21/7 and PS21/9), which will now apply to all FCA investment firms. What we are changing 1.13 The current prudential regime for FCA investment firms is based on requirements designed for globally active systemically important banks. The main aim of that regime is to protect depositors by ensuring that it is difficult for a bank to fail. Investment firms do not have depositors that need to be protected. This means that the current requirements are not designed to address the potential harm posed by investment firms to their clients and the markets in which they operate. 1.14 By contrast, the IFPR considers the harm these firms can cause to others based on the activities that they carry out. It also considers the amount of own funds and liquid assets a firm should hold so that if it does have to wind down, it can do so in an orderly manner. 1.15 Introducing the IFPR means that there will be a single prudential regime for all FCA investment firms. It should reduce barriers to entry and allow for better competition between investment firms. Some FCA investment firms will have meaningful capital and liquidity requirements for the first time, commensurate with the potential harm they can cause. The rules in this third PS, covering a miscellaneous set of topics, complete this change to the new regime. Outcomes we are seeking 1.16 Across the final rules for IFPR as a whole, we are seeking these outcomes: • The prudential regime for FCA investment firms is more aligned to the way that investment firms run their business. The regime will take account of the different business models of these firms, and better protect consumers and markets from the harm these firms may pose. • All FCA investment firms are subject to meaningful and consistent prudential requirements, not just those firms subject to the current UK CRR regime. This will help reduce their potential to cause harm to consumers and markets, and ensure a more level playing field between these firms. • Firms spend less time on complex capital requirement calculations that do little to help them to manage risk. This will free up management time to focus on running the business, and managing and mitigating any harm and risk. The FCA will also be able to focus on how a firm is managing itself. • The relevant prudential rules for FCA investment firms are understandable and accessible, with most rules brought into a new single prudential sourcebook (MIFIDPRU). 1.17 The rules accompanying this third PS support these overall outcomes. They complete the introduction of the IFPR. And provide greater transparency and market discipline through disclosure.

6 PS21/17 Chapter 1 Financial Conduct Authority Implementation of Investment Firms Prudential Regime Measuring success 1.18 From January 2022, there will be a single prudential regime for all FCA investment firms. This will simplify the current approach and should reduce barriers to entry and allow for better competition between firms. In line with our objectives and our Mission, the regime will move the focus of prudential requirements away from the risks firms face, to also consider and look to mitigate the potential for harm that the firm can pose to consumers and markets. Our aim is to improve trust in the resilience of these firms, while ensuring that their requirements are proportionate to their size and complexity. 1.19 Prudential requirements that better align with an FCA investment firm's business model should be a positive step for consumer protection. A more orderly market exit (including wind‑down) of an investment firm may reduce the costs and distress to clients associated with discontinuity of service and economic losses in drawn‑out insolvency proceedings. It should also reduce any disruption to markets. 1.20 The rules accompanying this PS form the final part of the introduction of this new single regime, the IFPR. Success should be measured across the regime as a whole. Summary of feedback and our response 1.21 We received 20 responses to CP21/27. Most respondents supported most of our proposals. 1.22 Below we provide a high‑level summary of the contents of this PS. We cover the specific feedback we received to our proposals, and our responses, in more detail in the corresponding chapters. 1.23 Under section 143H FSMA, we are required to publish an explanation of how we have had regard to various matters and how we have addressed certain risks when we make our final IFPR rules. Our CPs explain how we have had regard to the relevant matters and risks when formulating our original proposals. This PS includes a summary of the purpose of the complete set of final rules and explains how we have complied with the requirements under this section. 1.24 Although we have made some amendments to our original proposed rules in CP21/26 as a result of the feedback we have received, the final rules, taken as a whole, do not differ significantly from the versions upon which we consulted. Disclosure 1.25 Chapter 2 summarises the feedback we received on our proposals for disclosure by FCA investment firms, including both how and what firms should disclose. Our proposals covered disclosure on: • risk management • governance arrangements • own funds • own funds requirements • remuneration • investment policy

7 PS21/17 Chapter 1 Financial Conduct Authority Implementation of Investment Firms Prudential Regime 1.26 We have made some changes to the disclosure requirements, in particular to the level of application, in response to feedback received. We have clarified when FCA investment firms must publish their first set of disclosures under the new regime. We have also introduced some exemptions from the requirement to disclose quantitative remuneration data, when certain criteria are met. Own funds – excess drawings by partners and members 1.27 Chapter 3 summarises the feedback we received on our proposals for the treatment of drawings by partners or members of partnerships or limited liability partnerships (LLPs) that exceed the profits made. 1.28 Our proposal was that such excess drawings should be deducted from the firm’s common equity tier 1 (CET1). This would not apply to the extentthatthe amountis already: • deducted from the firm’s own funds as a loss for the current financial year • offset by new capital contributions from other partners or members as allowed for under our rules, or • reflected in a reduction of the firm’s own funds that was permitted under articles 77 and 78 of the UK CRR as applied by MIFIDPRU 3.6.1R Technical standards 1.29 Chapter 4 summarises the feedback we received on how we proposed to apply the onshored UKequivalentsof EU‑derivedBindingTechnicalStandards (BTS)forwhich the FCAis listed as a responsible regulator and that we have identified as relevant under the IFPR. 1.30 We proposed that in most cases firms should apply the onshored BTS, that are relevant under the IFPR, with specific modifications. These modifications will mean the BTS work in the way intended once the IFPR is implemented. 1.31 In 2 cases we proposed to copy out the BTS provisions, with some modifications, directly into our MIFIDPRU rules. In response to the feedback we received regarding the BTS on closely correlated currencies, we have also copied out the technical standard provisions from the 2015 BTS (with some modifications) directly into a new Annex 13R in MIFIDPRU 4. We also proposed making substantive amendments to MIFIDPRU 2.5 to clarify how the UK CRR minority interest provisions should work in the context of integrating Article 34a of the CRR Own funds BTS. 1.32 We proposed to introduce a generic MIFIDPRU application form and notification form to allow for the application and notification requirements arising from these BTS. Depositaries 1.33 Chapter 5 summarises the feedback we received on our proposed capital requirements for FCA investment firms that also have a Part 4A permission to act as a depositary for various types of investment funds. 1.34 We explained that depositaries that are also FCA investment firms should consider the potential for harm arising from their depositary activities as part of their internal capital adequacy and risk assessment process under MIFIDPRU 7. We also proposed that FCA investment firms that act as depositaries generally cannot be considered small and non‑interconnected (SNI) firms.

8 PS21/17 Chapter 1 Financial Conduct Authority Implementation of Investment Firms Prudential Regime UK resolution regime 1.35 Chapter 6 summarises the feedback we received on our proposals to put into effect the removal of FCA investment firms from the scope of the UK resolution regime. We proposed to delete IFPRU 11 and amend other parts of our Handbook so that the rules are consistent with that change. Consequential changes 1.36 Chapter 7 summarises the feedback we received on our proposals to amend the non‑prudential Handbook modules as needed due to the implementation of the IFPR. Our overall approach was to make only the consequential amendments needed to: • delete provisions that are no longer required • ensure that the interactions between them and MIFIDPRU work in practice 1.37 We also proposed small policy changes where necessary to streamline and simplify the regulatory requirements that currently differentiate between the various existing prudential categories of FCA investment firm. Enforcement 1.38 Chapter 8 summarises the feedback we received on our proposals for our approach to the enforcement of the IFPR. This was both the requirements set out in the new Part 9C of FSMA and the rules we are making to implement the IFPR. 1.39 We proposed to use our existing approach to investigations and imposition of sanctions for any breaches of the IFPR. We also proposed making minor amendments to the Handbook’s Decision Procedure and Penalties manual (DEPP) and the Enforcement Guide (EG) to reflect the additional powers given to us by the 2021 Financial Services Act (FS Act) over non‑authorised parent undertakings. Applications and notifications 1.40 Chapter 9 summarises the feedback we received on our proposals for an investment firm group notification form, including financial conglomerates. We also provided more details of the proposed generic MIFIDPRU application form and notification form that will cater for any specific application and notification requirements from incorporating BTSs into MIFIDPRU. Explanation of how we meet our obligations under section 143H (2) of the Financial Services and Markets Act when making Part 9C prudential rules 1.41 Chapter 10 sets out how we meet our obligations under Section 143H (2) of FSMA. This requires that we provide a summary of the purpose of our new rules that implement the IFPR, an explanation of how we have considered specified risks, and an explanation of how having regard to specified matters has affected the rules we have made.

9 PS21/17 Chapter 1 Financial Conduct Authority Implementation of Investment Firms Prudential Regime Equality and diversity considerations 1.42 We have considered the equality and diversity issues that may arise from the proposals in this Policy Statement. 1.43 Overall, we do not consider that the rules materially impact any of the groups with protected characteristics under the Equality Act 2010. Next steps 1.44 Accompanying this PS are the final rules that relate to CP21/26. The relevant FS Act statutory instruments have been made and these rules will take effect from 1 January 2022. What you need to do next 1.45 Firms should ensure that they make the necessary preparations to be able to comply with the requirements. FCA investment firms should also ensure that they return the answers to the questionnaire that was sent out on 12 November 2021. This will allow us to schedule the appropriate regulatory returns to each firm and, where appropriate, UK parent entity. We also remind firms that under MIFIDPRU TP5, they must begin collecting data on K‑factor metrics that are relevant to the activities they undertake by no later than 1 December 2021.

10 PS21/17 Chapter 2 Financial Conduct Authority Implementation of Investment Firms Prudential Regime 2 Disclosure 2.1 In this chapter, we summarise the feedback to our proposals for the disclosure requirements that would apply to FCA investment firms, and our responses. 2.2 Poorly run firms pose a greater potential risk of harm to markets and consumers. The public disclosures we proposed give stakeholders and market participants an insight into how the firm is run. Disclosing the own funds and own funds requirements of a firm allows potential investors to assess its strength. Investment policy disclosures provide information on the firm’s behaviour, while risk management, governance and remuneration provide key information on the firm’s culture. Disclosing this information helps stakeholders to make more informed decisions about their relationship with the firm. Key proposals 2.3 In CP21/26 we explained that public disclosure is an important part of the IFPR. It is core to market discipline, and provides the information and transparency necessary to ensure markets work well. 2.4 We proposed that firms should publicly disclose certain information on the following areas: • risk management • own funds • own funds requirements • investment policy • governance arrangements • remuneration 2.5 We also asked for feedback on templates for the own funds and investment policy disclosures. 2.6 We asked 3 questions in this chapter: Q1: Do you agree with the proposed scope and process of disclosure set out in this chapter? Q2: Do you agree with our proposed disclosures on risk management, own funds, own funds requirements and investment policy, including the use of templates? If not, please provide details of what should be disclosed or how the templates should be amended. Q3: Do you have any specific suggestions on our proposed disclosures on governance arrangements and on remuneration?

11 PS21/17 Chapter 2 Financial Conduct Authority Implementation of Investment Firms Prudential Regime Feedback and responses 2.7 We had 20 responses to this chapter, of which 14 responded to Q1, 13 responded to Q2, and 15 responded to Q3. Basis of disclosures 2.8 We received several responses asking us to clarify whether disclosures should be made on a consolidated or individual basis. Feedback favoured disclosures being made on a consolidated basis or allowing firms the choice. Our response We have taken on board feedback that requiring disclosures to be made both on an individual and consolidated basis could be burdensome. As a result, we have decided to require disclosures only on an individual entity basis. However, there is nothing to prevent a firm from additionally choosing to disclose voluntarily on a consolidated basis. We consider that this approach is the most consistent with our general approach to consolidation under the IFPR, and strikes the best balance between transparency and regulatory burden. This is because individual disclosures provide more granular information than consolidated, and this information is more relevant to the specific entity that conducts the investment services and activities. We also consider that this approach is fairer, as it ensures there is no difference between groups which are subject to prudential consolidation, those with permission to use the group capital test, and investment firms that are not part of a group. If certain data items are the same for multiple entities, for example a diversity policy which is set at the group level, firms could either replicate this on their own websites or link to it at the group website. In these cases, firms will need to make it clear to which entities’ disclosures the data belongs. This is because the individual entities must fulfil the requirement to disclose the information. We confirm that an FCA investment firm will be exempt from the disclosure requirements in MIFIDPRU 8 if it satisfies the conditions set out under MIFIDPRU 2.3.1R (which include being an SNI firm within an insurance group). When and how to disclose Timing of the disclosures 2.9 We received several responses asking us to clarify our expectations for the date of the first disclosures under MIFIDPRU8. We also received one suggestion thatthe required date of publication should be a date other than when firms publish their annual statements.

12 PS21/17 Chapter 2 Financial Conduct Authority Implementation of Investment Firms Prudential Regime Our response We have added transitional provisions to be found at TP12. These transitional provisions clarify the timing of the first set of disclosures under the new regime. Disclosures on own funds, own funds requirements, governance, risk management and investment policy Under TP 12, a firm with a financial year end in 2022 that falls on or before 30 December 2022 will make its first required disclosures set out in MIFIDPRU 8 from that date, but only for own funds, own funds requirements and governance. The firm will only be required to make its first disclosures for risk management and investment policy starting from its year‑end falling in 2023. We have distinguished between own funds, own funds requirements and governance disclosures, and the other disclosures in the first year. This is because these 3 specific areas require disclosure as at a particular date. For example, a firm whose financial year ends on 31 March would already be collecting the relevant data for disclosing information on own funds and own funds requirements as of that date, and would already have governance arrangements in place by 31 March 2022. In contrast, its investment policy disclosure will need to cover a period of a year, and for risk management it may first need time for senior management to review its ICARA before making any disclosure. However, a firm whose financial year ends on 31 December 2022 will be required to publish its first set of disclosures, covering everything except remuneration (ie own funds, own funds requirements, governance, risk management and investment policy), based on that date. We consider a full year under the new regime to be sufficient time for firms to be able to collect the relevant information to comply with all relevant obligations. We consider the publication date of a firm’s financial statements, or for firms which do not publish financial statements, the date on which it is required to submit its solvency statement to the FCA, to be the most appropriate date for its disclosures to be published. This way, management will be able to sign off the disclosures at the same time as the financial statements, where applicable. For firms that do not publish financial statements, tying the date of disclosures to when they submit their solvency statement to us will also minimise further regulatory burden where disclosure can be dealt with at the same time as the management body finalises or approves the solvency statement. This is particularly so for those disclosures, such as own funds and own funds requirements, where the same or similar information to that published in the financial statement or submitted in the solvency statement is used. Disclosures on remuneration We have set out in MIFIDPRU TP12 that an FCA investment firm must make its first remuneration disclosures under MIFIDPRU 8.6 on the same date that it publishes its first annual financial statement after the end of the first performance period to which the MIFIDPRU Remuneration Code applies.

13 PS21/17 Chapter 2 Financial Conduct Authority Implementation of Investment Firms Prudential Regime We have further clarified in MIFIDPRU TP12 that, until that point, an FCA investment firm must continue to make its remuneration disclosures in line with any disclosure rules to which the firm is currently subject, ie BIPRU 11 or UK CRR. For most firms with performance periods of 12 months, this will mean their first MIFIDPRU remuneration disclosures will be made in 2023. The disclosures in 2022 will be made according to the same requirements as applied to the firm in 2021 (if any). For example, if an IFPRU investment firm has a performance year running from 1 January to 31 December, itwill need to apply the MIFIDPRU Remuneration Code from its performance year beginning on 1 January 2022 (SYSC19G.1.30R). This performance period ends on 31 December 2022, meaning thatthe firstremuneration disclosures under MIFIDPRU 8.6would have to be made on the same date as the firm’s annual financial statement that is published in 2023. In 2022, the firm must continue to comply with the remuneration disclosure requirements of the UK CRR in respect of its disclosures from the 2021 performance year. It would be possible for FCA investment firms to start disclosing the qualitative remuneration information required under MIFIDPRU8.6 during 2022. However, the quantitative data from the first complete performance year under the MIFIDPRU Remuneration Code will not be available until 2023. We consider it would be complex, confusing and not aid transparency if we were to require firms to publish qualitative remuneration information under MIFIDPRU8.6 alongside quantitative disclosures made under the previous regimes. Therefore, we are requiring firms to make theirfirstremuneration disclosures under MIFIDPRU8.6. when both qualitative and quantitative information is available. Use of a firm’s website for disclosure 2.10 One respondent thought that allowing firms without a website to disclose via other means created an uneven playing field. They suggested that firms that do have a website be allowed to disclose elsewhere too. Our response We consider that where a firm maintains a website this is likely to be the best way for firms to demonstrate compliance with the requirements in MIFIDPRU 8.1.13R for disclosures to be (in summary) easily accessible, clearly and transparently presented. We have added an evidential provision at MIFIDPRU 8.1.16E to that effect. However, we have amended the rule at MIFIDPRU 8.1.13R, by removing the requirement to publish on a website. Where a firm does not have a website, it would be disproportionate to require them to set one up purely for the purpose of disclosure requirements. The rules are drafted in such a way that for those firms who do not have a website, it will be possible to disclose the required information in an alternative format, if it can be done in a way that complies with the rule at MIFIDPRU 8.1.13R. The amended rules, evidential provision and

14 PS21/17 Chapter 2 Financial Conduct Authority Implementation of Investment Firms Prudential Regime guidance on how a firm must disclose reflects the broad range of FCA investment firms, where some firms have no need for a website to conduct their specific investment activities. In practice, we think this is unlikely to affect many firms. 2.11 Some respondents were concerned that reproducing information on their website which had already been published elsewhere would be burdensome and asked whether it would be permitted to cross‑refer to information in other locations or media. Our response Where a firm chooses to comply with MIFIDRPU 8.1.13R by publishing disclosures on their website, that information must be clearly presented and easy to understand. We would not generally expect that to involve cross‑references to external material hosted by third parties, for example, information available at Companies House. However, it would be acceptable to link to the relevant information on another page of the firm’s website, or on the website of the parent or another member of the group where applicable. It is also acceptable for the parent’s or group’s website to publish the disclosures on behalf of an entity which does not maintain its own individual website. As the disclosures must be made on an entity‑level basis, firms using a group or parent website to disclose should make clear on the group/parent website to which entity each disclosure belongs. 2.12 Two respondents were concerned that the requirement to publish disclosures on a firm’s freely and universally accessible website could conflict with legal requirements from other jurisdictions. Our response We do not expect firms to breach a requirement of another jurisdiction in complying with MIFIDPRU 8 and have inserted a new rule at MIFIDPRU 8.1.15R to make this clear, together with an evidential provision and guidance provision at MIFIDPRU 8.1.16E and MIFIDPRU 8.1.17G relevant to this topic. As stated above, we expect that the majority of firms will find the use of their website (where a website is maintained) to be the most convenient way of complying with MIFIDPRU 8.1.13R. Those firms for whom this is not possible (for example because they do not maintain a website or because to do so would cause them to breach the law of another jurisdiction) may publish in other media, as long as they meet the criteria set out in MIFIDPRU 8.1.13R. There is no exemption from disclosure requirements for firms in these circumstances.

15 PS21/17 Chapter 2 Financial Conduct Authority Implementation of Investment Firms Prudential Regime Risk management 2.13 Respondents supported our proposals for risk management disclosure and agreed that it would not be appropriate to use a template. We confirm that we are proceeding as consulted on. Own funds & own funds requirements 2.14 One respondent asked for clarification on the use of template OF2 for firms which are not required to publish audited financial statements, such as some partnerships. Our response Firms which are not required to publish audited financial statements will not be required to publish these purely for the purposes of disclosure. We have therefore clarified that these firms will not be required to complete template OF2, as there will be nothing with which they can reconcile the data. 2.15 We proposed that firms disclose their K‑factor requirement (KFR) broken down into three groupings of K‑factors. One respondent proposed an alternative grouping of K‑factors to be used in the disclosures. Several respondents suggested not requiring firms to disclose data that they considered less relevant, for example a firm’s KFR if it is not their operative requirement. Two respondents requested a template for own funds requirements disclosures. Our response As we set out in CP21/26, the three groupings of K‑factors we proposed for disclosures were chosen as they best reflect the following categories: (1) assets for which the firm is responsible; (2) execution activity undertaken by the firm; and (3) its exposure‑based risks. We are not using the same categorisation set out in the EU IFR as we do not believe this puts some of the K‑factors in their most logical place. As we explained in PS21/9, we consider it more appropriate to group K‑COH and K‑DTF together as these both cover the execution of orders – in the name of the client and in the name of the firm (but may be on behalf of a client) respectively. We consider it important for firms to disclose each element of their own funds requirements regardless of which element determines their binding requirement under MIFIDPRU 4. This is because each aspect provides important information about the business. We do not consider it necessary to introduce a template for own funds requirements, as this is a simple quantitative disclosure consisting of 5 data items, which should be simple to understand and compare regardless of formatting.

16 PS21/17 Chapter 2 Financial Conduct Authority Implementation of Investment Firms Prudential Regime Investment policy 2.16 We received several requests to clarify the scope of the investment policy disclosures, in terms of the definition of regulated market, what we meant by a direct or indirect holding, what we meant by exceeding 5%, and voting rights. Our response We have added additional guidance provisions to clarify the scope of this disclosure. We will carry across the existing Glossary definition of regulated market, which means that this disclosure applies to holdings traded on a UK recognised investment exchange (RIE). We have deleted the first column in template IP1.01 (‘Country or territory’) as a result. By direct or indirect holding, we mean shares held on the balance sheet of a firm or another group member, or where the firm may exercise voting rights in a fiduciary capacity. We have clarified that exceeding 5% means holding voting rights of at least 5% plus one share. This applies to any holding where at any point during the reference period, the firm’s holding exceeds the 5%, even if the firm reduces or disposes of its holding within the reference period. The voting behaviour disclosures set out in MIFIDPRU 8.7.1R (2) are in scope during the period where the firm’s holding exceeded 5% of voting rights. For example, if a firm held shares exceeding 5% of voting rights for only a short period and disposed of them without any general meetings taking place during that period, then no meetings will have been in scope. The disclosures apply only for shares where the firm has voting rights, whether this is via the shares being held in the firm’s name or in a client’s name where the firm has been given control of the voting rights. Shares for which the firm does not have control of the voting rights are not in scope. If firms have the voting rights but choose not to exercise them, they should indicate this in their disclosures rather than not disclosing, as this is relevant information to potential clients. 2.17 We received one response expressing concern that there could be circumstances in which the information required as part of this disclosure could be proprietary or confidential. Our response While we do not expect this to be a common issue, we have added an exemption for these exceptional circumstances at MIFIDPRU 8.7.4R. If a firm considers a data item in this disclosure to be proprietary or confidential information, it may omit this item, as long as it discloses which item has been omitted and the reason for the omission. This preserves a similar exemption available in BIPRU 11. We may ask a firm that uses this exemption to justify to us its rationale for doing so.

17 PS21/17 Chapter 2 Financial Conduct Authority Implementation of Investment Firms Prudential Regime 2.18 We received further feedback on specific elements of the investment policy templates IP1 and IP2. Our response We have made a number of changes to the templates as a result of feedback. As mentioned above, we have deleted the column ‘country or territory’ from IP1. We received one piece of feedback expressing a preference for the use of an International Securities Identification Number (ISIN) as an identifier rather than a Legal Entity Identifier (LEI) in IP1. We acknowledge the reasoning for this, but consider LEI simpler in this instance. If we had used ISIN, there could be the need to list multiple ISINs for the same entity if a firm held more than 5% of voting rights in several issuances from the entity, or if a company were dual listed. By using LEI, the investee company only needs to be listed once, with the proportion of shares given as a proportion of total shares issued by that company, not the proportion of shares under a certain ISIN. From template IP2.01, we have clarified the permitted answers to row 4. We have also deleted rows 5 and 6, and clarified that row 7 should be answered with yes or no. In IP2.03 we have added an additional row for ‘other governance’. This is because ESG is a generally recognised term, but we acknowledge that including all other governance‑related resolutions under it could be misleading. We have clarified that firms should complete IP2.03 with the relevant numbers, except where specified in row 9, which is a percentage. We have also clarified in row 7 that ‘external resolutions’ includes shareholder proposals. The other rows in IP2.02 and IP2.03 refer to management proposals, and this has been clarified in rows 2 & 3 of IP2.02. If a firm splits its votes by voting both for and against a proposal, it should be recorded under both columns. We have also clarified in IP2.02 and IP2.03 that percentages refer to all resolutions, including ones in which the firm did not vote. 2.19 Some respondents felt that our proposals duplicated other requirements, such as the Shareholder Rights Directive (SRD) or the Disclosure Guidance and Transparency Rules Sourcebook (DTR), or that they were unnecessarily stringent compared to the CRR. Our response There may be some overlap, but the scope of requirements under MIFIDPRU 8 is different to the SRD and DTR, as is the specific information required to be disclosed. We have taken the requirements set out in the EU IFR/IFD and the EBA’s templates as our baseline when designing the requirements of MIFIDPRU 8 and our templates OF and IP. Some elements of the IFPR, including our disclosure requirements, may put greater requirements on some types of firms than other

18 PS21/17 Chapter 2 Financial Conduct Authority Implementation of Investment Firms Prudential Regime regimes and less on others. On the whole, we consider the level of disclosure set out in MIFIDPRU 8 to be appropriate to provide markets with the requisite information for them to work well, and our templates are as simple as possible to reduce compliance burden. Governance arrangements 2.20 Effective governance arrangements help a firm achieve its strategic objectives while also ensuring that risks to the firm, its stakeholders and the wider market are identified, managed and mitigated. We proposed that all non‑SNI firms must disclose certain information about their internal governance arrangements (see MIFIDPRU 8.3). Oversight of governance arrangements by the management body 2.21 We proposed that all non‑SNI firms publish a summary of how the firm complies with the requirement in SYSC 4.3A.1R to ensure the management body defines, oversees and is accountable for the implementation of governance arrangements that ensure effective and prudent management of the firm. 2.22 We received no feedback on this proposed rule or the associated guidance. We confirm we are proceeding as consulted on. Risk committee 2.23 We proposed that a non‑SNI investment firm must disclose: • whether it has a risk committee • whether it is required to establish a risk committee under MIFIDPRU 7.3.1 • where relevant, whether it has any waiver or modification of the rule requiring a risk committee 2.24 One respondent asked whether a non‑SNI firm which has obtained a modification of MIFIDPRU 7.3.1 to permit the firm to establish a risk committee at group level, may instead disclose the information on its risk committee at the level of the consolidation group. This was said to be helpful because it would save each non‑SNI firm in the group from having to replicate the same information. Our response We explain above that all disclosures required by MIFIDPRU 8 must be made on an individual entity basis. Firms in consolidation groups may choose to additionally disclose any or all information on a consolidated basis, if they wish. Nevertheless, as set out above, firms may comply with any of the disclosure requirements by providing an electronic link to the relevant information on another page on the firm’s website or, where applicable, the website of another entity in the consolidation group or of the UK parent entity.

19 PS21/17 Chapter 2 Financial Conduct Authority Implementation of Investment Firms Prudential Regime While the use of links can reduce the need to duplicate large amounts of information, firms should note that the information to be disclosed on risk committees must in all cases relate to the individual non‑SNI firm concerned. This is because the requirement to have a risk committee applies at individual entity level only and not at the level of the investment firm group (see (MIFIDPRU 7.1.3R). The information to be disclosed may differ between non‑SNI firms in the group, for example if some, but not all, are required to establish risk committees. Directorships 2.25 We proposed that all non‑SNI firms must disclose how many directorships each member of the management body holds, broken down into executive and non‑executive directorships. We suggested in a guidance provision that this should include: • all directorships, regardless of whether the organisation has a mainly commercial or non‑commercial objective • separate disclosure of each directorship, even if they are treated as single directorships under SYSC 4.3A.7R(2), for example because the person holds multiple directorships in entities within the same group 2.26 Two large trade bodies responded to these proposals. They suggested that firms should be expected to disclose: • only directorships in organisations with mainly commercial objectives because: – there is no potential conflict of interest where the directorship is in an organisation with a mainly non‑commercial objective – information on all directorships, including those held in organisations with mainly non‑commercial objective, is already publicly available through Companies House • directorships in multiple entities within one group as a single directorship because: – it could be misleading in terms of time commitment to list all the separate directorships, especially given meetings of multiple entities are often combined – it could be confusing or misleading to disclose a greater number of directorships than are permitted under SYSC 4.3A due to the different way of counting them 2.27 In addition, we proposed that non‑SNI firms which are also significant SYSC firms must disclose whether we have approved any additional directorships beyond the limits which would usually apply. We did not receive any feedback on this proposal. Our response We have made changes to the directorship disclosure requirements in response to the feedback. We note that firms are already required by law to submit information to Companies House about all the executive and non‑executive directorships held by their directors. This is then published online. It includes directorships in entities with a mainly commercial or non‑commercial objective, and is at the level of the individual entity.

20 PS21/17 Chapter 2 Financial Conduct Authority Implementation of Investment Firms Prudential Regime We agree with stakeholders that it would be duplicative to require non‑SNI firms to disclose the same information about their directors. We have replaced the proposed guidance with a rule at MIFIDPRU 8.3.2R clarifying that FCA investment firms do not need to disclose: • directorships held in organisations which do not pursue predominantly commercial objectives • separate directorships held within the same group or within undertakings (including non‑financial sector entities) in which the firm holds a qualifying holding This is consistent with the wording used in SYSC 4.3A.7 on what is an appropriate or maximum number of permitted directorships. The change does not prevent any firm from disclosing more than the minimum information. For example, IFPRU investment firms are currently in scope of the UK CRR and required to disclose more detailed information on directorships. They may continue to disclose the same level of information if they wish. Diversity policy 2.28 We proposed that non‑SNI firms must disclose a summary of their approach to diversity on the management body. This reflects the importance of diversity within firms. 2.29 Three respondents commented on this proposal. One expressed support for our proposal but noted there are already voluntary schemes which go further, for example the Government’s Women in Finance Charter and Business in the Community’s Race at Work Charter. 2.30 Two respondents asked us to clarify whether non‑SNI firms that form part of groups may rely on the diversity policy of their parent company. Our response Voluntary schemes play an important part in improving diversity and inclusion. The FCA is itself a signatory of the Women in Finance and Race at Work Charters. Such schemes contain commitments to gather diversity data and/or to set certain targets, and to publish the organisation’s progress. The disclosure requirements we proposed are based on the current rules in SYSC 4.3A which require every common platform firm to put in place a policy promoting diversity of the management body. We cannot require all firms to disclose, for example, their diversity targets without an underlying legal or regulatory requirement to set such targets. We are considering the various policy options as part of our broader work on diversity and inclusion, which we started in July 2021 with the publication of DP21/2: Diversity and inclusion in the financial sector – working together to drive change.

21 PS21/17 Chapter 2 Financial Conduct Authority Implementation of Investment Firms Prudential Regime The request for clarification relates to the underlying requirement to have a policy promoting diversity on the management body. A non‑SNI firm should disclose a summary of the diversity policy which applies to its own management body. This could be specific to the entity or a policy set at group, consolidation group or any other level. Templates 2.31 We did not propose to introduce a template for governance disclosures. We wanted to provide non‑SNI firms with flexibility to disclose the required information in the most appropriate way for their business. 2.32 One stakeholder suggested that we should develop a template which would automatically make the information public when it had been entered by firms (synthetic disclosure). They argued that this would facilitate stakeholders’ understanding and enhance transparency. Our response We do not intend to develop templates for governance disclosures. Although we proposed them for some other types of disclosures, for example own funds, we do not think they are appropriate for governance because of the qualitative nature of the information and the benefits of providing flexibility for firms to disclose this in the most accessible and meaningful way that reflects their arrangements. Remuneration 2.33 Public disclosures on remuneration allow stakeholders to assess the extent to which the remuneration policies and practices of a firm support its strategy, risk profile, financial stability, culture and desired staff behaviours. 2.34 We proposed that all MIFIDPRU investment firms should disclose qualitative and quantitative information about their remuneration policies, practices and outcomes (see MIFIDPRU 8.6). These were tailored to the substantive remuneration requirements of SYSC 19G, with SNI investment firms being required to disclose less information than non‑SNI firms. Scope and application to material risk takers 2.35 One stakeholder asked us to clarify that the disclosure requirements do not apply to a material risk taker (MRT) who is employed by the parent entity in a third country and located outside of the UK investment firm group. 2.36 The respondent noted that it is common for a UK investment firm, which is a subsidiary of a third country parent firm, to appoint to its board a senior employee of its parent firm. They argued that the MRT derives no remuneration from the UK investment firm to which SYSC 19G applies, so the disclosure requirements should also not apply in respect of that MRT.

22 PS21/17 Chapter 2 Financial Conduct Authority Implementation of Investment Firms Prudential Regime Our response The respondent has recognised that the MIFIDPRU Remuneration Code requires such an individual to be identified as an MRT. This is because the person is a staff member due to the broad interpretation at SYSC 19G.1.24G, and is deemed to have a material impact on the firm’s risk profile or assets it manages because they are a member of the management body of an FCA investment firm (SYSC 19G.5.3R). The MIFIDPRU Remuneration Code applies to any form of remuneration awarded to FCA investment firm MRTs. The extent to which any or all of an individual MRT’s remuneration is derived specifically from tasks related to or from an employment contract with the FCA investment firm is not a relevant consideration. The behaviour and decision‑making of the MRT can be influenced by their variable remuneration, so it is appropriate to ensure alignment of risk and individual reward by applying the MIFIDPRU Remuneration Code to the remuneration of the MRT. This includes where it is paid by an entity other than the FCA investment firm. For this reason, it is also appropriate that all MRTs of UK investment firms are included in the qualitative and quantitative remuneration disclosures. We have not made any changes to the disclosure rules in this regard. Qualitative information disclosures 2.37 We proposed that each MIFIDPRU investment firm must disclose: • a summary of its approach to remuneration, the objectives of its incentives and the associated governance procedures • the key characteristics of its remuneration policies and practices, with the minimum disclosures dependent on the size of the firm 2.38 We also proposed that non‑SNI firms must disclose the types of staff they have identified as MRTs. 2.39 We explained in CP21/26 that we did not intend to require non‑SNI firms to disclose their ratios between variable and fixed remuneration. Several respondents strongly welcomed this and agreed with our analysis that it would encourage comparison of ratios, which would not be meaningful or helpful. 2.40 We did not receive any feedback from respondents about our proposals on disclosing a summary of firms’ approaches to remuneration or the types of MRTs identified. We are proceeding with these as consulted on. 2.41 We received some requests to clarify certain aspects of the key characteristics of remuneration policies and practices. We summarise these and set out our responses below.

23 PS21/17 Chapter 2 Financial Conduct Authority Implementation of Investment Firms Prudential Regime Proportionality of qualitative information 2.42 We proposed that each firm should comply with the qualitative remuneration requirements ‘in a manner appropriate to its size, internal organisation, and the nature, scope and complexity of its activities’. This gives firms a degree of discretion over the level of detail they disclose. 2.43 One respondent said that it would be helpful to have some guidance on the practical application of this to remove the subjective element. Their feedback suggested we could produce something similar to the current general guidance documents on the application of proportionality in the IFPRU and BIPRU Remuneration Codes. Our response The IFPRU and BIPRU Remuneration Codes, and the associated disclosure rules, start from the point that all firms in scope must comply with all rules. We published guidance on which rules it may be appropriate for firms in certain proportionality levels to disapply. In contrast, the MIFIDPRU Remuneration Code sets out the categories of FCA investment firms to which each of the remuneration requirements applies. We take the same approach to disclosure by setting out in MIFIDPRU 8.6 which remuneration information must be disclosed by which category of firm. We do not consider any additional guidance is necessary. Regarding how much information must be disclosed to comply with the rules, our proposed rules for FCA investment firms take the same approach as the IFPRU and BIPRU remuneration regimes. We acknowledge that this requires some element of subjective judgement by firms, but this provides flexibility to ensure the disclosures are accessible, meaningful and reflect the firm’s arrangements. We would remind firms that the overarching requirement is to disclose the key characteristics of its remuneration policies and practices in sufficient detail to provide the reader with an understanding of the risk profile of the firm, or assets it manages, and gain an overview of the incentives created by the remuneration policies and practices (MIFIDPRU 8.6.5R). We did not receive any feedback on this specific aspect of our proposals, so are proceeding as consulted on. For these reasons, we have not provided any further guidance on the application of the proportionality rule for to remuneration disclosures. Carried interest 2.44 As part of the key characteristics of its remuneration policies and practices, we proposed that all MIFIDPRU firms must disclose the different components of remuneration, together with the categorisation of those remuneration components as fixed or variable.

24 PS21/17 Chapter 2 Financial Conduct Authority Implementation of Investment Firms Prudential Regime 2.45 One respondent asked us to clarify whether we would expect firms to categorise carried interest as fixed or variable remuneration. They pointed out that SYSC 19G.1.27R(1) states only that carried interest is remuneration. Our response We would expect carried interest to be categorised as variable remuneration because it is not a pre‑determined sum but rather is calculated based on the performance of a fund. This is consistent with the approach taken in the ESMA Guidelines on sound remuneration policies under the AIFMD and under the UCITS Directive, which we expect firms to continue to apply following the UK’s withdrawal from the EU, to the extent they remain relevant. We state in the instructions for completing the MIFIDPRU Remuneration Report, which we consulted on in CP21/7, that the amounts reported to us under ‘total variable remuneration’ should include carried interest plans. Nevertheless, we agree that it could be clearer in the MIFIDPRU Remuneration Code. We have: • added to SYSC 19G.4.2G that we consider carried interest to be variable remuneration • added a guidance provision as MIFIDPRU 8.6.7G containing a cross￾reference to the provisions in SYSC 19G.4 on categorising fixed and variable remuneration Financial and non‑financial criteria 2.46 We proposed a list of minimum information which each category of FCA investment firm should include in its disclosures of key characteristics of their remuneration policies and practices. For all SNI and non‑SNI firms, this includes a summary of the financial and non‑financial criteria used to assess the performance of the firm, business units and individuals. 2.47 One respondent noted that the performance criteria used are likely to vary within a firm depending on the role of the individual. They suggested it should be sufficient to disclose high‑level information at the level of the firm as a whole rather than breaking it down into the different criteria used at the level of the business unit or individual. Our response We acknowledge that the performance criteria used will differ across a firm depending on the business unit and role of the individual. There is no requirement to disclose all the criteria used by each business unit or used in relation to each different category of staff. A summary of the types of criteria generally used across the firm is sufficient.

25 PS21/17 Chapter 2 Financial Conduct Authority Implementation of Investment Firms Prudential Regime However, the summary should include 3 separate parts summarising the types of financial and non‑financial criteria used to assess the performance of: • the firm as a whole • business units • individuals We have made minor changes to MIFIDPRU8.6.6R(2)to make this clearer. Quantitative information disclosures 2.48 We proposed that all FCA investment firms make certain quantitative disclosures about the remuneration outcomes of their staff. This information aims to complement the qualitative disclosures by enabling stakeholders to assess whether the firm’s remuneration policies and practices operate as designed. Total quantitative data 2.49 Three respondents queried whether it is appropriate to require non‑SNI firms to disclose such detailed quantitative information. They argued that the data required from the largest non‑SNI firms is as detailed as that required from the largest banks under the UK CRR. 2.50 A further respondent compared our proposals to the disclosure rules which apply to AIFMs and thought our proposals would impose a disproportionately greater burden in comparison. Our response IFPRU investment firms are currently subject to the disclosure provisions of the UK CRR. As they are proportionality level 2 or level 3 firms under the current regime, we do not require them to disclose all the information. While the IFPRU investment firms subject to the extended remuneration requirements will need to disclose more information than at present, others will see their remuneration disclosure requirements decrease. Overall, we consider that our disclosure proposals are appropriate and proportionate to the risks an FCA investment firm poses to consumers and the market. The requirements reflect the substantive obligations of the 3 categories of firms under the MIFIDPRU Remuneration Code, so we think it is appropriate to require all non‑SNI firms (rather than just the largest) to disclose quantitative information about guaranteed remuneration and severance payments. This will ensure a level playing field among non‑SNI firms. We acknowledge thatthe disclosure rules in MIFIDPRU 8.6 are more detailed than the current rules applicable to AIFMs. We think this is justified given the greater risks generally associated with MiFID business.

26 PS21/17 Chapter 2 Financial Conduct Authority Implementation of Investment Firms Prudential Regime Data protection, confidentiality and commercial sensitivity 2.51 Ten respondents expressed concerns that our proposals could lead to non‑SNI firms being required to disclose information of a confidential or commercially sensitive nature. They questioned the compatibility with data protection law given that certain disclosures could potentially enable individuals to be personally identified when combined with other publicly available information. 2.52 Respondents’ feedback highlighted particular concerns related to disclosing: • total amount of fixed and variable remuneration (broken down into senior management, other MRTs and other staff) • data on severance payments (broken down into senior management and other MRTs) • data on guaranteed remuneration awarded to MRTs (broken down into senior management and other MRTs) 2.53 Respondents underlined that the requirement to disclose information at solo entity level, when combined with the need to break down the data into 2 or 3 subsets of staff, means that some information may relate to only 1 or 2 individuals in total. This was said to be especially likely in smaller non‑SNI firms which may identify only a handful of MRTs in total. 2.54 Several suggestions were made for how we could amend our proposals. These included: • introducing an exemption for proprietary and confidential information or for disclosures that would enable the identification of an individual • removing the requirement to break down the data into senior management and other MRTs • requiring remuneration disclosures at consolidated level only Our response We have listened carefully to respondents’ feedback on this matter. We agree that there are situations in which it might be possible to identify an individual MRT based on the disclosures we have proposed, when combined with other information in the public domain. This was not our intention. The feedback suggests that the key issue is the potential for subsets of data which relate to very small numbers of MRTs. With this in mind, we have amended our proposals to allow non‑SNI firms to disclose most items of quantitative remuneration data as an aggregated total of the categories ‘senior management’ and ‘other MRTs’, where either or both of the categories would contain information on 1 or 2 MRTs for that particular information item. Where the aggregated total of the categories would still contain information on only 1 or 2 MRTs, we have included an exemption from that particular disclosure requirement.

27 PS21/17 Chapter 2 Financial Conduct Authority Implementation of Investment Firms Prudential Regime These exemptions do not apply to the requirements to disclose: • the total amount of remuneration, fixed remuneration and variable remuneration awarded to all staff and to the non‑MRTs category (MIFIDPRU 8.6.8R(4)) • the total number of MRTs the non‑SNI firm has identified (MIFIDPRU 8.6.8R(3)) • the highest severance payment awarded to an MRT (MIFIDPRU 8.6.8(5)(c)) We have included in MIFIDPRU 8.6.11G some examples of how the exemptions are intended to operate. Where a non‑SNI firm relies on either exemption, it must explain in the main body of its remuneration disclosure which data has not been disclosed and the reason. We believe that these changes will address in a proportionate way the possibility that individuals can be identified. Allowing firms to combine the categories ’senior management’ and ‘other MRTs’ ensures that as much as possible of the data is still disclosed, so provides investors and other stakeholders with information about the remuneration outcomes of the firm. A further reaching exemption is foreseen only in instances where this approach would be insufficient to prevent individuals being identifiable. While we understand firms’ concerns about the potential commercial sensitivity of data on guaranteed remuneration and severance payments, no firm would be at a disadvantage given all non‑SNI firms are required to disclose the same information. Greater transparency may improve competition. We would remind non‑SNI firms of their obligations under SYSC 19.5. to identify all staff who have a material impact on the risk profile of the firm or of the assets it manages.

28 PS21/17 Chapter 3 Financial Conduct Authority Implementation of Investment Firms Prudential Regime 3 Own funds – excess drawings by partners and members 3.1 In this chapter, we summarise the feedback to our proposals for the treatment of drawings from the business made by partners or members of partnerships or limited liability partnerships (LLPs) that exceed the profits made by the business. Key proposal 3.2 In CP21/26, we proposed that an FCA investment firm that is a partnership or LLP will be required to deduct from own funds drawings from the business made by its partners or members that exceed the profits of the firm. We also proposed that this would not apply to the extent the amount is already: • deducted from the firm’s own funds as a loss for the current financial year • offset by new capital contributions from other partners or members where permitted under our rules, or • reflected in a reduction of the firm’s own funds permitted under articles 77 and 78 of the UK CRR, as applied by MIFIDPRU 3.6.1R 3.3 In CP21/26 we asked 1 question. Q4: Do you agree with our proposal to require excess drawings by partners or members (of partnerships and LLPs) to be deducted from CET1 capital, except where the amount is already required to be deducted or deemed repaid under other MIFIDPRU rules? If not, please explain your reasons for disagreeing. Feedback and responses 3.4 We received 6 responses to question 4. Three respondents agreed with our proposal with no further comment. Three respondents agreed with our proposal if our intention was to replicate for all FCA investment firms, the current requirements in GENPRU as applied to BIPRU firms. They also asked us to confirm that that was the intention. Our response We confirm that our intention is to achieve the same result for all FCA investment firms under the IFPR as required under the existing provision for BIPRU firms in GENPRU 2.2.100R. However, that wording cannot simply be copied across into MIFIDPRU as it needs to reflect the structure of MIFIDPRU 3 on own funds. We will implement our proposal as consulted on.

29 PS21/17 Chapter 4 Financial Conduct Authority Implementation of Investment Firms Prudential Regime 4 Technical Standards 4.1 In this chapter, we summarise the feedback we received about our proposals on how we intend to apply the onshored UK equivalents of EU‑derived Binding Technical Standards (BTS) under the IFPR. 4.2 In our proposals, we explained our approach to apply the technical standards for which the FCA is listed as a responsible regulator and that we have identified as relevant under the IFPR. We set out the list of relevant onshored BTS in Table 5 of CP21/26. Key proposals 4.3 For the list of onshored BTS that we identified as relevant under the IFPR, we proposed that our general approach would be to keep the BTS intact. But we would make certain changes through our MIFIDPRU rules that were necessary to disapply provisions that are not relevant under the IFPR. We also proposed to use this deeming approach to correct provisions so that the BTS operate in the way intended after the implementation of the IFPR. 4.4 We therefore proposed that in most cases FCA investment firms should apply the onshored BTS that are relevant under the IFPR with specific modifications. We explained that these modifications are reflected in the amendments to MIFIDPRU that cross‑refer back to the BTS. 4.5 We explained that in 2 cases we would depart from our general approach. These exceptions relate to the UK versions of: • Commission Delegated Regulation (EU) No 241/2014 regarding own fund requirements for institutions – CRR Own Funds BTS • Commission Delegated Regulation (EU) No 2016/101 regarding prudent valuation under Article 105(14) – CRR BTS on prudent valuation 4.6 For these 2 technical standards, we said that we would copy out the technical standards in full (with certain modifications) into Annex 7R and Annex 8R respectively in MIFIDPRU 3. This is because the number of modifications required would make these BTS difficult to read if we had used our general approach. 4.7 As a direct result of incorporating technical standards provisions that include application and notification requirements into MIFIDPRU, we proposed to introduce a generic MIFIDPRU application form and notification form. We discuss the feedback we received on this proposal in Chapter 9 of this PS. 4.8 We also proposed thatwewould make certain substantive amendments to MIFIDPRU 2.5 to clarify how the UK CRR minority interest provisions would work in the context of integrating Article 34a of the CRR Own Funds BTS.

30 PS21/17 Chapter 4 Financial Conduct Authority Implementation of Investment Firms Prudential Regime 4.9 In CP21/26 we asked 5 questions. Q5: Do you agree that we have correctly identified all the onshored BTS and technical standard provisions that are relevant under the IFPR? If not, please explain which other BTS or individual technical standards provisions should be incorporated into MIFIDPRU. Q6: Do you agree with our proposed changes to MIFIDPRU and the additional supplementary provisions in MIFIDPRU 3 Annex 7R that relate to the UK versions of CRR BTS related to own funds? If not, please explain what changes you would propose we make to ensure that the relevant technical standards provisions are operative under the IFPR. Q7: Do you agree with our proposal to remove the core approach to determine the additional valuation adjustments (AVAs) under the BTS for prudent valuation? If not, please explain any operational reasons why you would wish to retain the core approach as a method to determine the AVAs. Q8: Do you agree with our proposed changes to MIFIDPRU that relate to the UK versions of the CRR BTS related to market risk and other related BTS? If not, please explain what changes you would propose we make to ensure that the relevant technical standards provisions are operative under the IFPR. Q9: Do you have any other comments on the content of this chapter? Feedback and responses 4.10 We received 1 response to question 5, 4 responses to question 6, 1 response to question 7, 2 responses to question 8 and 1 response to question 9. All respondents expressed broad support for our proposals. Our approach to the proposed changes 4.11 We received 1 response to the question where we asked if we had correctly identified all the onshored BTS and technical standards provisions for which the FCA is listed as a responsible regulator and that we have identified as relevant under the IFPR. The respondent agreed with our proposals. 4.12 Respondents did not point to any additional onshored BTS, outside of those listed in Table 5 of CP21/26, that we should have considered for the purposes of IFPR implementation.

31 PS21/17 Chapter 4 Financial Conduct Authority Implementation of Investment Firms Prudential Regime 4.13 Across our 5 questions on the application of the onshored UK equivalents of EU‑derived technical standards under the IFPR, the responses we received all expressed broad agreement with our approach. Our response We welcome the support that we received regarding our overall approach to the application of the onshored UK equivalents of EU‑derived technical standards under the IFPR. Since the BTS operate for the purposes of the UK CRR, they will cease to apply under the IFPR unless they are specifically applied through our rules. We confirm that, subject to the specific exceptions below, we intend to apply the onshored BTS provisions that are relevant under the IFPR according to our general approach. This means that for the most part, FCA investment firms should apply the onshored BTS with certain modifications. These modifications are reflected in the amendments to MIFIDPRU that cross‑refer back to the corresponding BTS. There were 2 cases where we proposed to depart from our general approach, and these were with respect to the CRR Own Funds BTS and CRR BTS on prudent valuation. In these cases, we have copied out the technical standard provisions, with modifications, directly into MIFIDPRU. Because of the feedback we received in response to Question 8 of CP21/26, we will also apply this different approach to the FCA version of Commission Delegated Regulation (EU) No 2015/2197 regarding closely correlated currencies – 2015 CRR BTS on closely correlated currencies. In this case, we have copied out the technical standard provisions (with some modifications) directly into a new Annex 13R in MIFIDPRU 4. We further explained that only a CRD IV or CRR BTS that applies to FCA investment firms under MIFIDPRU or the IFPR remuneration rules will be relevant from 1 January 2022. As part of our future work, we will continue to consider whether the FCA version of any BTS that we have not applied by cross‑reference in MIFIDPRU should be repealed entirely or should be retained because it is potentially relevant to requirements under other legislation. Own funds associated BTS 4.14 In CP21/26, we asked for feedback on our proposed changes to MIFIDPRU and the additional supplementary provisions in MIFIDPRU 3 Annex 7R for the UK versions of CRR BTS related to own funds. We received 4 responses to this question. 4.15 All 4 respondents support our proposals. Respondents agreed with our proposals to copy out the CRR Own Funds BTS in MIFIDPRU 3 Annex 7R. Two respondents welcomed the additional guidance on the relevant technical standards that apply under the IFPR and the inclusion of specific BTS requirements in MIFIDPRU.

32 PS21/17 Chapter 4 Financial Conduct Authority Implementation of Investment Firms Prudential Regime Our response We confirm that we have copied out in full (with some modifications) the CRR Own funds BTS into MIFIDPRU 3 Annex 7R. We have included guidance provisions in MIFIDPRU 3 to tell firms this annex may be relevant when applying the IFPR rules on own funds. We have also included supplementary provisions in MIFIDPRU 3 Annex 7R that are relevant for some rules in MIFIDPRU 3 or UK CRR provisions that are currently cross applied in MIFIDPRU 3. As we explained in CP21/26, we have deleted some technical standards provisions from the CRR Own Funds BTS where they are no longer applicable or relevant under the IFPR. For example, we have removed all references that consider the maximum distributable amounts and buffers under the CRD as there is no equivalent under the IFPR. We confirm that we have removed provisions where the IFPR already addresses the same issue in a different way. For example, we have removed the provisions in the CRR Own Funds BTS that set out the methodology for calculating the fixed overheads requirement (FOR). We have equivalent rules for this purpose in MIFIDPRU 4.5. We confirm that we will make the substantive changes to MIFIDPRU 2.5 to clarify how the UK CRR minority provisions should work in the context of the CRR Own Funds BTS. In addition, we will include the minor clarifications to the UK version of Commission Delegated Regulation (EU) No 523/2014 for determining what constitutes the close correspondence between the value of an institution’s covered bonds and the value of the institution’s assets. Prudent valuation associated BTS 4.16 The CRR BTS on prudent valuation describes how institutions subject to the UK CRR should calculate additional valuation adjustments (AVAs). These need to be deducted from own funds under Article 34 of the UK CRR. In CP21/26, we asked for feedback about our proposal to remove the core approach to determine the AVAs under the CRR BTS for prudent valuation. 4.17 We received only 1 response to our question about the CRR BTS on prudent valuation and the respondent agreed with our proposals. We did not receive any objections to removing the core approach to determine the AVAs under this BTS. Our response We confirm that we will copy out the simplified approach for the calculation of AVAs from the CRR BTS on prudent valuation into MIFIDPRU 3 Annex 8R. This will help simplify calculations under IFPR. Accordingly, we will not carry across the core approach into MIFIDPRU 3 Annex 8R.

33 PS21/17 Chapter 4 Financial Conduct Authority Implementation of Investment Firms Prudential Regime Market risk associated BTS 4.18 In CP21/26, we explained our proposals to make minor changes to the CRR technical standards that relate to market risk. These changes relate to the FCA versions of the following onshored BTS: • Commission Delegated Regulation (EU) No 525/2014 regarding the definition of market in Article 341(3) of UK CRR • Commission Delegated Regulation (EU) No 528/2014 regarding the determination of the non‑delta risk of options in the standardised market risk approach • Commission Delegated Regulation (EU) No 529/2014 for assessing the materiality of extensions and changes to the Internal Ratings Based (IRB) Approach and the Advanced Measurement Approach (AMA) • Commission Delegated Regulation (EU) No 945/2014 regarding relevant appropriately diversified indices • Commission Delegated Regulation (EU) No 2015/2197 regarding closely correlated currencies 4.19 We received 2 responses to our question about the proposed changes to MIFIDPRU that relate to the UK versions of the CRR BTS on market risk. One respondent agreed with our proposals. The other respondent proposed that we make further changes in connection with the Commission Delegated Regulation (EU) No 2015/2197 regarding closely correlated currencies. 4.20 It is suggested that the UK version of the 2015 CRR BTS should be amended to update the list of closely correlated currencies to be in line with the EU amendments made by Commission Delegated Regulation (EU) No 2021/249 (2021 CRR BTS on closely correlated currencies), published on 17 February 2021. The respondent further proposed that this list could be updated by the FCA thereafter to account for changes in the foreign exchange (FX) market. 4.21 The reasons to make this change centre around the fact that the list of closely correlated currencies in the 2015 CRR BTS is outdated and so does not reflect the current state of the FX market. The respondent explained that the 2015 CRR BTS fails to consider recent events. For example, the UK’s departure from the EU. The respondent suggested these events have led to structural changes to the relationships between some of the closely correlated currency pairs. 4.22 The respondent explained that relying on outdated correlations would place FCA investment firms at a disadvantage compared to their EU‑regulated counterparts by compelling the former to hold capital against historically unlikely moves in the FX market. Moreover, the respondent explained that outdated correlations could harm markets by masking the true risk of less‑correlated currency pairs. Another consideration is that the 2015 CRR BTS on closely correlated currencies does not allow delta offsetting or smaller scenario approach stresses for currencies that have demonstrated strong correlations. 4.23 On a separate point, one respondent noted that one of the links in Table 5 of CP21/26, specifically the link for the onshored version of Commission Delegated Regulation (EU) No 527/2014 pointed to another onshored BTS in error. The link should point to the UK onshored version of Commission Delegated Regulation (EU) No 527/2014 regarding the non‑delta risk of options under the standardised approach for market risk.

34 PS21/17 Chapter 4 Financial Conduct Authority Implementation of Investment Firms Prudential Regime Our response We accept that the list of closely correlated currencies in Commission Delegated Regulation (EU) No 2015/2197 may not necessarily reflect the current state of the FX market. We acknowledge the feedback that points to the EU amendments that were made in Commission Delegated Regulation (EU) No 2021/249 to update the list of closely correlated currencies. However, we would also point to the previous update to the list of closely correlated currencies – via the UK onshored version of Commission Delegated Regulation (EU) No 2019/2091 – 2019 CRR BTS on closely correlated currencies. We accept that there is a sound justification to review and, where necessary, update the list to more accurately reflect the current relationships that exist between currency pairs. We do however have concerns around the timing of the previous assessments and note that the updated lists exclude Sterling currency pairs altogether. We appreciate that based on the EBA quantitative criteria and the time window used, Sterling may not have been closely correlated with other currencies. However, an assessment should be undertaken to determine whether Sterling has recently become closely correlated with other currencies. We also need to be consistent with the treatment adopted by the PRA under the UK CRR for the list of closely correlated currencies. We believe that until an assessment can be carried out and pending any future work that may be carried out by the PRA, it is more appropriate to retain the list of correlated currencies as set out in the FCA version of Commission Delegated Regulation (EU) No 2015/2197. Because of the feedback we received and to enable future updates to the list of closely correlated currencies, we will depart from the general approach regarding the CRR BTS on closely correlated currencies. We have copied out the technical standard provisions in the 2015 CRR BTS on closely correlated currencies (with some modifications) directly into Annex 13R in MIFIDPRU 4. But we have not updated the list of closely correlated currencies to be in line with either the UK onshored version of Commission Delegated Regulation (EU) No 2019/2091 or the non‑onshored version of Commission Delegated Regulation (EU) No 2021/249. As part of our future work, we will consider how we update the list of closely correlated currencies to ensure that our treatment is consistent with the treatment adopted by the PRA under the UK CRR. We may also consider whether the FCA version of this BTS on closely correlated currencies should be repealed entirely or should be retained. We confirm that the existing approach to calculating market risk under the UK CRR will continue to apply when calculating the K‑NPR requirement under IFPR. This coincides with our approach of ’freezing’ the current market risk rules as at 31 December 2021 – this is subject to our longer‑term work on reviewing our approach to market risk.

35 PS21/17 Chapter 4 Financial Conduct Authority Implementation of Investment Firms Prudential Regime Since we published CP21/26, we have identified that the UK onshored version of Commission Delegated Regulation (EU) No 2016/1799 regarding External Credit Assessment Institutions (ECAI) mappings for credit risk under Article 136(1) and 136(3) of UK CRR may also be relevant when determining the market risk of some positions. An example would be where a firm is calculating the specific risk of a non‑securitisation debt instrument under article 336 of the UK CRR. In that case, the firm may need to refer to the credit risk weighting that would have applied under the UK CRR Standardised Approach to credit risk. As MIFIDPRU does not carry forward the UK CRR approach to credit risk, the FCA version of this technical standard will become redundant from 1 January 2022 and we do not consider that it would be proportionate to cross‑apply and maintain it for these limited purposes. This would also be the case for the FCA version of Commission Delegated Regulation (EU) No 2016/1801 on ECAI mappings for securitisation. For the purposes of our market risk rules under the IFPR, we would therefore expect FCA investment firms to refer to the PRA version of the onshored CRR BTS 2016/1799, as updated from time to time to reflect any change in the associated mappings. We have added a new provision in MIFIDPRU 4.12.2BR, and associated guidance in MIFIDPRU 4.12.2CG, to explain this. Other related BTS 4.24 In CP21/26, we explained our proposals to make some minor changes to the technical standards that supplement the supervision of financial conglomerates in UK FICOD. As part of Question 8 of CP21/26, we asked for feedback on these proposed changes. 4.25 In response to Question 8 of CP21/26, one respondent indicated their agreement with our proposals. Our response We confirm that we will proceed to make the minor changes to the technical standards that supplement the supervision of financial conglomerates in UK FICOD. This is in line with our explanation in Chapter 8 of CP21/26 on the consequential changes to the Handbook, which is consistent with our amendments to GENPRU 3. 4.26 In Question 9 of CP21/26, we asked for any other comments on the contents of the Technical Standards chapter in CP21/26. We received one response to this question, which indicated that they had no other comments. Our response We are grateful for the broad support that we have received in connection with our approach to apply the relevant technical standards.

36 PS21/17 Chapter 5 Financial Conduct Authority Implementation of Investment Firms Prudential Regime 5 Depositaries 5.1 In this chapter, we summarise the feedback to our proposed capital requirements for FCA investment firms that have a Part 4A permission to act as a depositary for various types of investment fund. Key proposals 5.2 In CP21/26, we proposed to remove the requirement for an FCA investment firm that is a depositary to have a dealing on own account permission. This will allow more FCA investment firms to apply for Part 4A permission to act as a depositary as long as they also provide the MiFID ancillary service of safe‑keeping and administration of financial instruments. 5.3 We proposed to maintain the minimum own funds requirement for an FCA investment firm that has been appointed to act as a depositary of a UCITS scheme or an authorised AIF at £4 million. We then proposed to move this requirement from the Investment Funds sourcebook (FUND) and Collective Investment Schemes sourcebook (COLL) into MIFIDPRU. There it would become an alternative permanent minimum requirement (PMR) under the IFPR in MIFIDPRU 4.4.6R. 5.4 We proposed to increase the minimum own funds requirement for an FCA investment firm that has been appointed to act as a depositary of an unauthorised AIF from EUR 730,000 to £750,000. This would then become its PMR under the IFPR in MIFIDPRU 4.4.1R. 5.5 We proposed to no longer require depositaries that are MIFIDPRU investment firms to comply with the operational risk requirements calculated in accordance with articles 315 or 317 of the UK CRR and to delete COLL 6.6A.8R(3)(a)(i). Instead we proposed they should consider the potential for harm arising from their depositary activities as part of their ICARA process under MIFIDPRU 7 and to add a new example to MIFIDPRU 7.6.8G to reflect that. 5.6 We proposed that a firm may have regard to the general methodology for calculating K‑CMHand K‑ASA requirements when carrying outthe assessmentin MIFIDPRU 7.6.3R for its activities as a depositary. 5.7 We proposed that an FCA investment firm that has been appointed to act as a depositary cannot be an SNI firm. The exception would be where it only acted as a depositary under the ‘private equity’ depositary derogation in FUND 3.11.12R to 3.11.15G. 5.8 Both MiFID and non‑MiFID firms will continue to be able to act as depositaries under the ‘private equity’ depositary derogation in FUND 3.11.12R to 3.11.15G. But we proposed to clarify that where a depositary falls within the ‘private equity’ depositary derogation and it is also a MIFIDPRU investment firm, then it will also be subject to the prudential requirements of MIFIDPRU.

37 PS21/17 Chapter 5 Financial Conduct Authority Implementation of Investment Firms Prudential Regime 5.9 In CP21/26 we asked 1 question. Q10: Do you agree with our proposals for FCA investment firms that act as depositaries for funds? If not, how could we change them. Feedback and responses 5.10 We received 4 responses to question 10. One respondent agreed with our proposals. Another did not agree that an FCA investment firm that was also a depositary should not be allowed to be eligible as an SNI. 5.11 Two respondents welcomed removing the requirement to have the MiFID permission of dealing on own account as this would lower barriers to entry, increase competition and ultimately benefit investors. They did not agree that a firm should have to have permission to do one of the MiFID services and activities to which the service of safe‑keeping and administration of financial instruments would be a MiFID ancillary service. One suggested that an alternative approach should be used where acting as a depositary was not dependent on MiFID eligibility requirements. The other suggested the eligibility criteria should be driven by prudential standards and not by the activities carried out. They thought we should use this opportunity to create an effective prudential regime for depositaries that did not require them to undertake MiFID activities but still met the policy intention of the Alternative Investment Fund Managers Directive (AIFMD). 5.12 Two respondents asked for additional guidance on how depositary firms should carry out the assessment required for their ICARA process. One of these preferred that the proposal to have regard to the general methodology for calculating the K‑CMH and K‑ASA requirements could be removed. 5.13 One respondent asked if custody balances should be included in K‑ASA when the firm is only acting as a depositary and if delegation would have any impact. They also asked us to clarify if both MiFID Annex I sections A (investment services and activities) and B (ancillary services) are included under MiFID business. And specifically, if collective investment scheme custody assets should be included in the K‑ASA requirement. They also asked if that made the rules ambiguous. 5.14 One respondent suggested that the requirements for depositaries should be moved into IPRU(INV) and be cross‑referenced from MIFIDPRU for MiFID investment firms that are also depositaries. 5.15 One respondent asked us to clarify if IFPRU was being deleted in its entirety as there had been amendments to IFPRU that would affect UCITS depositaries in CP21/7. Our response We believe that when an FCA investment firm operates as a depositary the very nature of that activity makes it interconnected, with fund management firms and their underlying clients. Further, the safeguarding of client assets is an important function that also requires treatment as

38 PS21/17 Chapter 5 Financial Conduct Authority Implementation of Investment Firms Prudential Regime a non‑SNI firm under MIFIDPRU. So we will implement our proposal that acting as a depositary makes a MiFID investment firm a non‑SNI firm under MIFIDPRU. The IFPR is concerned with the prudential‑related requirements for FCA investment firms. We have tried to keep the changes to other policy areas to a minimum, only making the changes necessary to ensure that other parts of the Handbook work properly once the IFPR is implemented. We are therefore not proposing to fundamentally rework the regulatory regime for depositaries, which will continue to reflect the position under the UK implementation of AIFMD and the UCITS Directive. Further, we believe that the requirement for a depositary of a UK alternative investment fund (UK AIF) to be a MiFID investment firm (where it is not a credit institution) provides an important set of prudential protections under MIFIDPRU, where it applies. For example, it ensures that senior management of firms should consider the potential for harm arising from the operation of their depositary activities and adopt mitigating actions through the ICARA process (as set out in MIFIDPRU 7). Requiring a MiFID investment firm that is a depositary of a UK AIF to undertake the MiFID ancillary service of safekeeping and administration reflects the position under the UK implementation of AIFMD. As noted above, IFPR is concerned with prudential‑related requirements for FCA investment firms. It is not our intention to use it to address other, potentially more fundamental, changes to other policy areas, or to design a bespoke prudential regime just for depositaries. This is something that we may consider revisiting in the future. As explained in paragraph 6.8 of CP21/26, and above, we will expect an FCA investment firm to consider the potential for harm arising from depositary activity as part of its ICARA process. And in MIFIDPRU 7.6.8G (6) we set out that a firm may have regard to the general methodology for calculating the K‑CMH (client money held) requirement and the K‑ASA (assets safeguarded and administered) requirement when assessing its activities as a depositary. The K‑CMH and K‑ASA requirements set out under MIFIDPRU 4 only apply to MiFID investment business. However, we believe that a similar approach to quantifying the potential for harm– and possibly the need for additional own funds as a mitigant – could be helpful to firms when assessing harm from non‑MiFID activity that also involves holding client money or safeguarding assets. As this provision is only guidance, a depositary firm may wish to vary the approach. For example, to change the calculation of the average CMH or ASA or to use different percentages (from those in MIFIDPRU 4), to take account of any factors specific to depositary business. Or it may wish to develop its own approach to carrying out the assessment in MIFIDPRU 7.6.3R for its activities as a depositary. It is ultimately for senior management of the firm to be able to evidence and justify how they have conducted their assessment. We may then consider whether a firm’s assessment is reasonable as part of our ongoing supervisory work.

39 PS21/17 Chapter 5 Financial Conduct Authority Implementation of Investment Firms Prudential Regime We confirm that MiFID business involves the carrying on of investment services and activities in relation to financial instruments, as well as the carrying on of ancillary services where connected to the above investment services and activities. Please refer to PERG 13 for further details on how to interpret MiFID services and activities. Refer also to Q43 on the exemption that covers depositaries when providing services in their capacity as a depositary. Under MIFIDPRU 4 the requirement to calculate K‑ASA only applies to MiFID investment business. When a depositary carries on activity in its capacity as a depositary of funds, this is exempt from MiFID (see Q43 in PERG 13). So the requirement to calculate K‑ASA does not extend to assets safeguarded in respect of fund depositary business, as this is not MiFID business. However, a MiFID investment firm that is also a depositary will be required to apply K‑ASA to assets safeguarded in respect of its (non‑depositary) MiFID business. The definition of assets safeguarded and administered in our Glossary already makes clear that this is ‘the value of assets, as calculated in accordance with the rules in MIFIDPRU 4.9 (K‑ASA requirement), belonging to a client that a firm holds in the course of MiFID business’. As noted above, any non‑MiFID business (including depositary business) must still be considered as part of the firm’s ICARA process. If a set of requirements spans 2 or more of our sourcebooks some cross‑referencing is likely to be necessary. However, we have sought to simplify the existing patchwork of rules without fundamentally overhauling existing parts of the Handbook. As a result, we have generally chosen to put the prudential requirements for MiFID investment firms that are also depositaries in one place – MIFIDPRU. Whereas IPRU(INV) 5 will continue to contain the prudential requirements for depositaries that are not FCA investment firms, where this is permitted. This has the benefit of allowing FCA investment firms to submit a single set of prudential reporting forms under MIFIDPRU, which include where its permanent minimum requirement may be £4 million. This is also aligned with our longer‑term objective of developing a single prudential sourcebook, to the maximum extent possible. We confirm that IFPRU is being deleted in its entirety. However, the change that we included in CP21/7 relevant to non‑MiFID UCITS depositaries was to the reference to IFPRU in 5.4.8R in Chapter 5 of IPRU(INV). This requires that a firm which is the depositary of a UCITS scheme must continue to comply with the rules in IFPRU 2 as they applied on the day before IFPR is implemented. That is we freeze in time the cross‑reference to IFPRU to the version which will exist on 31 December 2021 (but not thereafter). Therefore, deleting IFPRU on 1 January 2022 will not affect the application of the relevant IFPRU material by UCITS depositaries.

40 PS21/17 Chapter 6 Financial Conduct Authority Implementation of Investment Firms Prudential Regime 6 Our approach to the UK resolution regime 6.1 In this chapter we summarise the feedback to our proposals for amendments to our rules following the Treasury’s decision, in June 2021, to remove FCA solo regulated investment firms with an initial capital requirement of €730,000 from the scope of the UK resolution regime. The UK resolution regime, contained within the Banking Act 2009 (Banking Act), was used to implement the Bank Recovery and Resolution Directive (BRRD). Our proposals 6.2 We proposed deleting IFPRU 11, which implemented certain Banking Act requirements (such as recovery and resolution plans, intragroup financial support and contractual recognition of bail‑in obligations) for FCA 730k investment firms. We also proposed to make consequential amendments to ensure that our rules elsewhere in the Handbook (e.g. SUP 16) are consistent with the updated regulatory landscape. 6.3 FCA 730k investment firms will still be subject to our existing rules, legislation and processes to facilitate their orderly wind‑down, the Investment Bank Special Administration Regime (IBSAR), and the new IFPR rules following its introduction. 6.4 We asked 1 question in CP21/26: Q11: Do you agree with the proposed amendments to our rules that reflect the removal of FCA investment firms from the scope of the UK resolution regime? Feedback and our response 6.5 We received 5 responses, all of which expressed support for our proposals. 6.6 One respondent asked us to confirm the timeline for the amendments. Another respondent asked us to confirm that obligations from the Banking Act would no longer apply to their firm. Our response We expect all these changes to take effect on 1 January 2022 at the same time as the IFPR commences. The government intends to deliver the legislation that descopes FCA investment firms from the UK resolution regime from 1 January 2022. We can confirm that FCA 730k investment firms will no longer be subject to the UK resolution regime (which implemented the Banking Act,

41 PS21/17 Chapter 6 Financial Conduct Authority Implementation of Investment Firms Prudential Regime including obligations such as contractual recognition of bail‑in) once these changes have taken effect. However, as part of the IFPR, our rules in MIFIDPRU 7 include a requirement for all FCA investment firms to consider recovery planning as an integrated feature of their risk management, as part of their ICARA process. Our rules for the ICARA process also require all FCA investment firms to undertake wind‑down planning, set out at entity‑level, including timelines for when and how to execute these plans. (Please see Chapter 7 of CP21/7 and MIFIDPRU 7.5 for details). Our expectations for wind‑down planning for FCA investment firms reflect our existing ‘Wind‑Down Planning Guide and Finalised Guidance (March 2021) and our position on the link between wind‑down planning and adequate financial resources in our Finalised Guidance 20/1 ‘Our framework: assessing adequate financial resources’ (June 2020).

42 PS21/17 Chapter 7 Financial Conduct Authority Implementation of Investment Firms Prudential Regime 7 Consequential changes to the Handbook 7.1 In this chapter, we summarise the feedback to the consequential changes we proposed to make to various Handbook modules and our Handbook Glossary as a result of implementing the IFPR. 7.2 The affected modules were: • SYSC – Senior Management Arrangements, Systems and Controls • COCON – Code of Conduct • GEN – General Provisions • FEES – Fees Manual • MAR – Market Conduct • SUP – Supervision • CONC – Consumer Credit sourcebook • RCB – Regulated Covered Bonds • EMPS – Energy Market Participants • OMPS – Oil Market Participants • PERG – Perimeter Guidance Manual • WDPG – The Wind‑down Planning Guide 7.3 We also proposed some consequential amendments to GENPRU 3 – Cross‑sector groups. Key proposals 7.4 In CP21/26, we explained the overall approach we were taking to amending other modules of the Handbook. We proposed to only make consequential amendments that would be needed to: • delete provisions that are no longer required • ensure that interactions between existing provisions and MIFIDPRU work in practice 7.5 We proposed updating cross‑references so that they refer to MIFIDPRU or SYSC 19G, rather than to deleted modules. Where this was not possible, we proposed to either copy out the underlying material being cross‑referred to or to fix the cross‑reference in time to the version of the provision that is in force the day before the IFPR is implemented. 7.6 We asked 2 questions in CP21/6. Q12: Do you agree with our proposals for consequential changes to the non‑prudential modules covered in this consultation? If not, please state which specific provisions and provide reasons why you disagree.

43 PS21/17 Chapter 7 Financial Conduct Authority Implementation of Investment Firms Prudential Regime Q13: Have you identified any other cross‑references where a further consequential amendment could be needed to ensure the relevant provision still operates once the IFPR is implemented? If so, please provide details. 7.7 We received 4 responses to question 12. Two respondents agreed with the proposals. One of these asked for a mapping from the existing rules to the new rules. One respondent thought that we should review the thresholds for defining which firms are what will become ‘significant SYSC firms’, given these thresholds have remained the same since 2014 when the term ‘significant IFPRU firm’ was introduced. One respondent welcomed the clarification that being a ‘significant SYSC firm’ would not be relevant for determining whether an FCA investment firm would need to establish risk, remuneration and nomination committees. 7.8 We had 2 responses to question 13. Both said that they had not identified any further cross‑references that needed amending. Our response We will proceed with making the consequential amendments as proposed, subject to the changes stated in this section. We do not propose to map the existing rules to the new rules. For the most part the relevant provisions are not moving, and we are simply updating the cross‑references so that the rules still work as intended once MIFIDPRU is introduced. The extent to which an FCA investment firm will need to refer to the relevant parts of other modules in our Handbook that have had consequential amendments will vary depending on what business they do. Reviewing the thresholds for becoming a significant SYSC firm would go beyond what is necessary to introduce the IFPR. So it was beyond the scope of our consultation on consequential changes in CP21/26. In addition to the changes to GENPRU outlined in CP21/26 we are deleting GENPRU 3.1.8R (1A). The definition of investment firm in Article 4(2) of the UK CRR and the definition of investment services sector in the FCA Handbook are now the same. This will simplify the rules for using the financial conglomerate definition decision tree. We have made a minor correction to our proposal for an amended definition of ‘ancillary services undertaking’ in our Handbook Glossary. The definition now ends with ‘… which is ancillary to the principal activity of one or more investment firms’, and not ‘… one or more ‘institutions’’ as was proposed in CP21/26. This simply reflects the fact that IFPR concerns investment firms (and no longer needs to refer to institutions as defined under the UK CRR). We would also like to clarify that, contrary to our original proposed approach in CP21/26, MiFID investment firms who deal as principal, and currently meet the definitions of an energy market participant (EMP), or an oil market participant (OMP), will remain in the A.13 activity group

44 PS21/17 Chapter 7 Financial Conduct Authority Implementation of Investment Firms Prudential Regime for periodic fees. This will continue until we have determined a suitable metric to replace the number of traders currently used by firms in the A.10 activity group. We have amended FEES 4 Annex 1A to this effect. We will publish, for discussion, some changes we are considering in our approach to periodic fees for firms affected by the IFPR in this year’s Fees CP. Detailed proposals will follow in a future Fees consultation.

45 PS21/17 Chapter 8 Financial Conduct Authority Implementation of Investment Firms Prudential Regime 8 Our approach to Enforcement 8.1 In this chapter, we summarise the feedback we received to our approach to the enforcement of the IFPR. This covered the requirements set out in the new Part 9C of FSMA as well as the rules made to implement the IFPR. 8.2 In CP21/26 we said that our enforcement approach is set out in 3 key documents, our Approach to Enforcement, our Enforcement Guide (EG) and our Decision Procedure and Penalties Manual (DEPP). Key proposals 8.3 We proposed to apply our existing approach to investigations and imposition of sanctions to any breaches of the IFPR. 8.4 We also proposed making minor amendments to DEPP and EG to reflect the additional powers the 2021 FS Act has given us. These enable us to investigate and impose disciplinary sanctions on non‑authorised parent undertakings and persons knowingly concerned in a breach by the parent undertaking. Sanctions include requirements, prohibitions and financial penalties. 8.5 We asked 2 questions in CP21/26. Q14: Do you have any comments on our proposed approach to sanctions? Q15: Do you agree with our proposal to apply the same approach to investigations and sanctions to non‑authorised parent undertakings and persons knowingly concerned in such contraventions? 8.6 One respondent answered both questions 14 and 15. We did not receive any other responses to these 2 questions. The respondent asked us to clarify the scope of DEPP and EG to non‑authorised parent undertakings. They thought that the amendment to DEPP 6A.1.4G widened the scope more than was set out in MIFIDPRU 2.7.4G and that it would allow us to sanction non‑authorised parent undertakings for contravening ‘FCA Rules’. 8.7 The respondent otherwise agreed with our proposals. Our response For the avoidance of doubt, it was not intended to extend a more general application of FCA Rules, but to capture the application of the IFPR as implemented through the FCA’s Handbook.

46 PS21/17 Chapter 9 Financial Conduct Authority Implementation of Investment Firms Prudential Regime 9 Applications and notifications 9.1 In this chapter we summarise the feedback to our proposals to: • introduce a formal investment firm group notification requirement and the associated form • introduce generic MIFIDPRU application and notification forms. Key proposals 9.2 We proposed that FCA investment firms should notify us, as soon as they become aware, that an investment firm group has been formed or that the composition of an existing investment firm group has changed. We proposed that FCA investment firms use the same form to notify us if they become part of, or cease to be part of, a financial conglomerate. 9.3 We also proposed to introduce generic MIFIDPRU application and notification forms to enable firms to submit applications and notifications that do not have bespoke forms. This is to accommodate any requirements that arise from incorporating various technical standards provisions into MIFIDPRU. 9.4 In CP21/26 we asked 3 questions. Q16: Do you agree with our proposal to require FCA investment firms and UK parent entities to submit a formal investment firm group notification to the FCA? Do you have any feedback on the notification form we have created for that purpose? Q17: Do you agree with our proposal to introduce a generic MIFIDPRU application and notification form? Do you have any feedback on the forms? Q18: Q18 Do you have any other comments on the content of this chapter? Feedback and responses 9.5 We received 4 responses to question 16 and 17 from the same respondents, and no responses to question 18. 9.6 All 4 respondents were generally supportive of our proposals to require FCA investment firms to submit a formal investment firm group notification if an investment firm group has been formed or changed. While none of the respondents offered any feedback on the form itself, 1 respondent requested that we clarify

47 PS21/17 Chapter 9 Financial Conduct Authority Implementation of Investment Firms Prudential Regime whether this requirement would apply to investment firm groups that are already in existence when the regime goes live. 9.7 The 4 respondents were also supportive of our proposal to introduce generic MIFIDPRU application and notification forms. They welcomed the introduction of these forms as a temporary measure to enable firms to apply for permission or submit notifications under MIFIDPRU where bespoke forms have not yet been developed. Our response In CP21/26 we proposed that an FCA investment firm who becomes part of an investment firm group, or whose existing investment group changes, must notify us of that fact using the bespoke Connect form that has been created for that purpose. We explained that firms do not need to submit this notification form if they have notified us of their group membership, or a change in such membership, as part of the MiFID authorisation process, or where they apply to cancel their Part 4a permission. We also explained that existing FCA investment firms are not required to submit an investment firm group notification form if they have provided the necessary group information as part of the IFPR set‑up questionnaire which all firms subject to MiFID should have now received. The questionnaire asks for various key information, including group information. This will enable us to set up existing FCA investment firms and their groups on our systems under the new regime. From 1 January 2022, FCA investment firms will need to submit the group notification form on Connect in all other instances if an investment firm group is created, changed or ended. This includes if this happens as a result of a change in control within the group for which the firm has sought, or has already obtained, our approval as part of a Section 178 notice. The exception is if another FCA investment firm in the same investment firm group has submitted a notification following a change and has provided the necessary information covering the whole investment firm group. In that case, other FCA investment firms in the same investment firm group are not required to provide duplicative notifications. We confirm that we will proceed with our original proposals for the investment firm groups’ notification and the use of the generic application and notification forms. We are also taking this opportunity to make some further administrative updates to certain application and notification forms as part of finalising the overall IFPR framework, including the forms contained in CP21/26. These changes are to clarify the information we require from firms and to ensure that the forms work efficiently within our internal systems. Our IFPR webpage contains practical information for firms and further guidance on what we expect of them ahead of the new regime

48 PS21/17 Chapter 9 Financial Conduct Authority Implementation of Investment Firms Prudential Regime taking effect. It contains details of all the MIFIDPRU application and notification forms. We will continue to update this webpage so it remains useful and relevant as the implementation of the new regime progresses.

49 PS21/17 Chapter 10 Financial Conduct Authority Implementation of Investment Firms Prudential Regime 10 Explanation of how we meet our obligations under section 143H (2) of the Financial Services and Markets Act when making Part 9C prudential rules 10.1 The purpose of this chapter is to explain how we meet our obligations under Section 143H (2) of the Financial Services and Markets Act FSMA. This requires that we provide a summary of the purpose of our new rules that implement the IFPR, an explanation of how we have considered specified risks, and an explanation of how having regard to specified matters has affected the rules we have made. 10.2 The Financial Services Act 2021, which received Royal Assent in April 2021, amended FSMA to impose additional duties, new ‘have regards to’ considerations and public accountability requirements. We must comply with these obligations in our rulemaking for IFPR from April 2021. These requirements are set out in Part 9C of FSMA. 10.3 Part 9C of FSMA placed a duty on us to make rules to impose prudential requirements on FCA investment firms. Under section 143C (2) of FSMA we were required to address the risks to: • consumers arising from FCA investment firms • the integrity of the UK financial system arising from FCA investment firms • which FCA investment firms are exposed. 10.4 Part 9C of FSMA also placed a duty on us to make rules to impose prudential requirements on authorised parent undertakings of FCA investment firms. Section 143D (2) of FSMA placed a duty on us to address the risks to: • consumers arising from FCA investment firms, from parent undertakings of FCA investment firms and from FCA investment firms belonging to groups • the integrity of the UK financial system arising from FCA investment firms, from parent undertakings of FCA investment firms and from FCA investment firms belonging to groups • the risks to which FCA investment firms are exposed by virtue of their relationship with their parent undertaking. 10.5 Section 143G (1) of FSMA requires us, when making or amending these Part 9C rules, to have regard to: • any relevant standards set by an international body • the likely effect on the relative standing of the UK as a place for internationally active investment firms to be based or to carry on activities • the target in section 1 of the Climate Change Act 2008 (carbon target for 2050), although this does not apply to rules made on or before 1 January 2022. 10.6 These considerations are in addition to our existing statutory objectives, our duty to have regard to the regulatory principles in FSMA, and to the importance of taking action to minimise the extent to which it is possible for a business to be used for a

50 PS21/17 Chapter 10 Financial Conduct Authority Implementation of Investment Firms Prudential Regime purpose connected with financial crime. These existing obligations were addressed in our three consultation papers, CP20/24, CP21/7 and CP21/26. Where we explained how our consultation proposals were consistent with our duties under FSMA. And how we believed they were consistent with the duties we expected to have once the FS Act received Royal Assent, which took place by the time our third CP had been published. We also explained how we had regards to the FCA principles of good regulation when drafting our proposed rules. Summary of the purpose of our new rules 10.7 This section summarises, by topic, the purpose of the new rules that were included in our policy publications for IFPR. We have only covered rules that we believe to be made under Part 9C of FSMA, but not those that have been made under our general FSMA rule‑making powers outside the Part 9C framework (for example, consequential changes to sourcebooks other than MIFIDPRU). We have not relied on our new Part 9C powers to delete the relevant Handbook rules associated with the UK resolution regime, or in making the small updates to the requirements for depositaries. This chapter therefore does not cover those areas. 10.8 Further details and explanations of the areas covered below can be found in Chapter 9 of CP20/24, Chapter 16 of CP21/7 and Chapter 11 of CP21/26. Categorisation of investment firms (MIFIDPRU 1) 10.9 We have introduced two broad categories of FCA investment firms (i.e. small and non‑interconnected (SNI) firms and non‑SNI firms). These will replace the large range of complex prudential categories that can apply to these firms today. The purpose of this change is to simplify the categories of investment firms for the purpose of the prudential rules. Clearly delineating firms that pose a wider risk of harm to markets and clients because of their size and connected nature, will allow us to focus our supervision accordingly. In general, a firm is eligible to be an SNI if it does not exceed any of a series of thresholds. We have tailored some requirements under our new rules according to whether a firm is SNI or non‑SNI, ensuring that our rules are proportionate. Prudential consolidation and the group capital test (MIFIDPRU 2) 10.10 We are applying prudential consolidation to investment firm groups. This is to identify and help mitigate the potential for harm that can impact an FCA investment firm where it is a member of such a group. Prudential consolidation treats the UK parent, along with all of the relevant entities within the investment firm group, as if it were a single FCA investment firm. And applies some of the same provisions (eg own funds requirements), suitably adjusted, as would apply to an FCA investment firm on an individual basis under IFPR. 10.11 Where certain specified conditions are met, we may instead grant permission to a group to use the alternative of a group capital test. The group capital test will ensure that UK parent entities hold appropriate amounts of capital to support their investments in subsidiaries, preventing harm from excessive leverage and gearing within group structures, while also being operationally simpler for many groups.

51 PS21/17 Chapter 10 Financial Conduct Authority Implementation of Investment Firms Prudential Regime Own funds – definition and composition of capital (MIFIDPRU 3) 10.12 We have required that to be eligible for regulatory purposes, the capital or ‘own funds’ held by FCA investment firms should be made up solely of common equity tier 1 capital (CET1), additional tier 1 capital and tier 2 capital items, with a majority to be in CET1. This will ensure consistency of the quality of loss absorbent capital across the investment firm population. This will improve the financial resilience of the investment firm industry. Own funds requirements (MIFIDPRU 4) 10.13 Our capital requirements set a permanent minimum requirement as one of the floors below which a firm’s own funds must not fall. This will ensure that all FCA investment firms must maintain at least a minimum level of financial resources to be authorised to provide MiFID investment services and activities. 10.14 All FCA investment firms must also hold sufficient capital to meet a fixed overheads requirement (FOR). The FOR improves firm stability as firms’ capital requirements will take into account the typical expenditure required to operate their businesses. This also means that we can ensure investment firms have the minimum levels of capital that would be required to facilitate an orderly wind‑down of their business or to exit the market if this becomes necessary. This reduces the harm of disruption to consumers that might otherwise result from disorderly firm failures or market exits. 10.15 We have also introduced a new approach to calculating capital requirements for non‑SNI firms, by using a ‘K‑factor’ methodology that covers their key investment services and activities. Some of these K‑factors produce scalable capital requirements that are calibrated according to the type of activity to which they relate and the extent to which a firm undertakes that activity. They cover: • assets under management, under both discretionary portfolio management and non‑discretionary advisory arrangements of an ongoing nature (K‑AUM) • client money held (K‑CMH) • assets safeguarded and administered (K‑ASA) • client orders handled (K‑COH) • daily trading flow (K‑DTF) 10.16 By linking the capital requirements of firms to the types and volumes of business undertaken, we are helping to ensure that firms have adequate financial resources to address potential harm to consumers and to markets which might be adversely affected by the firm’s activities. 10.17 While some other K‑factors address specific exposure risks for firms that deal on own account (eg market risk) and so support enhanced stability and market integrity. They cover: • trading counterparty default (K‑TCD) • net position risk (K‑NPR) • clearing margin given (K‑CMG) 10.18 Together, the combination of these own funds requirements are designed to cater for all different types of investment firm business model and protect consumers and provide stability to UK markets.

52 PS21/17 Chapter 10 Financial Conduct Authority Implementation of Investment Firms Prudential Regime Concentration risk monitoring (MIFIDPRU 5) 10.19 We have introduced monitoring requirements for general concentration risk that will apply to all FCA investment firms. We also set out rules on the maximum levels of concentration risk permitted for trading book exposures, and include a further K‑factor (K‑CON) to provide for more capital to be held against concentrated trading book exposures before they reach the maximum level allowed. These requirements are designed to ensure that firms adequately diversify the risks to which they are exposed and do not contribute to the build‑up of systemic contagion risks, improving the stability of the UK financial market. Basic liquidity asset requirement (MIFIDPRU 6) 10.20 We have required that all investment firms have a basic liquid asset requirement. These requirements are designed to ensure that all FCA investment firms have a minimum stock of core liquid assets that are available if required to fund the initial process of a wind‑down. This should help us to address the potential harm to consumers and the UK financial system more widely by reducing the risk of and harm from disorderly firm failures. Risk management (MIFIDPRU 7) 10.21 We have introduced an individual capital and risk assessment (ICARA) process for all FCA investment firms. The requirements ensure firms consider the potential for harm they could cause to consumers and markets, including risks to firms’ ability to engage in an orderly wind‑down, as well as those from their ongoing activities. This is not restricted to MiFID activity but should cover the entirety of a firm’s business. Our ICARA rules then require firms to mitigate the potential for harm identified, for example through governance and risk management actions. And, where appropriate, to hold additional capital and liquid assets to protect against any residual risk. The ICARA process will establish what is an adequate level of overall financial resources for an individual FCA investment firm, which should help us to fulfil our duty to mitigate the risk of harm to consumers, markets and investment firms. Governance (MIFIDPRU 7) 10.22 Effective internal governance arrangements help a firm to achieve its strategic objectives while also ensuring that risks to the firm, its stakeholders and the wider market are effectively identified, managed and mitigated. So the IFPR sets out high‑level requirements for all FCA investment firms to have robust internal governance arrangements. This will allow each firm to develop and maintain internal governance and controls appropriate to its legal and ownership structure, business model, the activities it carries out, and the risks the firm is exposed to or might pose to others. In addition, we will require the largest non‑SNI firms (ie those above certain thresholds) to establish risk, remuneration and nomination committees. MIFIDPRU Remuneration Code (SYSC 19G) 10.23 We have created a single remuneration code for all FCA investment firms. And require them all to have clearly documented remuneration policies and practices that meet minimum standards, for example to make a clear distinction between the criteria applied to determine fixed and variable remuneration. We also apply additional remuneration rules to non‑SNI firms according to their size and complexity, reflecting the principle of proportionality. Our remuneration requirements are designed to

53 PS21/17 Chapter 10 Financial Conduct Authority Implementation of Investment Firms Prudential Regime promote healthy cultures in the long‑term interests of firms and their customers, and to help us prevent behaviour that could lead to harm to customers and markets. Disclosure (MIFIDPRU 8 rules) 10.24 We have introduced disclosure requirements around firm governance, risk management, own funds and investment policies. This enables customers and market counterparties to make informed decisions, helping to facilitate better outcomes for consumers and markets, and increased competition. Disclosures by investment firms must be readily available and understandable to create transparent markets. Public disclosures are a core part of market discipline, providing important information and transparency to participants to enable markets to work well. Reporting requirements (MIFIDPRU 9) 10.25 We have updated our reporting requirements and removed some current obligations that will no longer be applicable. Our new reporting requirements are designed to reduce the burden of reporting and to ensure that we have the information we require to effectively supervise FCA investment firms. This should ensure that firms provide more relevant and accurate data using targeted and proportionate reports. In turn, this will allow us to make quicker and more effective supervisory interventions to address potential harm. Clearing firms (MIFIDPRU 10) 10.26 We have introduced specific rules for FCA investment firms that are clearing members and indirect clearing firms. Clearing firms are, by their very nature, interconnected to other financial institutions and so cannot be SNI firms. The daily trading flow (K‑DTF) K‑factor will apply to clearing transactions (where the clearing firm is not also executing the transaction). And an FCA investment firm acting as a clearer must include its pre‑funded exposure to the default fund of a central counterparty (CCP) when calculating its trading counterparty default (K‑TCD) K‑factor requirement. These rules will all help to fulfil our requirement to address risks to the integrity of the financial system. Technical standards (own funds and market risk) 10.27 We have decided that firms should apply certain onshored binding technical standards (BTS) that were originally made for the purposes of the UK CRR regime and that we have identified as relevant under the IFPR. This is because MIFIDPRU applies (with appropriate modifications) certain parts of the UK CRR that are supplemented by the BTS, ie in the areas of own funds and market risk. In most cases firms should apply the onshored BTS, with modifications in MIFIDPRU that cross‑refer back to the BTS. But in 3 cases we have copied out the technical standard provisions (with some modifications) directly into our MIFIDPRU rules where this makes them easier to follow. Our approach to applying the relevant BTS ensures that our underlying rules to which the BTS refer will be applied in a clear and consistent manner, and so achieve their intended outcome of addressing the risks posed by FCA investment firms. Our approach to Enforcement 10.28 We set out how we will use our new enforcement powers under Part 9C of FSMA. The powers will be used to ensure that we can diagnose harm and apply relevant remedies

54 PS21/17 Chapter 10 Financial Conduct Authority Implementation of Investment Firms Prudential Regime and sanctions. Our updated guidance in relation to these powers also discharges our duty under section 143Y of FSMA to publish a statement of policy in relation to our use of penalties against non‑authorised parent undertakings of FCA investment firms. Applications and notifications 10.29 Our MIFIDPRU rules include various requirements for FCA investment firms to seek our permission (eg to use certain treatments) or to notify us of certain events. So we have introduced specific forms for each such circumstance that we will require firms to use. We have also introduced a generic application form and a generic notification form for events that are required under any binding technical standards. These forms are designed to ensure that we have access to the information we need to be aware of (eg changes in the share capital of a firm), and in a consistent manner, so that we can consider whether there is any potential harm to customers or markets that may require action to mitigate. Transitional provisions (TPs) 10.30 We also made a number of transitional rules, mainly for the own funds requirements, to help firms move from existing prudential regimes to the IFPR, where we considered it appropriate to do so. Explanation of how we have considered the risks specified in sections 143C (2) and 143D (2) of FSMA 10.31 This section addresses the risks set out above in paragraphs 10.3 and 10.4 of this Chapter. For more detailed descriptions please refer to our 3 consultation papers, CP20/24, CP21/7 and CP21/26. Risk to consumers arising from FCA investment firms 10.32 The IFPR rules are designed protect consumers from various sources of potential harm. Many investment firms operate on an agency basis and so harm may arise through operational errors or poor practice when carrying out investment services and activities on behalf of others. Hence the greater focus upon firms’ business models, in particular through the K‑factor capital requirements in MIFIDPRU 4. The K‑factors aim to ensure that firms hold at least a minimum amount of capital to afford the cost of putting right any problems that could arise from errors when providing the relevant investment services and activities. Of particular relevance to risks to consumers are: • the K‑AUM covering the management of assets, under both discretionary portfolio management and non‑discretionary advisory arrangements of an ongoing nature • the K‑CMH covering the holding of client money • the K‑ASA covering the safeguarding and administering of client assets • the K‑COH covering the receiving and transmitting or executing of client orders 10.33 Our rules for the ICARA process in MIFIDPRU 7 require firms to consider further the potential harm that may arise from their activities, and how they should mitigate them, including though improved systems and controls and, where appropriate, by holding additional amounts of capital or liquid assets. The requirement to consider the potential for harm under the ICARA process is not restricted to MiFID investment services as

55 PS21/17 Chapter 10 Financial Conduct Authority Implementation of Investment Firms Prudential Regime it applies to all the activities and operations of the FCA investment firm. It would, as examples, include the firm holding client money for general insurance business, and the potential for system outages which may impact the continuity of services. 10.34 Our requirements for the FOR in MIFIDPRU 4, the basic liquid asset requirement in MIDFIDPRU 6 and the ICARA process in MIFIDPRU 7 should help reduce the risk of a disorderly wind down of a firm. An orderly market exit should enable FCA investment firms to discharge any outstanding commitments to consumers and provide time for consumers to make alternative future arrangements to ensure continuity of service. Risks to the integrity of the UK financial system 10.35 The IFPR ensures a better alignment of our requirements to business models and strengthens our ability to supervise investment firms. Having prudential rules which are more intuitive to how management run their business should lead to greater understanding and identification of harm, including through the ICARA process in MIFIDPRU 7. As noted above, firms must consider operational matters such as the potential for system outages, as any impact on the continuity of services could threaten the integrity of the UK financial system. 10.36 The K‑factor K‑DTF in MIFIDPRU 4 sets a capital requirement to cover the value of an FCA investment firm’s daily trading flow, for both cash trades and for derivatives. Focusing on the level of a dealing firm’s activity in traded markets, particularly where large amounts may be traded intra‑day, should help increase the financial resilience of market participants. This should have a beneficial impact of the integrity of the UK financial system. 10.37 Our MIFIDPRU 10 rules for FCA investment firms that are clearing members or indirect clearing firms are directly designed to address the risk of potential harm to the integrity of the UK financial system. The provision of clearing is an important, interconnected market function, especially where an FCA investment firm is clearing on behalf of other firms. So we have required this to be supported by appropriate capital requirements, including in respect of pre‑funded default fund contributions made to central counterparties (CCPs). 10.38 The application of the FOR in MIFIDPRU 4, the basic liquid asset requirement in MIDFIDPRU 6 and the ICARA process in MIFIDPRU 7 should help reduce the risk of a disorderly wind down of a firm. Disorderly market exits can reduce confidence in the integrity of the UK financial system. Risks to which FCA investment firms are exposed 10.39 Risks to FCA firms themselves will generally arise through the exposures they incur and any claims they receive as a result of a problem with their operations. 10.40 Together, the rules in MIFIDPRU 4 and 5 set the following K‑factor capital requirements for FCA investment firms that deal on own account, which aim to address risks that arise through the trading exposures they incur: • K‑TCD for trading counterparty default • K‑NPR for net position risk • K‑CMG for clearing margin given • K‑CON for concentration risk

56 PS21/17 Chapter 10 Financial Conduct Authority Implementation of Investment Firms Prudential Regime 10.41 And under the ICARA process in MIFIDPRU 7, all FCA investment firms must still consider the potential for harm arising from their exposure risks, even where not covered by a specific K‑factor as above. For example, most investment firms will not generally grant credit, but where they do so they must assess the materiality of this as part of their ICARA process. 10.42 As noted above, firms must also consider the risk of potential harm from operational matters as part of the ICARA process required by our MIFIDPRU 7 rules. This should lead to firms applying greater risk mitigants such as enhanced systems, controls and risk management, and, where appropriate, holding additional capital or liquid assets. 10.43 If a firm is in financial difficulty its senior management may be tempted to take on additional risk or act in a manner which they might not otherwise do, simply to generate more revenue. This in turn could pose risk of harm to consumers or market integrity, which our requirements for IFPR as a whole seek to address. Risks arising from parent undertakings of FCA investment firms and from FCA investment firms belonging to groups 10.44 An FCA investment firm, its customers and the markets in which it operates may be adversely impacted by that firm’s membership of a group. For example, a financially weak group might place unreasonable demands upon an FCA investment firm subsidiary to generate business or carry out activities that its senior management might not otherwise wish to do. Or there might be the risk of claims from consumers or exposure risks incurred by other entities within the group that threaten its stability. 10.45 To address the risks of potential harm where an FCA investment firm is part of a group our rules in MIFIDPRU 2.5 require the application of prudential consolidation. This treats the UK parent, along with all of the relevant entities within the investment firm group, as if it were a single FCA investment firm. And applies some of the same provisions (eg own funds requirements), suitably adjusted, to it as would apply to an FCA investment firm on an individual basis. 10.46 Our rules in MIFIDPRU 2.6 provide an alternative to prudential consolidation, the group capital test. The group capital test will ensure that UK parent entities hold appropriate amounts of capital to support their investments in subsidiaries. This will prevent a UK parent entity from funding its capital investments in subsidiaries with debt and creating an undue financial strain upon the FCA investment firm to help service that debt. Explanation of the ways in which we have had regard to the matters specified in or under section 143G (1) of FSMA 10.47 This section addresses how we have had regard to the matters set out above in paragraph 10.5 of this Chapter. For more detailed descriptions please refer to our 3 consultation papers, CP20/24, CP21/7 and CP21/26. 10.48 As noted above, the target in section 1 of the Climate Change Act 2008 (carbon target for 2050) does not apply to any Part 9C rules made on or before 1 January 2022. So we do not consider it here. We would though do so when making any future Part 9C rules, including on ESG disclosures.

57 PS21/17 Chapter 10 Financial Conduct Authority Implementation of Investment Firms Prudential Regime Likely effect on the relative standing of the UK 10.49 The UK is the world’s largest or second largest financial centre by most measures. It has the highest number of domestic and international investment firms operating in Europe. We believe that the UK has a strong relative standing as a place for international investment firms to establish and conduct business. This is a view shared by various firms and industry bodies during discussions on the IFPR. 10.50 The EU’s investment firm regulation and directive (IFR/IFD) is the baseline for the UK’s IFPR and therefore is our closest international comparator. We designed the IFPR to deliver the same outcomes as the IFR/IFD, while taking advantage of the flexibility to reflect specific features of the UK market. Adopting this baseline reflects the level of input we had on the design of the EU’s regime. We believe that this approach should positively impact the relative standing of the UK among international investment firms. The IFPR also demonstrates the UK’s commitment to ensuring we have an appropriately robust prudential regime, while also ensuring that our rules are proportionate, and that the UK remains an attractive jurisdiction in which to do business. 10.51 We believe that strong market stability is an important consideration for internationally active investment firms. It helps support future sustainable growth, from which market participants can benefit. It is our view that maintaining a strong and robust regulatory and supervisory system, including through sound prudential standards for all FCA investment firms, improves the relative standing of the UK. 10.52 The following examples of how our new rules apply in practice demonstrate our consideration of the relative standing of the UK. Regulatory reporting 10.53 Our new data‑gathering requirements are more targeted and business model specific. They remove the need for FCA investment firms to report data using the detailed COREP templates required under UK CRR, and substantially reduce the number of data points they are required to provide. Given the greater focus upon business models we believe that much of the data will be information that senior management of firms will already wish to know for managing their business performance. Our provisions on reporting should allow for a more efficient and economic allocation of resources for both firms and the FCA. We believe that our reporting requirements are less onerous than the EU’s reporting requirements under the IFR, which applies many more different types of data collection forms and retains elements of COREP. 10.54 In setting our approach we have had regard to the impact that a more proportionate regulatory reporting framework may have on the relative standing of the UK. Unnecessarily detailed reporting requirements can be a factor in decisions on where to locate. Whereas in CP21/26 our cost benefit analysis estimated that the introduction of the IFPR might lead to a 64% reduction in the annual reporting costs for a large FCA investment firm that deals on own account (compared to the current position under UK CRR). Remuneration requirements 10.55 Our remuneration requirements reflect the needs of the UK market while ensuring that our regime remains internationally competitive. We apply minimum remuneration requirements to all FCA investment firms, but for many firms that are currently in scope of our IFPRU or BIPRU Remuneration Codes our rules under IFPR will be less detailed. We also applied the principle of proportionality to our remuneration reporting

58 PS21/17 Chapter 10 Financial Conduct Authority Implementation of Investment Firms Prudential Regime requirements. We determined which data items on remuneration were necessary for us to assess the effectiveness of firms’ remuneration policies but did not go further. 10.56 We have sought to establish rules which seek to mitigate the potential harm caused by remuneration arrangements but sought to do so in a proportionate way. We are aware that remuneration of key staff can be a highly competitive matter for firms. And that the extent to which a regulator is unnecessarily interventionist when it comes to remuneration can have a material impact on the decisions of senior management of internationally active investment firms on where to locate. So remuneration requirements for FCA investment firms that are both appropriate and proportionate should enhance the relative standing of the UK. Disclosure requirements 10.57 Our rules for which information FCA investment firms should disclose aim to create a regime that is appropriate for the UK market and that meets the needs of investors, potential investors, counterparties and other stakeholders. In some places this will require UK firms to disclose more than under the comparable EU rules, but in others considerably less. For the UK’s relative standing our view is that, on balance, this will have a positive impact as they reflect the specifics of the UK market and, where relevant, streamline requirements for firms. 10.58 For example, we require that SNI firms disclose a small amount of information on their remuneration policies and outcomes. This approach differs from the EU regime, which does not apply any remuneration requirements to EU SNI firms. However, many SNI firms are in scope of our existing IFPRU or BIPRU Remuneration Codes and some are currently subject to more detailed disclosure requirements than we propose to apply. Given the total number of SNI firms in the UK, exempting them from all remuneration disclosure rules could negatively impact the standards of the UK investment firm sector. Our approach aims to ensure transparency of all SNI firms’ high‑level approaches to remuneration. This transparency may broaden the appeal of operating in UK investment markets. 10.59 We have introduced streamlined disclosure templates compared to those implemented by the EU. This means that we do not expect FCA investment firms to collect and provide as much information. But the information that is disclosed will be useful to external parties in making their decisions to do business with an FCA investment firm. 10.60 We are aware that many investment firms operating from the UK will wish to conduct business in other jurisdictions. And that some of those jurisdictions might impose legal constraints upon how firms hold themselves out as operating in that territory. So we have added flexibility in our disclosure rules that should help prevent FCA investment firms from breaching other legal requirements when making the public disclosures required for IFPR. 10.61 Overall, we have adopted a proportionate approach to disclosure. One which is bespoke to the UK market and that will, we believe, have a positive impact on the UK’s relative standing. Our approach to assessing basic liquidity requirements 10.62 Our rules require that firms meet the basic liquidity requirements using a narrower range of core liquid assets than the EU’s more detailed requirements under the CRR. We were conscious that taking a stricter approach than the EU could impact on the

59 PS21/17 Chapter 10 Financial Conduct Authority Implementation of Investment Firms Prudential Regime relative standing of the UK. However, our approach will be simpler to operate and lead to higher levels of market stability. The basic requirement is to hold an amount of liquid assets equivalent to only one month’s worth of fixed overheads. And we expect internationally active investment firms to generally decide that they need to hold far more liquid assets (than the minimum basic liquid asset requirement) when assessing their own operational liquidity needs as part of the ICARA process required under MIFIDPRU 7. For which we have simplified the requirements for identifying what may count within a wider range of non‑core liquid assets for the purposes of the ICARA. The application of the K‑CMG K‑factor capital requirement 10.63 We have had regard to the relative standing of the UK within the application of the K‑factor own funds requirement for clearing margin given (K‑CMG) by FCA investment firms that deal on own account. The K‑CMG is an alternative to calculating K‑NPR (net position risk) for a firm’s exposure to market risk, where trades are cleared by a central counterparty. The K‑NPR makes use of the detailed market risk rules of the UK CRR, whereas the K‑CMG uses a measure of risk based upon the margins that an FCA investment firm would need to give up to it clearing member. We believe use of the K‑CMG will be more suited to internationally active investment firms that help provide market liquidity and that often trade on a global basis. 10.64 The EU’s rules on using the K‑CMG take a single view on the structure of trading desks and the clearing arrangements that investment firms operate. While this may be appropriate for some markets, we did not consider it a suitable approach for UK firms, some of which will manage risk portfolios across trading desks. Replicating the effect of the EU’s rules could require firms to change their business model and approach to risk management beyond what we consider necessary. We have therefore taken a risk‑based and proportionate approach to K‑CMG within our rules to achieve the same prudential outcomes, where capital requirements for trading cleared portfolios may be set by reference to the amounts of margin given up to a clearing firm. Provision for FCA investment firms that undertake clearing activity 10.65 Our rules for FCA investment firms undertaking clearing activity on behalf of others are designed to meet the specific needs of the UK market and to encourage firms to do business here. The EU’s IFR/IFD assumes that only banks act as clearing members. However, specialist FCA investment firms can provide important clearing activities in specific markets/products (such as interest rate or commodity derivatives) within the UK. 10.66 Our discussions with industry led us to conclude that subjecting our non‑bank clearing firms to the UK CRR/CRD as if they were systemic banks would be disproportionate. So we developed specific rules (set out in MIFIDPRU 10) to address the potential for harm that might arise from FCA investment firms acting as clearing members or indirect clearers, while keeping them within the scope of the IFPR. 10.67 Further, our rules for when the K‑CMG own funds requirement may (with our permission) be used by an FCA investment firm, have wider application than the comparable rules in the EU’s regime. We allow its use where another investment firm may be acting as the clearer of the transaction. This is important as the K‑CMG may be viewed as an attractive alternative to the calculation of K‑NPR (which uses standard market risk rules from the UK CRR) particularly when trading in the specific markets/ products where specialist FCA investment firms provide clearing.

60 PS21/17 Chapter 10 Financial Conduct Authority Implementation of Investment Firms Prudential Regime 10.68 Taken together, we believe these features of our rules account for the specific nature of activities and business models of investment firms and markets in the UK. And at the same time have regard to the UK’s relative standing by making it easier for internationally active trading firms to do business here in the specific markets/ products where FCA investment firms act as clearers. Trading counterparty default (K‑TCD) – netting methodologies 10.69 One of the K‑factor own funds requirements for firms that deal on own account is the K‑TCD, which addresses the risk of harm arising from trading counterparty default. The calculation of K‑TCD involves detailed rules set out in MIFIDPRU 4.14. For derivatives transactions this includes the calculation of potential future exposure (PFE). As part of this calculation our rules provide for the use of netting sets, where we set out two alternative approaches – known as the ‘hedging approach’ and the ‘derivative netting ratio approach’. 10.70 Our rules provide FCA investment firms with a choice of netting approaches but with similar prudent outcomes, unlike the EU’s regime. This allows greater flexibility for firms to use the approach which best matches their internal risk management and netting practice. In doing so, we had regard to the relative standing of the UK, as there should be less need for derivatives trading firms to change their approach to netting when operating in the UK (simply for the purpose of calculating K‑TCD). Availability of the group capital test 10.71 Our rules provide, subject to our permission, for an investment firm group to make use of a capital test as an alternative to prudential consolidation. A number of conditions have to be met, in particular that the group structure is sufficiently simple and that there are no significant risks to clients or to the market stemming from the investment firm group as a whole that require supervision on a consolidated basis. 10.72 In general, for many FCA investment firm groups we do not see our application of these conditions as presenting a barrier to applying to use the group capital test. This includes those that deal on own account. Having regard to the relative standing of the UK, we believe the availability of the group capital test may be of importance to international trading groups that headquarter in the UK. It will avoid them having to put in place procedures and reporting arrangements to apply many of the detailed rules that apply to an individual FCA investment firm to the trading activities of overseas subsidiaries that form part of the investment firm group (that would otherwise be required if prudential consolidation is applied). This should not diminish the relative standing of the UK as a place for investment firms to locate. Measurement of assets under management (AUM) 10.73 When measuring assets under management (AUM) for the purposes of calculating the K‑AUM own funds requirement, our rules allow an FCA investment firm to use the net total value of the relevant assets. So a firm may choose to offset any negative values or liabilities (eg when holding a derivative for hedging) attributable within the relevant client portfolios. This is different to the EU’s regime, where their binding technical standard requires financial instruments with a negative fair value to be included in absolute value, potentially resulting in an amount which overstates the underlying net value of client portfolios that an investment firm is managing. 10.74 We believe our approach best reflects how firms that undertake discretionary portfolio management manage the risk of, and hence value, their clients’ portfolios. Managing portfolios is an international business and so our rule has regards to the

61 PS21/17 Chapter 10 Financial Conduct Authority Implementation of Investment Firms Prudential Regime relative standing of the UK, by not requiring FCA investment firms to apply a regulatory treatment that is different from how they would generally manage their client business. Our treatment of intangible assets deducted from own funds 10.75 We considered the impact on the UK’s international standing within our treatment of intangible assets that must be deducted from own funds. The EU’s rules allow for the carve‑out of certain eligible software assets from deductions that reduce CET1, the highest quality of capital. We have not allowed this carve‑out in our rules but have taken a different approach (as has the PRA in its implementation of the UK CRR2 package). We believe that it is prudent that all intangible assets are not given any value – and hence deducted form CET1 capital – for regulatory purposes. It cannot be assumed that the valuation of such assets in a firm’s accounts would hold in times of stress and when capital may be called upon to absorb losses. 10.76 International firms could view our approach to disallowing this carve‑out negatively in terms of the UK’s relative standing. However, we believe that the carve‑out was inappropriate due to our wider objectives to prevent customer harm maintain market integrity, and that sound prudential standards are part of making the UK an attractive place to do business. So we do not generally expect this to be a driver in decisions by internationally active investment firms on where to locate. Relevant standards set by an international body 10.77 Our rules are consistent with IOSCO’s ‘Core Principle 30.’ The principle states that ‘there should be an initial and ongoing capital and other prudential requirements for market intermediaries that reflect the risks that the intermediaries undertake.’ 10.78 Our new rules amend the current levels of initial capital required for authorisation as an investment firm. And our ongoing capital adequacy rules under the permanent minimum requirement, the FOR and the K‑factor requirement help ensure alignment with FCA investment firms’ business models, their size and complexity. Our new ICARA rules also require firms to establish systems to identify, monitor and assess the risk of harm. 10.79 We have also had regard to the Financial Stability Board’s (FSB) Principles and Standards for Sound Compensation Practices (P&S) within our remuneration rules. The standards seek to align firms’ remuneration policies and practices with prudent risk management and the long‑term interests of the firm. Our rules are consistent with the P&S. For example, we have set rules that deferral periods for variable remuneration should be not less than 3 years. 10.80 We have taken the revised 2015 G20/OECD Principles of Corporate Governance into consideration. Where the principles are applicable to non‑listed firms, we have reflected them within our general governance requirements. For example, our new rules include monitoring and managing conflicts of interest, ensuring adequate systems and controls, and setting up risk, remuneration and nomination committees. 10.81 Otherwise we have not found any prudential standards set by an international body that are relevant to FCA investment firms. Although as noted above, we took the EU’s IFR/IFD as the baseline for the UK’s IFPR and designed our rules to deliver the same outcomes. And the Basel Committee on Banking Supervision (BCBS) global standards for banks, as reflected in UK CRR, provide a conservative baseline for certain aspects (ie own funds and market risk) of our prudential regime for FCA investment firms.

62 PS21/17 Chapter 11 Financial Conduct Authority Implementation of Investment Firms Prudential Regime 11 Summary of amendments to Handbook text 11.1 In this chapter we provide additional technical information on the main changes to the Handbook text consulted on in CP21/26. This includes those that have been described elsewhere in this PS and those that we have made so that the rules work as intended. 11.2 This information is provided as a guide for FCA investment firms to help them identify what and where those changes are. The information contained in this guide should be read in the context of the rules in the Handbook and any other rules that may affect their application. This chapter is not intended to be exhaustive and firms should ensure that they read the Handbook rules in full to understand the implications for their business. Main Rule Reference Connected Rules also being Amended Purpose of Amendment Explanation Investment Firms Prudential Regime (No. 2) Instrument MIFIDPRU 2 – Level of application of requirements

1. MIFIDPRU 2.5.3 MIFIDPRU 2.5.49R [provision deleted] MIFIDPRU 2.5.7R(4) [provision deleted] MIFIDPRU 8.1.1R [sub‑paragraphs deleted and combined with previous 8.1.2R] MIFIDPRU 8.1.2R [provisions deleted/ sub‑paragraphs combined with 8.1.1R and number re‑allocated] MIFIDPRU 8.1.8G [provision deleted and number re‑allocated] MIFIDPRU 8.1.9R [provision deleted and number re‑allocated] The table at MIFIDPRU 2.5.3R is a guide to the content of the section on prudential consolidation – a row is deleted referring to the consolidated disclosure requirements in MIFIDPRU 2.5.49R. The sub‑paragraph (4) of MIFIDPRU 2.5.7R has been deleted. This referred to the requirement of a UK parent entity to comply with MIFIDPRU 8 (Disclosure) on the basis of its consolidated situation. MIFIDPRU 2.5.49R has been deleted. The wording consulted on in CP21/26 will not be made final. This provision explained requirements for disclosure at consolidated level. In response to feedback the requirement to disclose at consolidated level has been removed. In response to feedback from CP21/26, we have taken the view that requiring disclosure at both individual and consolidated level is unduly burdensome. Firms are now only required to disclose at individual level. Firms may still disclose at consolidated level if they wish to, in addition to the requirement to disclose at individual level.

63 PS21/17 Chapter 11 Financial Conduct Authority Implementation of Investment Firms Prudential Regime Main Rule Reference Connected Rules also being Amended Purpose of Amendment Explanation 2. MIFIDPRU 2Annex 8R (Notification relating to membership of an investment firm group or financial conglomerate) N/A Updating format of original proposed notification form to clarify the information required from firms In CP21/26, we included a proposed notification form in MIFIDPRU 2 Annex 8R for use when a firm was notifying us of changes to its membership of an investment firm group or financial conglomerate. We have now published an updated version of this form, which is designed to clarify the information that we require from firms. MIFIDPRU 3 – Own funds 3. MIFIDPRU 3 Annex 2R (Permission to classify an issuance of capital instruments as CET1 capital) N/A Replacing reference to CRR own funds BTS with reference to equivalent provisions copied out into MIFIDPRU 3 Annex 7R The version of the CET1 issuance permission form that was originally made in FCA Instrument 2021/38 required a firm to confirm that the issuance of capital complied with any requirements in the Own Funds BTS (BTS 241/2014). As we have now confirmed the approach of copying out the provisions of the Own Funds BTS into MIFIDPRU 3 Annex 7R, we have replaced the reference to the Own Funds BTS in the form with a reference to that annex of MIFIDPRU 3. MIFIDPRU 4 – Own funds requirements 4. MIFIDPRU 4.12.2BR [Newly inserted provision] MIFIDPRU 4.12.2CG [new provision] Cross‑application of PRA ECAI mapping framework for Standardised Approach to credit risk where relevant to market risk provisions under the K‑NPR requirement We did not include the BTS on ECAI mappings for the Standardised Approach to credit risk (BTS 2016/1799) in our original list of BTSs to be cross‑applied for the purposes of the K‑NPR requirement. This is because the MIFIDPRU framework no longer includes a standardised approach to the assessment of credit risk. Where credit risk is relevant to the activities undertaken by a firm, the firm should take this into account as part of its ICARA process under MIFIDPRU 7.

64 PS21/17 Chapter 11 Financial Conduct Authority Implementation of Investment Firms Prudential Regime Main Rule Reference Connected Rules also being Amended Purpose of Amendment Explanation However, the market risk provisions in Title IV of Part Three of the current UK CRR are being cross‑applied on a ‘frozen in time’ basis (as at 31 December 2021) under the K‑NPR requirement in MIFIDPRU 4.12. Certain market risk provisions operate by reference to the credit risk framework in the UK CRR. One example of this is article 336 UK CRR, which refers to the risk weight that debt securities would receive under the Standardised Approach to credit risk. To determine that risk weight, a firm may need to use the ECAI mappings to determine the appropriate credit quality step for the relevant instrument. We do not propose to continue to maintain an FCA version of BTS 2016/1799 for these purposes. In our view, this would be disproportionate given that we will not be operating a standardised credit risk regime. Instead, we have included new provisions which require firms to refer to the equivalent PRA ECAI mappings for these purposes (as updated on an ongoing basis). This will ensure that FCA investment firms and PRA designated investment firms and banks use the same single set of mappings. In the future, we will consider as part of our longer term work on the MIFIDPRU market risk framework whether it remains appropriate to determine the K‑NPR requirement for certain instruments by reference to credit quality steps under the UK CRR Standardised Approach to credit risk or whether a different approach should be used.

65 PS21/17 Chapter 11 Financial Conduct Authority Implementation of Investment Firms Prudential Regime Main Rule Reference Connected Rules also being Amended Purpose of Amendment Explanation 5. MIFIDPRU 4 Annex 6R N/A Clarification of the requirement to use specified interest rate inputs when providing worked examples of interest rate sensitivity methodologies In the course of reviewing the application forms for MIFIDPRU, we have identified that the existing instructions for the form in MIFIDPRU 4 Annex 6R (Application for permission to use sensitivity models to calculate interest rate risk on derive instruments in accordance with article 331(1) of the UK CRR) could be clarified. The revised form makes it clear that the separate interest rate inputs spreadsheet does not need to be completed and attached to the application. Instead, the relevant interest rate inputs in the spreadsheet should be used when providing worked examples of the interest rate sensitivity methodologies in question 5(g) on the application form. 6. MIFIDPRU 4 Annex 13R MIFIDPRU 4.12.2AR(1) MIFIDPRU 4.12.2DR [new provision] Copy‑out of Correlated Currencies BTS (BTS 2015/2197) into a new MIFIDPRU annex In CP21/26, we originally proposed that we would apply the Correlated Currencies BTS by cross‑reference, with appropriate modifications specified in MIFIDPRU 4.12.2AR. Following consultation feedback, we have decided to change our approach and to copy out the relevant currency pairings into a new annex in MIFIDPRU 4 Annex 13R, using the baseline text of the 2015 version of BTS 2015/2197. This will allow us to keep the relevant currency pairings under review in the future and to make further changes, where appropriate.

66 PS21/17 Chapter 11 Financial Conduct Authority Implementation of Investment Firms Prudential Regime Main Rule Reference Connected Rules also being Amended Purpose of Amendment Explanation MIFIDPRU 8 – Disclosure The numbering in MIFIDPRU 8 has changed in the final made rules in comparison with the text consulted on in CP21/26. For the avoidance of doubt, the rule reference used in this table is the numbering for the amended, final rules, unless specified otherwise. 7. MIFIDPRU 8.1.1R MIFIDPRU 2.5.3R MIFIDPRU 8.1.2 [previous 8.1.2 partially deleted and combined with new 8.1.1, 8.1.2 re‑allocated number] MIFIDPRU 8.1.8G [provision deleted and number re‑allocated] MIFIDPRU 8.1.9R [provision deleted and number re‑allocated] Rationalise and simplify the application requirements to reflect the deletion of the requirement to disclose at consolidated level. See description for changes to MIFIDPRU 2 at entry 1. in this table. 8. MIFIDPRU 8.1.6G N/A New guidance provision in relation to application of disclosure requirements to a non‑SNI MIFIDPRU firm, where it has been reclassified from an SNI MIFIDPRU firm mid‑year. The new provision provides clarity on our expectations where a firm is reclassified mid‑year (financial year). Where an SNI MIFIDPRU firm is reclassified as a non SNI MIFIDPRU firm mid‑year, the effect of MIFIDPRU 8.1.5R is that it is not required to comply with the higher disclosure requirements applicable to a non‑SNI MIFIDPRU firm in respect of the financial year in which it was re‑classified. The new guidance provision at MIFIDPRU 8.1.6G confirms that a firm may disclose on the basis of the higher disclosure requirements applicable to a non‑SNI MIFIDPRU firm earlier than required, in relation to disclosures covering the financial year in which it was re‑classified. 9. MIFIDPRU 8.1.10R N/A Add clarity to requirement on when a firm must disclose. Amendment to clarify the expectations where a firm does not publish annual financial statements. New sub‑paragraph (2) refers firms to the date on which they must submit their annual solvency statements to the FCA in SUP 16.12. This will be the trigger date for disclosing the information required in MIFIDPRU 8.

67 PS21/17 Chapter 11 Financial Conduct Authority Implementation of Investment Firms Prudential Regime Main Rule Reference Connected Rules also being Amended Purpose of Amendment Explanation 10. MIFIDPRU 8.1.12G MIFIDPRU TP12 [new transitional provisions] MIFIDPRU 8.1.19R [deleted – rule in CP21/26] A new guidance provision to remind firms of the transitional provisions for disclosure at MIFIDPRU TP12. The text contained in the provision at MIFIDPRU 8.1.19R in CP21/26 has now been moved to MIFIDPRU TP12. Firms are reminded of the new transitional provisions located at MIFIDPRU TP12. This covers when different types of firms will need to make their first disclosures under MIFIDPRU 8. The transitional provisions also provide detail on the expectations for firms in relation to disclosures covering the period between the end of the current regime for disclosure applicable under BIPRU and the CRR, and the first disclosures required under MIFIDPRU 8. 11. MIFIDPRU 8.1.13R MIFIDPRU 8.1.14G [amended provision, re‑numbered] MIFIDPRU 8.1.15R [new provision] MIFIDPRU 8.1.16E [new provision] MIFIDPRU 8.1.17G [new provision] To remove the requirement to publish disclosures on a website. To remove sub‑section dealing with cross‑referencing to a (new) guidance provision. To provide clarity on what a firm should do where disclosure according to MIFIDPRU 8.1.13R would breach the law of another jurisdiction. In response to feedback, we acknowledge that some firms do not maintain a website and we consider it would be disproportionate for a firm to set up a website for disclosure purposes alone. Separately, we received feedback suggesting that publishing the required disclosures on a website may put a firm in breach of legal requirements in other jurisdictions. We have therefore: • removed the requirement to publish disclosures on a website; • clarified in a rule at 8.1.15R that a firm is not expected to breach the law of another jurisdiction in complying with our rules; • supplemented this section with an evidential provision at MIFIDPU 8.1.16E providing that a firm can demonstrate compliance with MIFIDPRU 8.1.13R if it does publish the disclosures on a website.

68 PS21/17 Chapter 11 Financial Conduct Authority Implementation of Investment Firms Prudential Regime Main Rule Reference Connected Rules also being Amended Purpose of Amendment Explanation We have also amended MIFIDPRU 8.1.14R (previous numbering) to remove sub‑section (3) (cross‑referencing). We do not want to require firms to cross reference to information. Our position is that all the information should be available via the firm’s method of disclosure, but a firm may wish to cross‑reference to other information in some circumstances (for example to a group or parent entity website). On review, we consider that this provision sits better in the guidance provision at MIFIDPRU 8.1.14G. The amended 8.1.13R therefore has 4 sub‑sections compared with the previous 5 subsections. The new and amended package of rules, guidance and evidential provisions at MIFIDPRU 8.1.13R to MIFIDPRU 8.1.17G provides firms with a framework for compliance with MIFIDPRU 8.1.13R in a manner that respects the spirit of the rule at 8.1.13R whilst giving firms autonomy to devise the most appropriate method for their circumstances.

69 PS21/17 Chapter 11 Financial Conduct Authority Implementation of Investment Firms Prudential Regime Main Rule Reference Connected Rules also being Amended Purpose of Amendment Explanation 12. MIFIDPRU 8.3.2R MIFIDPRU 8.3.1R(2) MIFIDPRU 8.3.3G [provision deleted‑ numbering in CP21/26] MIFIDPRU 8.3.4G [numbering in CP21/26, provision deleted] New provision to provide clarity on what directorships are in scope of MIFIDPRU 8.3.1R(2), aligning the requirement with SYSC 4.3A.7R. New provision replaces previous MIFIDPRU 8.3.3G and 8.3.4G from CP21/26. In response to feedback, we have clarified that the disclosure requirements in respect of the number of directorships held by each member of the management body of a firm, is applicable only to those directorships held in organisations that pursue predominantly commercial objectives and does not cover directorships held within the same group or within an undertaking in which the firm holds a qualifying holding. In making the change, we have also noted that firms are required to submit information concerning all executive and non‑executive directorships to Companies House, therefore requiring this for the purpose of FCA disclosure rules would be duplicative. The new provision is intended to reduce the regulatory burden on firms by focussing only on those directorships that we consider to be most relevant to the good governance of the firm. The wording of 8.3.2R(1) is aligned with the wording of SYSC 4.3A.7R. Guidance provision MIFIDPRU 8.3.3G [numbering in CP21/26] suggesting that directorships held in entities that did not pursue a predominantly commercial objective is deleted, together with guidance provision MIFIDPRU 8.3.4G, confirming our expectation that directorships should be individually itemised, even where they would otherwise be treated as a single directorship for the purpose of SYSC 4.3A.7R(2). 13. MIFIDPRU 8.4.1R N/A To differentiate the disclosure requirements for those firms who do not publish annual financial statements. Amendment to recognise that not all firms publish annual financial statements, limiting the requirements for those firms who do not publish annual financial statements.

70 PS21/17 Chapter 11 Financial Conduct Authority Implementation of Investment Firms Prudential Regime Main Rule Reference Connected Rules also being Amended Purpose of Amendment Explanation 14. MIFIDPRU 8.6.6R(2) N/A Clarification of requirement The provision has been re‑structured to make it clear that we expect firms to summarise the performance criteria used for the purpose of disclosing qualitative disclosures, broken down by the firm, business units and individuals. 15. MIFIDPRU 8.6.7R SYSC 19G.4 Reminding firms of where they can find guidance on the categorisation of fixed and variable remuneration. Following feedback to CP21/26 seeking clarification on the correct treatment of carried interest under the SYSC19G remuneration rules, we have amended SYSC 19G.4.2G(3)(b) to clarify that carried interest (as referred to in SYSC 19G.1.27R) should be treated as variable remuneration for these purposes. MIFIDPRU 8.6.7G directs readers to this provision as it is relevant to their disclosure for details on fixed and variable remuneration (including carried interest). 16. MIFIDPRU 8.6.8R MIFIDPRU 8.6.9R [new provision] MIFIDPRU 8.6.10G [new provision] MIFIDPRU 8,6.11G [new provision] Editorial re‑structuring of the main rule to aid understanding, a new exemption to prevent individuals being identifiable and new guidance. The substance of MIFIDPRU 8.6.8R has not changed (except in respect of new sub‑paragraph (7) – see further below) but the structure has been altered, merging the provisions numbered MIFIDPRU 8.6.7R and 8.6.8R in CP21/26 into a single newly numbered provision MIFIDPRU 8.6.8R. The new structure is intended to aid the reader in understanding the requirements. In response to feedback from CP21/26, a new sub‑paragraph (7) has been added to MIFIDPRU 8.6.8R, setting out the grounds on which a firm is exempted from separating data into subsets for senior management and other MRTs, where this would identify individuals. MIFIDPRU 8.6.9R is a new requirement for firms to explain their use of the new exemption. MIFIDPRU 8.6.10G is a new guidance provision confirming the purpose of the new exemption. MIFIDPRU 8.6.11G is a new guidance provision giving examples of how the exemption at MIFIDPRU 8.6.8R(7) is intended to operate.

71 PS21/17 Chapter 11 Financial Conduct Authority Implementation of Investment Firms Prudential Regime Main Rule Reference Connected Rules also being Amended Purpose of Amendment Explanation 17. MIFIDPRU 8.7.4R MIFIDPRU 8.7.5R [new provision] A new exemption permitting firms to withhold certain disclosure items for investment policy, where the information is proprietary or confidential. In response to feedback from CP21/26, we have included two new rules that operate as exemptions from disclosing some investment policy information that is proprietary or confidential. A firm must record what information has been omitted from disclosure with a reason and make that information available to the FCA where requested. The changes echo similar provision in BIPRU11.4 and we consider this a proportionate response to feedback, balancing the needs of firms with the interests of consumers. 18. MIFIDPRU 8.7.8G N/A A new provision providing guidance on aspects of the requirements in MIFIDPRU 8.7.6R In response to feedback, a new guidance provision offers clarity on what we mean when we refer to shares held ‘directly or indirectly’ and what a holding of ‘greater than 5% of all voting rights’ means. SUP 16 – Regulatory reporting 19. SUP 16.12.16R N/A Correction of scheduling frequency error for Section F RMAR return for firms in Regulated Activity Group 4 The final text resulting from PS21/9 incorrectly suggested that for firms in Regulated Activity Group 4 in SUP 16.12, Section F of the RMAR return might be required to be reported on a quarterly basis if the firm had annual regulated business revenue over £5 million. This was an error and we did not intend to change the existing RMAR reporting frequency for firms in Regulated Activity Group 4. We have therefore amended the text to make it clear that such firm should still report Section F of the RMAR on a half‑yearly basis.

72 PS21/17 Chapter 11 Financial Conduct Authority Implementation of Investment Firms Prudential Regime Main Rule Reference Connected Rules also being Amended Purpose of Amendment Explanation 20. SUP 16.12.22AR N/A Addition of correct note reference in data items table for Regulated Activity Group 7 for professional indemnity insurance data item (Section E RMAR) The final text resulting from PS21/9 contained an incorrect note reference in relation to the professional indemnity insurance data item in the table of data items for Regulated Activity Group 7 in SUP 16.12. This originally referred to ‘note 15’, which did not exist in the accompanying notes. This has now been amended to refer to a new note 11. This note makes it clear that Section E RMAR, dealing with professional indemnity insurance, is applicable only to a firm that is required to hold such insurance and that is not a MIFIDPRU investment firm. This replicates the policy approach to the application of Section E RMAR that was reflected in the SUP 16.12 rules before the IFPR amendments took effect. 21. SYSC 19G.1.8R(3) N/A Correction of incorrect cross‑reference to notification form In FCA Instrument 2021/38, the notification requirement in SYSC 19G.1.8R(3) incorrectly referred to submitting the notification from in MIFIDPRU 1 Annex 3R. This should have been a reference to the notification form in MIFIDPRU 7 Annex 3R. This cross‑reference has now been corrected. 22. SYSC 19G.4.2G(3)(b) MIFIDPRU 8.6.7G Addition of reference to carried interest in guidance about remuneration that constitutes variable remuneration Following feedback to CP21/26 that sought clarification on the correct treatment of carried interest under the SYSC19G remuneration rules, we have amended SYSC 19G.4.2G(3)(b) to clarify that carried interest (as referred to in SYSC 19G.1.27R) should be treated as variable remuneration for these purposes. A new MIFIDPRU 8.6.7G links readers of the disclosure requirements to this provision for the purpose of identifying fixed and variable remuneration.

73 PS21/17 Chapter 11 Financial Conduct Authority Implementation of Investment Firms Prudential Regime Main Rule Reference Connected Rules also being Amended Purpose of Amendment Explanation Glossary definitions 23. Glossary definition of ‘ancillary services undertaking’ N/A Correction of outdated reference to ‘institutions’ in definition The final part of the updated definition of an ancillary services undertaking proposed in CP21/26 referred to a ‘similar activity which is ancillary to the principal activity of one or more institutions’. In order to achieve the correct policy outcome, we have updated this to refer to a ‘similar activity which is ancillary to the principal activity of one or more investment firms’. This will ensure that the definition operates correctly in the context of investment firm groups. It is also consistent with the baseline approach taken by the EU IFR. 24. Glossary definitions of ‘CRR investment services sector’ and ‘MIFIDPRU investment services sector’ Glossary definition of ‘banking sector’ Clarification that investment firms should not be included in the composition of the relevant sector under the ‘financial institutions’ limb In CP21/26, we proposed two new definitions in connection with our proposed amendments to the rules for financial conglomerates in GENPRU 3. These were the definition of the ‘CRR investment services sector’ and the definition of the ‘MIFIDPRU investment services sector’. Together, these comprise the investment services sector, but they reflect the new split from 1 January 2022 between PRA‑designated investment firms that will remain subject to the UK CRR regime, and FCA investment firms to which the IFPR will apply. To ensure that these two sub‑sectors of the overall investment services sector operate as intended, we have clarified that the reference to a ‘financial institution’ in the definition of each of the sub‑sectors does not include an investment firm, as otherwise this would inadvertently capture investment firms in the other sub‑sector. In the final rules, we have also made the same amendment to the definition of ‘banking sector’, so as to exclude investment firms from being caught by the reference to a ‘financial institution’. This is to ensure that investment firms are allocated to the appropriate sub‑sector of the investment services sector.

74 PS21/17 Chapter 11 Financial Conduct Authority Implementation of Investment Firms Prudential Regime Main Rule Reference Connected Rules also being Amended Purpose of Amendment Explanation FEES 4 – Periodic fees 25. FEES 4 Annex 1AR N/A Maintaining the existing approach to the application of the A.10 and A.13 fee blocks for periodic fees to FCA investment firms that would be treated as oil market participants or energy market participants if they were not MiFID investment firms As part of the introduction of the IFPR, the definitions of an ‘oil market participant’ (OMP) and an ‘energy market participant’ (EMP) will be amended. Previously, firms that were exempt BIPRU commodities firms or exempt IFPRU commodities firms could qualify as OMPs or EMPs, but all other MiFID investment firms were excluded from the relevant definition. Under the revised definitions under IFPR, OMPs and EMPs cannot include any MiFID investment firms (including former exempt BIPRU or IFPRU commodities firms), which reflects the fact that all such firms will now either be subject to the IFPR or the UK CRR. However, as part of the immediate implementation of the IFPR, we propose to maintain our existing approach to the application of the A.10 (dealing as principal) and A.13 (advisors, arrangers, dealers or brokers) fee blocks for firms that would be treated as OMPs or EMPs if they were not MiFID investment firms. We will then consider any changes to the application of our fees rules to these firms as part of our separate consultations on fees. GENPRU 3 – Financial conglomerates 26. GENPRU 3.1.8R(1A) N/A Deletion of provision under existing financial conglomerates rules that excluded non‑CRR MiFID investment firms from the investment services sector Our existing rules on financial conglomerates in GENPRU 3 include GENPRU 3.1.8R(1A), which excludes MiFID investment firms that are not subject to the UK CRR from the investment services sector. This reflected the scope of the EU’s Financial Conglomerates Directive. Under the IFPR, our rules no longer distinguish between MiFID investment firms that are subject to the UK CRR or not, since all FCA investment firms will become part of the MIFIDPRU investment services sector for these purposes. As a result, we have deleted this provision from GENPRU 3.1.8R.

75 PS21/17 Chapter 11 Financial Conduct Authority Implementation of Investment Firms Prudential Regime Main Rule Reference Connected Rules also being Amended Purpose of Amendment Explanation MIFIDPRU NOTE: The amendments made to MIFIDPRU in the Investment Firms Prudential Regime (Consequential Amendments) Instrument 2021 since the publication of the draft rules in CP21/26 relate to the interaction of MIFIDPRU with the prudential regime for UCITS and AIF depositaries. For a summary of the other amendments to MIFIDPRU made since the publication of the draft rules in CP21/26, please refer to the earlier entries in this table for the Investment Firms Prudential Regime (No. 2) Instrument 2021 above. MIFIDPRU 1 – General application 27. MIFIDPRU 1 Annex 4R (Notification that a firm or group no longer qualifies for SNI status) N/A Update to form in MIFIDPRU 1 Annex 4R to reflect how this form should work following the introduction of the depositary condition for SNI classification in MIFIDPRU 1.2.1R(10) As we proposed in CP21/26, we have introduced a new condition in MIFIDPRU 1.2.1R(10) which states that to be an SNI firm, a firm must not have been appointed to act as a depositary for a UCITS fund or an AIF. We have amended the existing form in MIFIDPRU 1 Annex 4R (as originally made in our final rules in FCA Instrument 2021/38) to include guidance clarifying that where an existing SNI MIFIDPRU investment firm applies for a variation of permission to include one of the relevant depositary activities, that application will be taken as notification that the firm has ceased to meet the SNI conditions. The firm will therefore not need to submit the MIFIDPRU 1 Annex 4R form separately in that situation. 28. Part A of MIFIDPRU 2 Annex 1R (Permission to be exempt from disclosure requirements in MIFIDPRU 8 for SNI firms in consolidated insurance groups) N/A Update to Part A of form in MIFIDPRU 2 Annex 1R to reflect how this form should work following the introduction of the depositary condition for SNI classification in MIFIDPRU 1.2.1R(10) As we proposed in CP21/26, we have introduced a new condition in MIFIDPRU 1.2.1R(10) which states that to be an SNI firm, a firm must not have been appointed to act as a depositary for a UCITS fund in accordance with COLL 6.6.AR8R or an AIF in accordance with FUND 3.11.10R. We have amended the form in Part A of MIFIDPRU 2 Annex 1R (as originally made in our final rules in FCA Instrument 2021/38) to include the new depositary condition as one of the confirmations that an SNI firm must provide when applying for an exemption from MIFIDPRU 8 due to the firm’s membership of a consolidated insurance group.

76 PS21/17 Chapter 11 Financial Conduct Authority Implementation of Investment Firms Prudential Regime Main Rule Reference Connected Rules also being Amended Purpose of Amendment Explanation MIFIDPRU 4 – Own funds 29. MIFIDPRU 4.4.1R COLL 6.6B.8R (editor’s note) FUND 3.11.16R (editor’s note) Correction of incorrect cross‑reference in original text In CP21/26, MIFIDPRU 4.4.1R(1) and (3) both incorrectly referred to a minimum capital requirement of £750,000 ‘unless MIFIDPRU 4.4.5R applies’. This cross‑reference was incorrect and our intention was to refer to MIFIDPRU 4.4.6R, which contains the £4 million minimum capital requirement for a MIFIDPRU investment firm that has been appointed to act as a depositary for a UCITS fund in accordance with COLL 6.6.AR8R or an AIF in accordance with FUND 3.11.10R. This has been corrected in the final instrument.

77 PS21/17 Annex 1 Financial Conduct Authority Implementation of Investment Firms Prudential Regime Annex 1 List of non‑confidential respondents Alternative Credit Council (ACC) Alternative Investment Management Association (AIMA) The Association of Professional Compliance Consultants (APCC) Ashmore Group plc The Bank of New York Mellon BlackRock Inc British Private Equity and Venture Capital Association (BVCA) Daiwa Capital Markets Europe Ltd The Depositary and Trustee Association (DATA) FIA European Principal Traders Association (FIA EPTA) Fidelity Investments International Futures Industry Association (FIA) Goodwin Procter (UK) LLP Invesco Ltd The Investment Association Personal Investment Management & Financial Advice Association (PIMFA) SMBC Nikko Capital Markets Limited Société Générale International Limited

78 PS21/17 Annex 2 Financial Conduct Authority Implementation of Investment Firms Prudential Regime Annex 2 Amendments to the Investment Firms Prudential Regime Instrument 2021 since publication of the Near Final Version in PS21/9 The table below sets out the amendments that have been made to the original text of the near‑final Investment Firms Prudential Regime Instrument (originally published in PS21/9) as part of finalising the Investment Firms Prudential Regime Instrument 2021 (FCA 2021/38). The table is intended only as a summary of the relevant changes and is not a substitute for firms reading all the detailed rules in the final instrument. There have been no changes to the substantive content of the Investment Firms Prudential Regime (Consequential Amendments to Other Prudential Sourcebooks) Instrument 2021 (FCA 2021/39) since the near‑final version was published. Relevant Provision Description of Amendment(s) Glossary definition of “UK parent investment firm” Amendment of limb (2) of the definition to: • add in a reference to the MIFIDPRU investment firm being the deemed parent undertaking of a relevant financial undertaking for the purposes of MIFIDPRU 2.5, which therefore captures the connected undertaking relationships that result in deemed parent status; • add in references to ancillary services undertakings, tied agents and credit institutions as entities that may be subsidiaries, in which the MIFIDPRU investment firm may hold a participation, or of which the MIFIDPRU investment firm might be a deemed parent. Note, however, that if the group contains a subsidiary that is a UK credit institution, then the group will not be an investment firm group. This will ensure that the connected undertaking deeming relationships operate as intended in the drafting in MIFIDPRU 2.4 and 2.5. MIFIDPRU 4.14.1R(2)(b) and 4.14.2G The rules relating to the K‑TCD requirement make clear that they are intended to apply to various types of securities financing transactions (SFTs). However, the drafting of the original overall application rule for the K‑TCD section could have resulted in the requirement not applying to SFTs by inadvertently limiting the scope of the requirement to transactions in a firm’s trading book. This was not intended. We have therefore updated the drafting of the rule to clarify that the K‑TCD requirement applies not only to derivative transactions in a firm’s trading book, but also to any SFTs and long settlement transactions entered into by a firm with permission to deal on own account (even if those SFTs or long settlement transactions are not recorded in the trading book). MIFIDPRU 7.9.5R(5) This provision erroneously referred to a notification requirement in MIFIDPRU 7.7.13R. That reference has been updated to refer to MIFIDPRU 7.7.14R, which contains the relevant notification requirement.

79 PS21/17 Annex 2 Financial Conduct Authority Implementation of Investment Firms Prudential Regime Relevant Provision Description of Amendment(s) MIFIDPRU 9 Annex 2G (Guidance notes on data items in MIFIDPRU 9 Annex 1R): MIF002 guidance notes The guidance notes for items 7A to 9A have been updated. These previously erroneously referred to these items as items 8A to 10A, which reflected the numbering on an earlier version of the reporting form. MIFIDPRU 9 Annex 2G (Guidance notes on data items in MIFIDPRU 9 Annex 1R): MIF007 guidance notes The guidance note for item 69A in the MIF007 guidance notes has been updated to refer to item 69A being completed only where item 68A has been answered yes. The original text erroneously referred to item 64A instead. The guidance note for item 70A in the MIF007 guidance notes has been updated to refer to item 71A being completed only where item 70A has been answered yes. The original text erroneously referred to items 67A and 66A respectively. MIFIDPRU TP10.2R(4)(a) and MIFIDPRU TP 10.9G This rule and its corresponding guidance provision have been updated to confirm that for the purposes of the transitional in MIFIDPRU TP10 relating to individual capital guidance, any amounts relating to capital planning buffers or other CRD IV buffers required under IFPRU 10 should be included in the transitional requirement. SUP 16.12.17R Deletion of MLA‑M row for reporting frequency rules. No MLA‑M report is scheduled under the corresponding substantive rule in MIFIDPRU 16.12.16R. The reference to MLA‑M in the frequency table in SUP 16.12.17R was therefore an error that has now been corrected. Application and notification forms These are contained in various annexes to the chapters containing the main rules and have been updated to make the information that we require clearer to firms. Certain updates also reflect operational and administrative requirements for capturing data within the FCA’s systems. These updates include: • clarifying when a form can be used to make a notification in relation to a consolidation group and providing additional fields to identify this; • adding an additional field to identify the relevant UK parent entity, where applicable; and • adding additional fields to confirm specific information required by particular underlying rules. These updates are administrative in nature and are designed to capture more accurate data relating to the requirements of the substantive underlying rules.

80 PS21/17 Annex 3 Financial Conduct Authority Implementation of Investment Firms Prudential Regime Annex 3 Abbreviations used in this paper Abbreviation Description AIF Alternative Investment Fund AIFM Alternative Investment Fund Manager AIFMD Alternative Investment Fund Manager Directive ASA Assets safeguarded and administered AUM Assets under management AVA Additional value adjustment BCBS Basel Committee on Banking Supervision BIPRU Prudential sourcebook for banks, building societies and investment firms BRRD Bank Recovery and Resolution Directive BTS Binding Technical Standards CCP Central counterparty CET1 Common Equity Tier 1 capital COCON Code of Conduct COH Client orders handled COLL Collective Investment Scheme sourcebook CONC Consumer Credit sourcebook COREP Common reporting CP Consultation paper CPMI Collective Portfolio Management Investment firm CRD Capital Requirements Directive CRR Capital Requirements Regulation

81 PS21/17 Annex 3 Financial Conduct Authority Implementation of Investment Firms Prudential Regime Abbreviation Description DEPP Decision Procedure and Penalties manual DTR Disclosure Guidance and Transparency Rules sourcebook EBA European Banking Authority ECAI External Credit Assessment Institutions EG Enforcement Guide EMPS Energy Market Participants ESG Environmental, Social and Governance EU European Union FCA Financial Conduct Authority FEES Fees Manual FICOD Financial Conglomerates Directive FOR Fixed overheads requirement FS Act Financial Services Act 2021 FSB Financial Stability Board FSMA Financial Services and Markets Act FUND Investment Fund sourcebook GEN General Provisions sourcebook GENPRU General Prudential sourcebook IBSAR Investment Bank Special Administrative Regime ICARA Internal Capital Adequacy and Risk Assessment IFD Investment Firm Directive IFPR Investment firm prudential regime IFPRU Prudential sourcebook for investment firms IFR Investment Firm Regulation

82 PS21/17 Annex 3 Financial Conduct Authority Implementation of Investment Firms Prudential Regime Abbreviation Description IOSCO International Organization of Securities Commissions IPRU-INV Interim prudential sourcebook for investment business ISIN International Securities Identification Number K-ASA K-factor requirement related to the activity of administering and safeguarding assets K-AUM K-factor requirement related to the activity of managing assets K-CMG K- factor requirement related to clearing margin K-CMH K factor requirement related to the activity of holding client money K-COH K-factor requirement related to the activity of handling client orders K-CON K-factor requirement based on concentration risk K-DTF K-factor requirement related to the daily trading flow K-NPR K-factor requirement related to market risk K-TCD K-factor requirement related to the risk from the default of a trading counterparty KFR K-factor requirement LEI Legal Entity Identifier LLP Limited Liability Partnership MiFID Markets in Financial Instruments Directive MIFIDPRU New Prudential sourcebook for solo regulated MiFID investment firms MRT Material Risk Taker OMPS Oil Market Participants PERG Perimeter Guidance Manual PFE Potential future exposure PMR Permanent minimum requirement PRA Prudential Regulation Authority

83 PS21/17 Annex 3 Financial Conduct Authority Implementation of Investment Firms Prudential Regime Abbreviation Description P&S Principles and Standards for Sound Compensation Practices PS Policy Statement RCB Regulated Covered Bonds RIE Recognised investment exchange SFTs Securities financing transactions SNI Small and non-interconnected investment firm SRD Shareholder Rights Directive SUP Supervision sourcebook SYSC Systems and Controls sourcebook UCITS Undertakings for Collective Investment in Transferable Securities Directive WDPG The Wind-down Planning Guide All our publications are available to download from www.fca.org.uk. If you would like to receive this paper in an alternative format, please call 020 7066 7948 or email: publications_graphics@fca.org.uk orwrite to: Editorial andDigitalteam, FinancialConduct Authority, 12 Endeavour Square, London, E20 1JN Sign up for our news and publications alerts

PS21/17 Appendix 1 Financial Conduct Authority Implementation of Investment Firms Prudential Regime Appendix 1 Made rules (legal instrument)

FCA 2021/49 INVESTMENT FIRMS PRUDENTIAL REGIME (No. 2) INSTRUMENT 2021 Powers exercised A. The Financial Conduct Authority (“the FCA”) makes this instrument in the exercise of the following powers and related provisions in the Financial Services and Markets Act 2000 (“the Act”): (1) section 137A (The FCA’s general rules); (2) section 137T (General supplementary powers); (3) section 138D (Actions for damages); (4) section 139A (Power of the FCA to give guidance); (5) section 143D (Duty to make rules applying to parent undertakings); (6) section 143E (Powers to make rules applying to parent undertakings); (7) section 143Y (Statement of policy for penalties under section 143W); and (8) section 395 (The FCA’s and PRA’s procedures). B. The rule-making provisions listed above are specified for the purposes of section 138G(2) (Rule-making instruments) of the Act. Commencement C. This instrument comes into force on 1 January 2022. Amendments to the Handbook D. The modules of the FCA Handbook listed in column (1) below are amended in accordance with the Annexes to this instrument listed in column (2). (1) (2) Glossary of definitions Annex A Senior Management Arrangements, Systems and Controls sourcebook (SYSC) Annex B Prudential sourcebook for MiFID Investment Firms (MIFIDPRU) Annex C Supervision manual (SUP) Annex D Decision Procedure and Penalties Manual (DEPP) Annex E The Enforcement Guide (EG) Annex F E. The FCA confirms and remakes in the Glossary of definitions any defined expressions used in the rules and guidance in the modules of the Handbook referred to in paragraph D where the defined expressions relate to UK legislation that has been amended since those defined expressions were last made. Notes F. In the annexes to this instrument, the “notes” (indicated by “Note:” or “Editor’s note:”) are included for the convenience of readers, but do not form part of the legislative text.

FCA 2021/49 Page 2 of 125 Citation G. This instrument may be cited as the Investment Firms Prudential Regime (No. 2) Instrument 2021. By order of the Board 25 November 2021

FCA 2021/49 Page 3 of 125 Annex A Amendments to the Glossary of definitions In this Annex, underlining indicates new text and striking through indicates deleted text, unless otherwise stated. Insert the following new definitions in the appropriate alphabetical position. The text is not underlined. Appropriately Diversified Indices RTS Part 1 (FCA) of the UK version of Regulation (EU) 945/2014 of 4 September 2014 laying down implementing technical standards with regard to relevant appropriately diversified indices according to Regulation (EU) No 575/2013 of the European Parliament and of the Council, which is part of UK law by virtue of the EUWA. AVA an additional valuation adjustment calculated under MIFIDPRU 3 Annex 8R. cooperative society a cooperative society as defined in MIFIDPRU 3 Annex 7.4R. Covered Bonds RTS Part 1 (FCA) of the UK version of Regulation (EU) 523/2014 of 12 March 2014 supplementing Regulation (EU) No 575/2013 of the European Parliament and of the Council with regard to regulatory technical standards for determining what constitutes the close correspondence between the value of an institution’s covered bonds and the value of the institution’s assets, which is part of UK law by virtue of the EUWA. Directive 2002/87/EC UK law the law of the United Kingdom (or any part of it) which, immediately before IP completion day, implemented Directive 2002/87/EC, as that law has effect on IP completion day. intermediate entity an intermediate entity as defined in MIFIDPRU 3 Annex 7.32R. Market Definition RTS Part 1 (FCA) of the UK version of Regulation (EU) 525/2014 of 12 March 2014 supplementing Regulation (EU) No 575/2013 of the European Parliament and of the Council with regard to regulatory technical standards for the definition of market, which is part of UK law by virtue of the EUWA. non-authorised parent undertaking has the meaning in section 143B(1) of the Act, which is a parent undertaking that: (a) is incorporated in the United Kingdom or has its principal place of business in the United Kingdom, and (b) is not an authorised person.

FCA 2021/49 Page 4 of 125 Amend the following definitions as shown. relevant body (in MIFIDPRU) a general meeting of the shareholders of a firm or an equivalent meeting of the owners of a firm. similar institution a similar institution as defined in MIFIDPRU 3 Annex 7.5R. Solvency 2 Regulations 2015 the Solvency 2 Regulations 2015 (SI 2015/575). third country insurance undertaking a third country insurance undertaking as defined in regulation 2 of the Solvency 2 Regulations 2015. third country reinsurance undertaking a third country reinsurance undertaking as defined in regulation 2 of the Solvency 2 Regulations 2015. tier 1 capital (in MIFIDPRU) the sum of a firm’s common equity tier 1 capital and additional tier 1 capital. valuation exposure means the amount of a valuation position that is sensitive to the movement in a valuation input. valuation input means a market observable or non-observable parameter or matrix of parameters that influences the fair value of a valuation position. valuation position means a financial instrument or commodity or portfolio of financial instruments or commodities, which are measured at fair value. financial sector entity has the meaning in article 4(1)(27) of the UK CRR. any of the following: (a) a financial sector entity as defined in article (4)(1)(27) of the UK CRR; (b) a MIFIDPRU investment firm; or (c) an ancillary services undertaking included in the consolidated financial situation of a MIFIDPRU investment firm. management body (1) … … (3) (in relation to an operator of an electronic system in relation to lending) the governing body with ultimate decision-making authority comprising the supervisory

FCA 2021/49 Page 5 of 125 and the managerial function or, if the two functions are separated, only the managerial function. [Note: article 2(1)(s) of the UCITS Directive] (4) (in relation to a non-authorised parent undertaking of an FCA investment firm) the board of directors, committee of management or other governing body of the undertaking and senior personnel who are empowered to set the undertaking’s strategy, objectives and overall direction, and which oversee and monitor management decision-making in the undertaking.

FCA 2021/49 Page 6 of 125 Annex B Amendments to the Senior Management Arrangements, Systems and Controls sourcebook (SYSC) In this Annex, underlining indicates new text and striking through indicates deleted text, unless otherwise stated. 19G MIFIDPRU Remuneration Code 19G.1 General application … Application: where the application of SYSC 19G.1.1R changes in relation to a firm 19G.1.8 R … (3) The notification in (2)(b) must be submitted through the online notification and application system using the form in MIFIDPRU 1 Annex 3R 7 Annex 3R. … 19G.4 Fixed and variable components of remuneration Categorising fixed and variable remuneration … 19G.4.2 G … (3) The FCA considers that: (a) fixed remuneration: (i) should primarily reflect a staff member’s professional experience and organisational responsibility as set out in the staff member’s job description and terms of employment; and (ii) should be permanent, pre-determined, non￾discretionary, non-revocable and not dependent on performance; and (b) variable remuneration: (i) should be based on performance or, in exceptional cases, other conditions;

FCA 2021/49 Page 7 of 125 (ii) where based on performance, should reflect the long-term performance of the staff member as well as performance in excess of the staff member’s job description and terms of employment; and (iii) includes discretionary pension benefits.; and (iv) includes carried interest, as referred to in SYSC 19G.1.27R. …

FCA 2021/49 Page 8 of 125 Annex C Amendments to the Prudential sourcebook for MiFID Investment Firms (MIFIDPRU) In this Annex, underlining indicates new text and striking through indicates deleted text, unless otherwise stated. 1 Application 1.1 Application and purpose … 1.1.9 G (1) If a firm applies stricter measures than those required under MIFIDPRU in accordance with MIFIDPRU 1.1.8R, the firm must still ensure that it meets the basic requirements of MIFIDPRU. This is illustrated by the following two examples: (a) Example 1: A firm decides to hold own funds of 0.03% of its average AUM, rather than 0.02% as required under MIFIDPRU 4.7.5R. This would be a stricter measure that still meets the basic requirements of MIFIDPRU and therefore would be permitted under MIFIDPRU 1.1.8R. (b) Example 2: A firm decides to hold a significant amount of additional own funds instead of applying the deductions from its common equity tier 1 capital required under MIFIDPRU 3.3.6R. This is on the basis that the additional own funds far exceed the estimated value of the required deductions and the firm considers that the deduction calculations are too onerous. While the firm may consider that holding these additional own funds is a stricter measure, this approach would not meet the basic requirements of MIFIDPRU, which require the firm to calculate and apply the deductions. In addition, the failure to apply the correct deductions to common equity tier 1 capital may result in the firm incorrectly applying the concentration risk requirements and limits in MIFIDPRU 5. This approach would therefore not be permitted under MIFIDPRU 1.1.8R because it does not meet the basic requirements of MIFIDPRU. (2) If a firm wishes to apply a stricter measure but is unsure of whether that measure would meet the basic requirements of MIFIDPRU, it should discuss the proposal with the FCA before applying the measure.

FCA 2021/49 Page 9 of 125 Notifications and applications under MIFIDPRU for which there is no dedicated form 1.1.10 R (1) This rule applies where: (a) a notification or an application for permission is required under a provision in (2); and (b) the provisions in MIFIDPRU do not specify that a particular notification or application form must be used for that purpose. (2) The relevant provisions in (1) are: (a) a rule in MIFIDPRU; (b) a provision of the UK CRR that is applied by MIFIDPRU; or (c) a provision in binding technical standards made for the purposes of the UK CRR where those binding technical standards are applied by MIFIDPRU. (3) Where this rule applies, a firm, UK parent entity or GCT parent undertaking that is subject to the relevant provision in (2) must: (a) where the provision requires a notification, complete the notification form in MIFIDPRU 1 Annex 5R and submit it to the FCA using the online notification and application system; or (b) where the provision requires an application for permission, complete the application form in MIFIDPRU 1 Annex 6R and submit it to the FCA using the online notification and application system. …

FCA 2021/49 Page 10 of 125 Insert the following new annexes, MIFIDPRU 1 Annex 5R and MIFIDPRU 1 Annex 6R, after MIFIDPRU 1 Annex 4R (Notification under MIFIDPRU 1.2.16R that a firm no longer qualifies to be classified as an SNI investment firm). The new text is not underlined. Application for a permission under MIFIDPRU for which there is no dedicated application form 1 Annex 5R [Editor’s note: the form can be found at this address: https://www.fca.org.uk/publication/forms/[xxx]] Application for a permission under MIFIDPRU for which there is no dedicated application form NOTE: This application form must not be used to apply for or vary a permission where MIFIDPRU contains a dedicated application form for that permission. In that case, the dedicated form must be used instead. This form is relevant only to MIFIDPRU permissions for which no other application form is provided. Name of Senior Manager responsible for this application: If the application is being made in respect of a MIFIDPRU investment firm or another SMCR firm, we would expect the individual responsible for it to hold a senior management function (SMF). Title First names Surname Job title / position Individual reference number (if applicable)

1. Please confirm which of the following the applicant is: ☐ MIFIDPRU investment firm that is not a consolidating UK parent entity or a GCT parent undertaking ☐ MIFIDPRU investment firm that is a consolidating UK parent entity ☐ MIFIDPRU investment firm that is a GCT parent undertaking ☐ Consolidating UK parent entity (other than a MIFIDPRU investment firm) ☐ GCT parent undertaking (other than a MIFIDPRU investment firm)
2. If this application is being made on behalf of other entities within the same group, please identify those other entities below: Entity name FRN (if applicable)

FCA 2021/49 Page 11 of 125 3. Please identify below the rule in MIFIDPRU that relates to the permission you are requesting. Where the permission relates to a provision of the UK CRR (or a binding technical standard originally made under the UK CRR) that is applied by a rule in MIFIDPRU, please identify the UK CRR provision or provision of the binding technical standard and the MIFIDPRU rule that applies it. MIFIDPRU rule UK CRR provision (if applicable) Binding technical standard provision (if applicable) 4. Are you applying for the variation of an existing permission that has previously been granted under MIFIDPRU? ☐ Yes Please provide the reference number below of the previous permission ☐ No 5. Is your application based on a precedent published written permission notice? ☐ Yes Please provide the reference number of the precedent permission and an explanation of why you consider the precedent to be relevant to your application. Permission reference number Relevance of the precedent permission to this application ☐ No 6. Please explain why you are applying for the MIFIDPRU permission (or a variation of the existing MIFIDPRU permission). Please give details of how the permission will affect your business, including the activities to which it relates and the types of clients or counterparties who may be affected.

FCA 2021/49 Page 12 of 125 7. Please explain how any requirements in the MIFIDPRU rule and, if applicable, the UK CRR provision or binding technical standard provision you identified in question 0 above are met. Where the relevant provisions contain multiple requirements, you must explain how each separate requirement is met. This includes any requirements that may be applied by cross-references to other MIFIDPRU rules or provisions of the UK CRR. If you attach supporting documents to support your application, please tick the box below. ☐ Supporting document(s) attached

FCA 2021/49 Page 13 of 125 Notification under MIFIDPRU for which there is no dedicated notification form 1 Annex 6R [Editor’s note: the form can be found at this address: https://www.fca.org.uk/publication/forms/[xxx]] Notification under MIFIDPRU for which there is no dedicated notification form NOTE: This form must not be used to: • submit a notification where MIFIDPRU contains a separate dedicated form for that notification. In that case, the dedicated form must be used instead; or • make a notification for purposes that are not connected with MIFIDPRU. A firm that needs to make a notification for other purposes should refer to the provisions in SUP 15. This form is relevant only to notifications under MIFIDPRU for which no other notification form is provided. Name of Senior Manager responsible for this notification: If the notification is being made in respect of a MIFIDPRU investment firm or another SMCR firm, we would expect the individual responsible for it to hold a senior management function (SMF). Name of individual Job title / position Individual reference number (if applicable)

1. Please confirm which of the following is making this notification: a. MIFIDPRU investment firm that is not a consolidating UK parent entity or a GCT parent undertaking ☐ b. MIFIDPRU investment firm that is a consolidating UK parent entity ☐ c. MIFIDPRU investment firm that is a GCT parent undertaking ☐ d. Consolidating UK parent entity (other than a MIFIDPRU investment firm) ☐ e. GCT parent undertaking (other than a MIFIDPRU investment firm) ☐
2. If this application is being made on behalf of other entities within the same group, please identify those other entities below:

FCA 2021/49 Page 14 of 125 FRN Entity name 3. Please identify below the rule in MIFIDPRU that relates to the notification you are making. Where the notification relates to a provision of the UK CRR (or a binding technical standard originally made under the UK CRR) that is applied by a rule in MIFIDPRU, please identify the UK CRR provision or provision of the binding technical standard and the MIFIDPRU rule that applies it. MIFIDPRU rule UK CRR provision (if applicable) Binding technical standard provision (if applicable) 4. Please provide details of the matter to which this notification relates. Where a MIFIDPRU rule, UK CRR provision or binding technical standard provision that you have identified in question 3 requires particular information to be provided in the notification, you must include that information. If you attach supporting documents relating to this notification, please tick the box below. ☐ Supporting document(s) attached

FCA 2021/49 Page 15 of 125 Amend the following as shown. 2 Level of application of requirements … 2.4 Investment firm groups: general … 2.4.19 G In the FCA’s view, where an investment firm group includes one or more undertakings that are connected undertakings (other than connected undertakings due to a participation in accordance with MIFIDPRU 2.4.15R), that are material (either individually or in aggregate), it is unlikely that the investment firm group will be sufficiently simple to be able to apply the group capital test. This is because the relationship between the relevant member of the investment firm group and the connected undertaking is likely to be more complex and because the group capital test can only apply to holdings in instruments issued by, or claims on, an entity. Therefore, prudential consolidation under MIFIDPRU 2.5 is likely to be more appropriate in such circumstances. Notifications relating to membership of a consolidation group or financial conglomerate 2.4.20 R (1) A MIFIDPRU investment firm must notify the FCA immediately if the firm becomes aware that: (a) it has become a member of an investment firm group; (b) it has ceased to be a member of an investment firm group; (c) there has been a change in the composition of an investment firm group of which that firm forms a part; (d) it has become a member of a financial conglomerate; or (e) it has ceased to be a member of a financial conglomerate. (2) A firm must: (a) notify the FCA under (1) using the form in MIFIDPRU 2 Annex 8R and submit it using the online notification and application system; and (b) as part of the notification in (a): (i) identify any entity that is becoming a member of the investment firm group or financial conglomerate;

FCA 2021/49 Page 16 of 125 Provision of MIFIDPRU 2.5 Summary of content … … MIFIDPRU 2.5.49 [deleted] Consolidated disclosure requirements [deleted] … … (ii) identify any existing members of the investment firm group or financial conglomerate that continue to be members of that investment firm group or financial conglomerate; (iii) identify any entity that is ceasing to be a member of the investment firm group or financial conglomerate; and (iv) where applicable, confirm that the investment firm group or financial conglomerate has ceased to exist. (3) A firm (“X”) is not required to notify the FCA under (1) if: (a) another member of the relevant investment firm group or financial conglomerate (“Y”) has notified the FCA under (1); and (b) the notification submitted by Y includes information that accurately reflects X’s relationship to the investment firm group or financial conglomerate and any other information required under (2)(b). … 2.5 Prudential consolidation … 2.5.3 G The table below is a guide to the content of this section … Prudential consolidation – main requirements 2.5.7 R A UK parent entity must comply with the following on the basis of its consolidated situation:

FCA 2021/49 Page 17 of 125 (1) MIFIDPRU 3 (Own funds); (2) MIFIDPRU 4 (Own funds requirements); (3) MIFIDPRU 5 (Concentration risk); and (4) MIFIDPRU 8 (Disclosure); and [deleted] (5) MIFIDPRU 9 (Reporting). … 2.5.10 R (1) When applying MIFIDPRU 3 on a consolidated basis, the requirements in Title II of Part Two of the UK CRR shall also apply with the modifications in this rule. (2) When applying the provisions of article 84(1), article 85(1) and article 87(1) of the UK CRR under (1): A reference in Title II of Part Two of the UK CRR to an entity or person included within the “consolidation pursuant to Chapter 2 of Title II of Part One” is a reference to an entity or person included in the consolidated situation of the investment firm group under MIFIDPRU 2.5. (a) where those provisions refer to other provisions of the UK CRR that impose own funds requirements, only the references to article 92(1) of the UK CRR apply; and (b) the references to article 92(1) of the UK CRR must be read as if they were references to the own funds requirement under MIFIDPRU. (3) The relevant subsidiaries for the purposes of articles 81(1)(a) and 82(a) of the UK CRR are: (a) a MIFIDPRU investment firm; (b) a designated investment firm; and (c) a UK credit institution that is included in the consolidated situation under MIFIDPRU 2.5 because it is a connected undertaking. (4) The modifications in (5) apply where the following provisions of the UK CRR apply to a subsidiary that is a MIFIDPRU investment firm: (a) article 84(1)(a)(i); (b) article 85(1)(a)(i); and (c) article 87(1)(a)(i).

FCA 2021/49 Page 18 of 125 (5) The modifications referred to in (4) are as follows: (a) the relevant amount of common equity tier 1 capital in article 84(1)(a)(i) is the sum of: (i) the amount of common equity tier 1 capital required to meet the firm’s own funds threshold requirement; and (ii) any other requirements that apply to the firm under additional local supervisory regulations in third countries to the extent that those requirements must be met by common equity tier 1 capital; (b) the relevant amount of tier 1 capital in article 85(1)(a)(i) is the sum of: (i) the amount of tier 1 capital required to meet the firm’s own funds threshold requirement; and (ii) any other requirements that apply to the firm under additional local supervisory regulations in third countries to the extent that those requirements must be met by tier 1 capital; and (c) the relevant amount of own funds in article 87(1)(a)(i) is the sum of: (i) the amount of own funds required to meet the firm’s own funds threshold requirement; and (ii) any other requirements that apply to the firm under additional local supervisory regulations in third countries to the extent that those requirements must be met by own funds. (6) The following provisions of the UK CRR are modified as follows: (a) article 84(1)(a)(ii) applies as if it refers to the sum of: (i) the amount of consolidated common equity tier 1 capital that relates to the subsidiary that is required on a consolidated basis to meet the requirement in MIFIDPRU 2.5; and (ii) any other requirements that apply to the subsidiary under additional local supervisory regulations in third countries to the extent that those requirements must be met by common equity tier 1

FCA 2021/49 Page 19 of 125 capital; (b) article 85(1)(a)(ii) applies as if it refers to the sum of: (i) the amount of consolidated tier 1 capital that relates to the subsidiary that is required on a consolidated basis to meet the requirement in MIFIDPRU 2.5; and (ii) any other requirements that apply to the subsidiary under additional local supervisory regulations in third countries to the extent that those requirements must be met by tier 1 capital; and (c) article 87(1)(a)(ii) applies as if it refers to the sum of: (i) the amount of consolidated own funds that relates to the subsidiary that is required on a consolidated basis to meet the requirement in MIFIDPRU 2.5; and (ii) any other requirements that apply to the subsidiary under additional local supervisory regulations in third countries to the extent that those requirements must be met by own funds. 2.5.10A G MIFIDPRU 3 Annex 7.57G and MIFIDPRU 3 Annex 7.58R contain supplementary provisions that may be relevant when a firm is applying MIFIDPRU 2.5.10R. … Prudential consolidation in practice: disclosure by investment firms 2.5.49 G [This provision has been intentionally left blank] [deleted] …

FCA 2021/49 Page 20 of 125 Insert the following annex after MIFIDPRU 2 Annex 7R (Application under MIFIDPRU 2.5.41R for permission to include portfolio of a third country entity in consolidated K-CMG). The text is not underlined. Notification under MIFIDPRU 2.4.20R relating to membership of an investment firm group and/or a financial conglomerate 2 Annex 8R [Editor’s note: the form can be found at this address: https://www.fca.org.uk/publication/forms/[xxx]] Notification under MIFIDPRU 2.4.20R of membership of an investment firm group and/or a financial conglomerate Under MIFIDPRU 2.4.20R(3), a firm (X) is not required to submit this form if another member of the investment firm group or financial conglomerate (Y) has notified the FCA of any relevant changes and the information provided by Y includes information about X and all other information required under MIFIDPRU 2.4.20R.

1. Please confirm to which of the following this notification relates: a. Investment firm group only ☐ b. Financial conglomerate only ☐ c. Investment firm group and financial conglomerate ☐
2. Please confirm which of the following apply or applies: a. The firm has become part of an investment firm group ☐ b. The firm has ceased to be part of an investment firm group ☐ c. There has been one or more relevant entities being added to the investment firm group of which the firm is a part ☐ d. There has been one or more relevant entities being removed from the investment firm group of which the firm is a part ☐ e. The firm has become part of a financial conglomerate ☐ f. The firm has ceased to be part of a financial conglomerate ☐ If you selected: • option (a), please complete questions 3 and 4 (A or B) and questions 7A and 8 • option (b), please complete questions 5, 6, 7B and 8 • option (c), please complete questions 4A, 7B and 8 • option (d), please complete questions 4A, 7B and 8

FCA 2021/49 Page 21 of 125 • option (e), please complete questions 9 to 13 • option (f), please complete questions 14 to 16 Where you have selected multiple options, you must complete all questions that apply to each of those options. Information on the investment firm group 3. Please confirm if the firm is becoming part of an existing investment firm group or if a new investment firm group is being created. ☐ Existing investment firm group ☐ New investment firm group 4. A. [For notifications relating to existing investment firm groups] Please provide the information below. The group reference number will have been notified to you after you originally notified of us the creation of the investment firm group. Name of existing investment firm group Group reference number (GRN) B. [For notifications relating to new investment firm groups] Please provide the following information: Specify a name for the investment firm group (We suggest the name of the UK parent entity, plus the word “group”) Date on which the investment firm group was/will be created Firms ceasing to be part of an investment firm group 5. Please provide the following information in relation to the investment firm group of which the firm is ceasing to be a part.

FCA 2021/49 Page 22 of 125 Name of existing investment firm group Group reference number (GRN) 6. Please confirm whether the investment firm group you have identified in question 4 will continue to exist after the firm ceases to be part of the investment firm group. ☐ Investment firm group will continue to exist ☐ Investment firm group will cease to exist Information on membership of the investment firm group 7. Please provide the information in the following tables in relation to the investment firm group. A. New entities joining the investment firm group Note: For a new investment firm group, this should include all entities in that investment firm group FRN (if applica ble) Entity name Type of group undertaking (select one):

• UK parent entity
• intermediate parent
• subsidiary (non-parent undertaking)
• connected undertaking Sub-type of group undertaking (select one):
• MIFIDPRU investment firm
• PRA designated investment firm
• credit institution
• other financial institution
• ancillary services undertaking
• tied agent Location (type country name) Principal place of business and, separately, place of incorporation (if different) B. Entities ceasing to be part of the investment firm group Note: If an investment firm group is ceasing to exist, this should include all entities in that investment firm group

FCA 2021/49 Page 23 of 125 FRN (if applica ble) Entity name Type of group undertaking (select one):

• UK parent entity
• intermediate parent undertaking
• subsidiary (non-parent undertaking)
• connected undertaking Sub-type of group undertaking (select one):
• MIFIDPRU investment firm
• PRA designated investment firm
• credit institution
• other financial institution
• ancillary services undertaking
• tied agent Location (type country name) Principal place of business and, separately, place of incorporation (if different)

8. [Where the investment firm group will continue to exist following this notification] Please attach a group structure chart showing the position of each entity in that investment firm group. ☐ Attached Firms becoming part of a financial conglomerate
9. Please confirm if the firm is becoming part of an existing financial conglomerate or if a new financial conglomerate is being created. ☐ Existing financial conglomerate ☐ New financial conglomerate
10. [If you selected “Existing financial conglomerate” in response to question 9] Please confirm whether the Classification of Groups form in GENPRU 3 Annex 3G has previously been provided to the FCA in relation to that financial conglomerate: ☐ Yes ☐ No
11. [If you selected “No” in response to question 10] Please complete the Classification of Groups form in GENPRU 3 Annex 3G in relation to the financial conglomerate and attach it to this notification. ☐ Attached

FCA 2021/49 Page 24 of 125 12. [If you selected “New financial conglomerate” in response to question 9] Please complete the Classification of Groups form in GENPRU 3 Annex 3G in relation to the financial conglomerate and attach it to this notification. ☐ Attached 13. Please provide a group structure chart showing each entity that will be part of the financial conglomerate following this notification. ☐ Attached Firms ceasing to part of a financial conglomerate 14. Please confirm whether the financial conglomerate the firm is ceasing to be a part of will continue to exist after the firm ceases to be part of it. ☐ Financial conglomerate will continue to exist ☐ Financial conglomerate will cease to exist 15. [If you selected “Financial conglomerate will continue to exist”] Please provide a group structure chart showing each entity that will be part of the financial conglomerate following this notification. ☐ Attached

FCA 2021/49 Page 25 of 125 Amend the following as shown. 3 Own funds 3.1 Application and purpose … Purpose 3.1.4 G This chapter contains requirements for the calculation of a MIFIDPRU investment firm’s own funds. These requirements are based on the provisions in Title I of Part Two of the UK CRR, but with the modifications set out in this chapter. Supplementary provisions 3.1.5 G MIFIDPRU 3 Annex 7R (Additional provisions relating to own funds) and MIFIDPRU 3 Annex 8R (Prudent valuation and additional valuation adjustments) contain supplementary provisions that are relevant to certain rules in this chapter or certain requirements in the UK CRR that are cross-applied by rules in this chapter. A firm, UK parent entity or GCT parent undertaking that is applying a relevant rule in this chapter should therefore also refer to those annexes. … 3.3 Common equity tier 1 capital 3.3.1 R (1) A firm must determine its common equity tier 1 capital in accordance with Chapter 2 of Title I of Part Two of the UK CRR, as modified by the rules in this section. (2) Any reference to the UK CRR in this section is to the UK CRR as applied by (1) and modified by the rules in this section. 3.3.1A R Article 34 of the UK CRR (Additional valuation adjustments) applies only in relation to positions held in a firm’s trading book. 3.3.1B G (1) MIFIDPRU 3 Annex 7R contains supplementary provisions that may be relevant when a firm is calculating its common equity tier 1 capital under MIFIDPRU 3.3.1R. (2) MIFIDPRU 3 Annex 8R contains supplementary provisions that apply when a firm is calculating any additional valuation adjustments under article 34 of the UK CRR (as applied by MIFIDPRU 3.3.1AR). … 3.3.4 G (1) …

FCA 2021/49 Page 26 of 125 … (3) The FCA generally expects to receive a notification of a subsequent issuance of an existing form of common equity tier 1 capital instruments under article 26(3) of the UK CRR at least 20 business days before the firm intends to classify that issuance as common equity tier 1 capital. Close correspondence between the value of a firm’s covered bonds and the value of its assets 3.3.4A R When determining whether there is a close correspondence between the value of a firm’s covered bonds and the value of the firm’s assets for the purposes of article 33(3)(c) of the UK CRR, the Covered Bonds RTS applies with the following modifications: (1) any reference to an “institution” is a reference to the firm; and (2) any reference to “Regulation (EU) No 575/2013” is a reference to the UK CRR as applied and modified by the rules in MIFIDPRU. [Note: article 33(4) of the UK CRR and BTS 523/2014.] … Deductions from common equity tier 1 capital … 3.3.6 R A MIFIDPRU investment firm must deduct the following from its common equity tier 1 items: (1) … … (9) the amount of items required to be deducted from additional tier 1 items under article 56 of the UK CRR that exceeds the additional tier 1 items of the firm; and (10) any tax charge relating to common equity tier 1 items foreseeable at the moment of its calculation, except where the firm suitably adjusts the amount of common equity tier 1 items insofar as such tax charges reduce the amount up to which those items may be used to cover risks or losses; and (11) where a firm is a partnership or a limited liability partnership, the amount by which the aggregate of any amounts withdrawn by its partners or members exceeds the profits of the firm, except to the extent that the amount:

FCA 2021/49 Page 27 of 125 (a) has already been deducted from the firm’s own funds as a loss under (1); (b) was repaid in accordance with MIFIDPRU 3.3.16R(2) or MIFIDPRU 3.3.17R(2); or (c) is already reflected in a reduction of the firm’s own funds that was permitted under articles 77 and 78 of the UK CRR, as applied in accordance with MIFIDPRU 3.6 (General requirements for own funds instruments). … 3.4 Additional Tier 1 capital 3.4.1 R (1) A firm must determine its additional tier 1 capital in accordance with Chapter 3 of Title I of Part Two of the UK CRR, as modified by the rules in this section. (2) Any reference to the UK CRR in this section is to the UK CRR as applied by (1) and modified by the rules in this section. 3.4.1A G MIFIDPRU 3 Annex 7R contains supplementary provisions relating to the calculation of a firm’s additional tier 1 capital and to write-down and conversion requirements for additional tier 1 instruments. … 3.5 Tier 2 capital 3.5.1 R (1) A firm must determine its tier 2 capital in accordance with Chapter 4 of Title I of Part Two of the UK CRR, as modified by the rules in this section. (2) Any reference to the UK CRR in this section is to the UK CRR as applied by (1) and modified by the rules in this section. 3.5.1A G MIFIDPRU 3 Annex 7R contains additional provisions relating to the calculation of a firm’s tier 2 capital. … 3.6 General requirements for own funds instruments 3.6.1 R (1) A firm must comply with Chapter 6 of Title I of Part Two of the UK CRR, as modified by the rules in this section. (2) Any reference to the UK CRR in this section is to the UK CRR as applied by (1) and modified by the rules in this section. 3.6.1A G MIFIDPRU 3 Annex 7R contains additional provisions relating to the eligibility of instruments to be classified as own funds and to the

FCA 2021/49 Page 28 of 125 reduction of own funds.

FCA 2021/49 Page 29 of 125 MIFIDPRU 3 Annex 2R (Application under MIFIDPRU 3.3.3R(1) – permission to classify capital instruments as CET1) is replaced with the form below. The new text is not underlined. Application under MIFIDPRU 3.3.3R for permission to classify an issuance of capital instruments as common equity tier 1 (CET1) capital

1. Please confirm which of the following the applicant firm is: a. MIFIDPRU investment firm that is not a consolidating UK parent entity or a GCT parent undertaking ☐ b. MIFIDPRU investment firm that is a consolidating UK parent entity ☐ c. MIFIDPRU investment firm that is a GCT parent undertaking ☐ d. Consolidating UK parent entity (other than a MIFIDPRU investment firm) ☐ e. GCT parent undertaking (other than a MIFIDPRU investment firm) ☐ If the application concerns more than one firm in the investment firm group, please submit separate applications for each firm. For applications on consolidated basis, references to firm/institution should be interpreted as to a consolidated situation of the UK parent.
2. For the instrument you would like to classify as CET1 capital, please provide the following information: a. Type of instrument (e.g. ordinary shares, partnership capital): b. If there is more than one class of the instrument, please list the different instrument classes: c. Total number of shares/units of instrument that have been issued or will be issued: d. Nominal value per share/unit of instrument:

FCA 2021/49 Page 30 of 125 £ e. Share premium per share, if applicable: £ f. Total amount of capital being raised: £ e. Proposed date to be issued: f. Total expected CET 1 after the inclusion of the amounts to which this application relates (please complete for all that apply): MIFIDPRU investment firm (solo CET1) £ GCT parent undertaking (expected value of own funds instruments as specified in MIFIDPRU 2.6.2R(1)) £ Consolidating UK parent undertaking basis (consolidated CET1) £ 3. For capital instruments to qualify as CET 1 instruments, the following conditions must be met (see article 28 of the UK CRR). Please confirm whether these conditions are met: a. The instruments are issued directly by your institution, with prior approval of the owners or, if permitted by national law, the management body of the institution: Yes/No b. The instruments are paid up and their purchase is not funded directly or indirectly by your institution (indirect funding is defined in MIFIDPRU 3 Annex 7.20R): Yes/No c. The instruments meet all of the following conditions as regards their classification: i. they qualify as capital within the meaning of Art 28(1)(c)(i) of the UK CRR:

FCA 2021/49 Page 31 of 125 Yes/No ii. they are classified as equity within the meaning of the applicable accounting framework: Yes/No iii. they are classified as equity capital for the purposes of determining balance sheet insolvency, where applicable under national insolvency law: Yes/No d. The instruments are clearly and separately disclosed on the balance sheet in the financial statements of your institution: Yes/No e. The instruments are perpetual: Yes/No f. The principal amount of the instruments may not be reduced or repaid except in the following cases: i. the liquidation of your institution; or ii. discretionary repurchases of the instruments or other discretionary means of reducing capital (e.g. call, redemption or repayment), where your institution has been granted prior permission of the competent authority under article 77 of the UK CRR: Yes/No g. The provisions governing the instruments do not indicate expressly or implicitly that the principal amount of the instruments would or might be reduced or repaid other than in the liquidation of your institution, and your institution does not otherwise provide such an indication prior to or at issuance of the instruments: Yes/No h. The instruments meet the following conditions regarding distributions: i. there is no preferential distribution treatment regarding the order of distribution payments, including in relation to other Common Equity Tier 1 instruments, and the terms governing the instruments do not provide preferential rights to payment of distributions: Yes/No

FCA 2021/49 Page 32 of 125 ii. distributions to holders of the instruments may be paid only out of distributable items: Yes/No iii. the conditions governing the instruments do not include a cap or other restriction on the maximum level of distributions: Yes/No iv. the level of distributions is not determined on the basis of the amount for which the instruments were purchased at issuance: Yes/No v. the conditions governing the instruments do not include any obligation for your institution to make distributions to their holders and your institution is not otherwise subject to such an obligation: Yes/No vi. non-payment of distributions does not constitute an event of default of your institution: Yes/No vii. the cancellation of distributions imposes no restrictions on your institution: Yes/No i. Compared to all the capital instruments issued by your institution, the instruments absorb the first and proportionately greatest share of losses as they occur, and each instrument absorbs losses to the same degree as all other Common Equity Tier 1 instruments: Yes/No j. The instruments rank below all other claims in the event of insolvency or liquidation of your institution: Yes/No k. The instruments entitle their owners to a claim on the residual assets of your institution, which, in the event of its liquidation and after the payment of all senior claims, is proportionate to the amount of the instruments issued and is not fixed or subject to a cap:

FCA 2021/49 Page 33 of 125 Yes/No l. The instruments are not secured, or subject to a guarantee that enhances the seniority of the claim by any of the following: (Answer yes if the instruments are not secured in this way) i. your institution or its subsidiaries: ii. the parent undertaking of your institution or its subsidiaries: iii. the parent financial holding company or its subsidiaries: iv. the mixed activity holding company or its subsidiaries: v. the mixed financial holding company and its subsidiaries: vi. any undertaking that has close links with the entities referred to in points i. to v.: Yes/No m. The instruments are not subject to any arrangement, contractual or otherwise, that enhances the seniority of claims under the instruments in insolvency or liquidation: (Answer “yes” if the instruments are not subject to any arrangement in this way) Yes/No 4. Partnership capital (this section should only be completed by partnerships). Is the capital contributed in accordance with MIFIDPRU 3.3.15R or MIFIDPRU 3.2.16R? Yes/No Material on how UK CRR article 28(1)(e) and (f) may be complied with can be found in MIFIDPRU 3.3.15R and 3.3.16R. 5. Please confirm whether the capital issuance to which this application relates meets the criteria required by the UK CRR (as applied by MIFIDPRU 3), including any relevant requirements in MIFIDPRU 3 Annex 7R. Yes/No Please note that the FCA may request a copy of the terms of the instrument, or further information.

FCA 2021/49 Page 34 of 125 Insert the following new annexes, MIFIDPRU 3 Annex 7R and MIFIDPRU 3 Annex 8R, after MIFIDPRU 3 Annex 6R (Notification under MIFIDPRU 3.6.5R of issuance of additional tier 1 or tier 2 instruments). The text is not underlined. 3 Annex 7 Additional provisions relating to own funds Application and purpose 7.1 R This annex applies to any of the following entities when that entity is determining its own funds under MIFIDPRU 3: (1) a MIFIDPRU investment firm; (2) a UK parent entity; and (3) a GCT parent undertaking. 7.2 G This annex contains additional rules and guidance that supplement the requirements in MIFIDPRU 3 and UK CRR (as applied by MIFIDPRU 3) relating to the calculation of own funds. 7.3 R Any reference in this annex to the UK CRR is to the UK CRR as applied and modified by MIFIDPRU 3. Definition of cooperative societies and similar undertakings 7.4 R For the purposes of article 27(1)(a)(ii) of the UK CRR, a firm is a cooperative society where the following conditions are met: (1) the firm is a registered society within the meaning of the Co￾operative and Community Benefit Societies Act 2014, or a society registered or treated as registered under the Cooperative and Community Benefit Societies Act (Northern Ireland) 1969; (2) with respect to common equity tier 1 capital, the firm is able to issue, under the applicable law of the United Kingdom (or any part of it) or the firm’s statutes, at the level of the legal entity, only capital instruments referred to in article 29 of the UK CRR; (3) where, under the applicable law of the United Kingdom (or any part of it), the holders of the firm’s common equity tier 1 instruments (whether they are members or non-members of the firm) have the ability to resign and return the capital instrument to the firm, this must be subject to any applicable restrictions under the following: (a) the law of the United Kingdom (or any part of it); (b) the statutes of the firm;

FCA 2021/49 Page 35 of 125 (c) any provision of the UK CRR that is applied by MIFIDPRU; and (d) any provision of the Handbook. [Note: article 4 of BTS 241/2014] 7.5 R For the purposes of article 27(1)(a)(iv) of the UK CRR, a firm is a similar institution where the following conditions are met: (1) with respect to common equity tier 1 capital, the firm is able to issue, under the applicable law of the United Kingdom (or any part of it) or the firm’s statutes, at the level of the legal entity, only capital instruments referred to in article 29 of the UK CRR; and (2) at least one of the following applies: (a) where the holders of the firm’s common equity tier 1 instruments (whether they are members or non-members of the firm) have the ability to resign under the applicable law of the United Kingdom (or any part of it) and have the right to put the capital instrument back to the firm, this must be subject to any applicable restrictions under the following: (i) the law of the United Kingdom (or any part of it); (ii) the statutes of the firm; (iii) any provision of the UK CRR that is applied by MIFIDPRU; and (iv) any provision of the Handbook; (b) the sum of capital, reserves and interim or year-end profits is not allowed, under the applicable law of the United Kingdom (or any part of it), to be distributed to holders of the common equity tier 1 instruments of the firm, except where: (i) the common equity tier instruments grant the holders, on a going concern basis, a right to a part of the profits and reserves that is proportionate to their contribution to the capital and reserves of the firm or is otherwise determined in accordance with an alternative arrangement, and in either case, this is permitted under applicable law; (ii) the common equity tier 1 instruments grant the holders, in the case of the insolvency or

FCA 2021/49 Page 36 of 125 liquidation of the firm, the right to reserves that need not be proportionate to the contribution to capital and reserves, provided that the conditions in article 29(4) and article 29(5) of the UK CRR are met; or (iii) the total amount or a partial amount of the sum of capital and reserves is owned by members of the firm who do not, in the ordinary course of business, benefit from direct distribution of the reserves, in particular through the payment of dividends. [Note: article 7 of BTS 241/2014.] 7.6 R MIFIDPRU 3 Annex 7.4R(3) and MIFIDPRU 3 Annex 7.5(2)(a) do not prevent the firm from issuing, whether under the law of the United Kingdom (or any part of it) or of a third country, common equity tier 1 instruments to members or non-members that comply with article 29 of the UK CRR and do not grant a right to return the capital instrument to the firm. [Note: article 4(4) and article 7(4)(a) of BTS 241/2014.] Distributions constituting disproportionate drags on capital or preferential distributions 7.7 R (1) This rule applies for the purpose of determining whether a distribution on an instrument intended to qualify as a common equity tier 1 capital instrument constitutes a disproportionate drag on capital under article 28(1)(h)(iii) and 28(3) of the UK CRR. (2) References in this rule to the “dividend multiple” are to the dividend multiple referred to in article 28(3) of the UK CRR. (3) Distributions on an instrument will not constitute a disproportionate drag on capital for the purposes of (1) where: (a) the dividend multiple is a multiple of the distribution paid on the voting instruments and is not a predetermined fixed amount; (b) the dividend multiple is set contractually or under the statutes of the firm; (c) the dividend multiple is not revisable; (d) the same dividend multiple applies to all instruments with a dividend multiple;

FCA 2021/49 Page 37 of 125 (e) the amount of distribution on one instrument with a dividend multiple does not represent more than 125% of the amount of the distribution on one voting common equity tier 1 instrument, as determined in accordance with the formula in (6); (f) the total amount of the distributions paid on all common equity tier 1 instruments during a one-year period does not exceed 105% of the amount that would have been paid if instruments with fewer or no voting rights received the same distributions as voting instruments, as determined in accordance with the formula in (7). (4) Where the conditions in (3)(a) to (3)(e) are not met, all outstanding instruments with a dividend multiple shall be deemed to cause a disproportionate drag on capital for the purposes of (1). (5) Where the condition in (3)(f) is not met, only the amount of the instruments with a dividend multiple that exceeds the threshold in that provision shall be deemed to cause a disproportionate drag on capital for the purposes of (1). (6) The formula referred to in (3)(e) is: l ≤ 1.25 x k where: k = the amount of the distribution on one instrument without a dividend multiple; and l = the amount of the distribution on one instrument with a dividend multiple. (7) The formula referred to in (3)(f) applies on a one-year basis and is as follows: kX + lY ≤ (1.05) x k x (X + Y) k = the amount of the distribution on one instrument without a dividend multiple; l = the amount of the distribution on one instrument with a dividend multiple; X = the number of voting instruments; and Y = the number of non-voting instruments. [Note: article 7a of BTS 241/2014.]

FCA 2021/49 Page 38 of 125 7.8 R A distribution on a common equity tier 1 instrument referred to in article 28 of the UK CRR shall be deemed to be a preferential distribution under article 28(1)(h)(i) of the UK CRR relative to other common equity tier 1 instruments where there are differentiated levels of distributions, unless the conditions in MIFIDPRU 3 Annex 7.7R are met. [Note: article 7b(1) of BTS 241/2014.] 7.9 R (1) This rule applies where: (a) a common equity tier 1 instrument has been issued by a firm that is a cooperative society or a similar institution; (b) the instrument in (a) has fewer or no voting rights when compared to a common equity tier 1 instrument of the firm with full voting rights; (c) the distribution on the instrument in (a) is a multiple of the distribution on the voting instruments; and (d) the distribution in (c) is set contractually or under statute. (2) Where this rule applies, a distribution on the instrument in (1)(a) is deemed not to be preferential relative to the common equity tier 1 instrument in (1)(b) for the purposes of article 28(1)(h)(i) of the UK CRR where: (a) the dividend multiple is a multiple of the distribution paid on the voting instruments and not a predetermined fixed amount; (b) the dividend multiple is set contractually or under the statutes of the firm; (c) the dividend multiple is not revisable; (d) the same dividend multiple applies to all instruments with a dividend multiple; (e) the amount of the distribution on one instrument with a dividend multiple does not represent more than 125% of the amount of the distribution on one voting common equity tier 1 instrument, as determined in accordance with the formula in (5); and (f) the total amount of distributions paid on all common equity tier 1 instruments during a one-year period does not exceed 105% of the amount that would have been paid if instruments with fewer or no voting rights received the same distributions as the voting instruments, as determined in accordance with the formula in (6).

FCA 2021/49 Page 39 of 125 (3) Where any of the conditions in (2)(a) to (2)(e) are not met, all outstanding instruments with a dividend multiple shall be disqualified from the common equity tier 1 capital of the firm. (4) Where the condition in (2)(f) is not met, only the amount of the instruments with a dividend multiple that exceeds the threshold defined in that provision shall be disqualified from the common equity tier 1 capital of the firm. (5) Subject to (7), the formula referred to in (2)(e) is: l ≤ 1.25 x k where: k = the amount of the distribution on one instrument without a dividend multiple; and l = the amount of the distribution on one instrument with a dividend multiple. (6) Subject to (7), the formula referred to in (2)(f) applies on a one￾year basis and is as follows: kX + lY ≤ (1.05) x k x (X + Y) where: k = the amount of the distribution on one instrument without a dividend multiple; l = the amount of the distribution on one instrument with a dividend multiple; X = the number of voting instruments; and Y = the number of non-voting instruments. (7) Where the distributions on common equity tier 1 instruments (whether for voting or non-voting instruments) are expressed with reference to the purchase price of the instrument at issuance, the formulae in (5) and (6) shall be adapted as follows for those instruments: (a) l shall represent the amount of the distribution on one instrument without a dividend multiple divided by the purchase price at issuance of that instrument; and (b) k shall represent the amount of the distribution on one instrument with a dividend multiple divided by the purchase price at issuance of that instrument.

FCA 2021/49 Page 40 of 125 (8) The one-year period referred to in (6) shall be deemed to end on the date of the last financial statements of the firm. [Note: article 7b(2) to 7b(5) of BTS 241/2014.] 7.10 R (1) This rule applies where: (a) a common equity tier 1 instrument has been issued by a firm that is a cooperative society or a similar institution; (b) the instrument in (a) has fewer or no voting rights when compared to a common equity tier 1 instrument of the firm with full voting rights; and (c) the distribution on the instrument in (a) is not a multiple of the distribution on the voting instruments. (2) Where this rule applies, a distribution on the instrument in (1)(a) shall be deemed not to be preferential relative to the common equity tier 1 instrument in (1)(b) for the purposes of article 28(1)(h)(i) of the UK CRR where: (a) either of the conditions in (3) is met; and (b) both of the conditions in (5) are met. (3) The relevant conditions in (2)(a) are that either: (a) both of the following points are satisfied: (i) the instrument with fewer or no voting rights can only be subscribed and held by the holders of voting instruments; and (ii) the number of the voting rights of any single holder is limited, as specified in (4); or (b) the distributions on the voting instruments issued by the firm are subject to a cap set out under the applicable law of the United Kingdom (or any part of it), or of a third country. (4) For the purposes of (3)(a)(ii), the voting rights of any single holder shall be deemed to be limited in the following cases: (a) where each holder only receives one voting right irrespective of the number of voting instruments for any holder; (b) where the number of voting rights is capped irrespective of the number of voting instruments held by any holder;

FCA 2021/49 Page 41 of 125 or (c) where the number of voting instruments any holder may hold is limited under the statutes of the firm or under the applicable law of the United Kingdom (or any part of it), or of a third country. (5) The relevant conditions in (2)(b) are that: (a) the average of the distributions on voting instruments of the firm during the preceding 5 years is low in relation to other comparable instruments; and (b) the payout ratio as calculated under MIFIDPRU 3 Annex 7.12R is under 30%. (6) A firm must assess compliance with the conditions in (3) and (5) and notify the FCA of the results of that assessment in the following situations: (a) every time the firm takes a decision on the amount of distributions on common equity tier 1 instruments; and (b) every time the firm issues a new class of common equity tier 1 instruments with fewer or no voting rights when compared with common equity tier 1 instruments of the firm with full voting rights. (7) A firm must make the notification in (6) by completing the form in MIFIDPRU 1 Annex 6R and submitting it to the FCA using the online notification and application system. (8) Where neither of the conditions in (3) are met, the distributions on all outstanding non-voting instruments are deemed to be preferential unless they meet the conditions in MIFIDPRU 3 Annex 7.9R(2). (9) Where the condition in (5)(a) is not met, the distributions on all outstanding non-voting instruments shall be deemed to be preferential unless they meet the conditions in MIFIDPRU 3 Annex 7.9R(2). (10) Where the condition in (5)(b) is not met, only the amount of the non-voting instruments for which distributions exceed the threshold specified in that provision shall be deemed to entail preferential distributions. [Note: article 7b(6) to 7b(14) of BTS 241/2014.] 7.11 G A firm may apply under section 138A of the Act for a waiver of the requirements in MIFIDPRU 3 Annex 7.10R(3)(a)(i) or MIFIDPRU 3

FCA 2021/49 Page 42 of 125 𝑅 = 𝐷 𝑃 Annex 7.10R(5)(b) where: (1) the firm is in breach of, or due to a rapidly deteriorating financial condition, is likely in the near future to be in breach of, the requirements in MIFIDPRU (other than those in MIFIDPRU 3 Annex 7.10R(3)(a)(i) or MIFIDPRU 3 Annex 7.10R(5)(b)); (2) the FCA has required the firm to increase its common equity tier 1 capital within a specified period; and (3) the firm considers that it will not be able to rectify or avoid the breach of MIFIDPRU within that specified period unless the relevant requirement in MIFIDPRU 3 Annex 7.10R(3)(a)(i) or MIFIDPRU 3 Annex 7.10R(5)(b) is waived. [Note: article 7b(15) of BTS 241/2014.] 7.12 R (1) A firm must calculate the payout ratio under MIFIDPRU 3 Annex 7.10R(5)(b) using the following formula: where: R = the payout ratio; D = the sum of the distributions related to total common equity tier 1 instruments over the previous 5 yearly periods; and P = the sum of profits related to the previous 5 yearly periods. (2) For the purposes of paragraph (1), profits shall be: (a) in the case of a period for which the firm submitted data item FSA030 (Income Statement), the amount of profit after taxation reported in cell 25A of that data item; (b) in the case of a period for which the firm submitted data item FSA002 (Income Statement), the amount of net profit reported in cell 46B of that data item; and (c) in the case of a period for which the firm submitted FINREP return F02.00 (Statement of profit or loss), whether under IFRS or GAAP, the amount of profit after tax reported in row 670. [Note: article 7c of BTS 241/2014.] 7.13 R For the purposes of article 28 of the UK CRR, a distribution on a common equity tier 1 instrument shall be deemed to be preferential relative to

FCA 2021/49 Page 43 of 125 other common equity tier 1 instruments regarding the order of distribution payments where at least one of the following conditions is met: (1) distributions are decided at different times; (2) distributions are paid at different times; (3) there is an obligation on the firm to pay the distributions on one type of common equity tier 1 instruments before paying the distributions on another type of common equity tier 1 instruments; or (4) a distribution is paid on some common equity tier 1 instruments but not on others, unless the condition in MIFIDPRU 3 Annex 7.10R3(a) is satisfied. [Note: article 7d of BTS 241/2014.] Deduction of foreseeable dividends from interim or year-end profits to be recognised as CET1 items 7.14 R (1) This rule applies for the purpose of determining the amount of any foreseeable dividend that must be deducted by a MIFIDPRU investment firm from its interim or year-end profits under article 26(2)(b) of the UK CRR. (2) Where the firm’s management body has formally taken a decision or proposed a decision to the firm’s relevant body regarding the amount of dividends to be distributed, that amount must be deducted from the corresponding interim or year-end profits. (3) Before the firm’s management body has formally taken a decision or proposed a decision to the firm’s relevant body on the distribution of dividends, the amount of foreseeable dividends to be deducted by the firm from the interim or year-end profits must equal the amount of interim or year-end profits multiplied by the dividend payout ratio (as calculated in accordance with MIFIDPRU 3 Annex 7.16R). (4) Where the firm pays an interim dividend, the residual amount of interim profit which is to be added to the firm’s common equity tier 1 items must be reduced (taking into account the requirement in (3)), by the amount of any foreseeable dividend which can be expected to be paid out from that residual interim profit with the final dividends for the full business year. (5) This rule is subject to MIFIDPRU 3 Annex 7.15R. [Note: article 2 of BTS 241/2014.]

FCA 2021/49 Page 44 of 125 𝑅 = 𝐷 𝑁 7.15 R (1) Where a foreseeable dividend is to be paid in a form that does not reduce the common equity tier 1 items of the firm (such as through a scrip dividend), the amount of that dividend does not need to be deducted from a firm’s interim or year-end profits for the purposes of article 26(2) of the UK CRR. (2) Where a firm is subject to a regulatory restriction on the amount of any dividend it can pay, the amount of any foreseeable dividend to be deducted must be determined taking into account that restriction. [Note: article 2(9) and 2(10) of BTS 241/2014.] 7.16 R (1) This rule applies for the purposes of determining the dividend payout ratio referred to in MIFIDPRU 3 Annex 7.14R(3). (2) Subject to (3), the dividend payout ratio must be determined on the basis of the dividend policy approved for the relevant period by the firm’s management body or relevant body. (3) Where the firm’s dividend policy in (2) contains a payout range instead of a fixed value, the upper end of the range must be used when determining the dividend payout ratio. (4) Where the firm does not have an approved dividend policy, the dividend payout ratio is the higher of the following: (a) the average dividend payout ratio over the three years prior to the year under consideration; or (b) the dividend payout ratio of the year preceding the year under consideration. (5) The dividend payout ratio in (4)(a) and (4)(b) must be calculated using the following formula: where: R = the dividend payout ratio for the relevant period; D = the sum of distributions made by the firm during the relevant period; and N = the net income of the firm during the relevant period. [Note: article 2(4) to 2(6) of BTS 241/2014.]

FCA 2021/49 Page 45 of 125 7.17 G (1) The FCA may require a firm to use the alternative calculation of the dividend payout ratio in MIFIDPRU 3 Annex 7.16R(4) where, even though the firm has an approved dividend policy, the FCA considers that: (a) the firm would not apply the dividend policy in practice; or (b) the policy is not a prudent basis on which to determine the amount to be deducted from interim or year-end profits for the purposes of MIFIDPRU 3 Annex 7.14R. (2) In the circumstances in (1), the FCA will normally invite the firm to apply for the imposition of a requirement on the firm under section 55L(5) of the Act to apply the alternative calculation. Alternatively, the FCA may seek to impose such a requirement on its own initiative under section 55L(3) of the Act. [Note: article 2(7) of BTS 241/2014.] 7.18 G A firm may apply to the FCA under section 138A of the Act for a modification of MIFIDPRU 3 Annex 7.16R(4) to exclude exceptional dividends where the firm has paid those dividends during the period for which the dividend payout ratio is being determined. The FCA will consider whether including those dividends in the calculation would be unduly onerous or would otherwise fail to achieve the purpose of that rule. This is likely to depend on whether the firm can demonstrate that the dividends are genuinely exceptional in nature. [Note: article 2(8) of BTS 241/2014.] Deduction of foreseeable charges from interim or year-end profits to be recognised as CET1 items 7.19 R (1) This rule applies for the purpose of determining the amount and timing of any foreseeable charge that must be deducted by a MIFIDPRU investment firm from its interim or year-end profits under article 26(2)(b) of the UK CRR. (2) The amount of foreseeable charges to be deducted must include the following: (a) any taxes; (b) any amounts resulting from obligations or circumstances that may arise during the related reporting period where: (i) those amounts are likely to reduce the profits of the firm; and (ii) the firm has not made all necessary value

FCA 2021/49 Page 46 of 125 adjustments or provisions, including AVAs under article 34 of the UK CRR, to cover such amounts. (3) Where the firm has not already taken a foreseeable charge into account in the profit and loss account, the charge must be assigned to the interim period during which it was incurred. (4) For the purposes of (3), where a charge was incurred during more than one interim period, the firm must allocate the amount so that each interim period bears a reasonable amount of the relevant charge. (5) A charge that occurs from a material or non-recurrent event must be allocated in full without delay to the interim period during which the event arises. [Note: article 3 of BTS 241/2014.] Prohibition on direct or indirect funding of own funds instruments 7.20 R (1) This rule applies for the purpose of determining when an instrument has been funded indirectly by a firm for the purposes of any of the following provisions of the UK CRR: (a) article 28(1)(b); (b) article 52(1)(c); or (c) article 63(c). (2) Funding will be indirect funding for the purposes of (1) when it is not direct funding as defined in (3). (3) Direct funding is either of the following: (a) a situation where a firm has granted a loan or other funding in any form to an investor that is used to purchase the firm’s capital instruments; or (b) funding granted by the firm for purposes other than those in (a) to any natural or legal person in the following situations, where the conditions in (4) are not met: (i) the person has a qualifying holding (as defined in article 4(1)(36) of the UK CRR) in the firm; or (ii) the person is deemed to be a related party within the meaning of the definitions in paragraph 9 of International Accounting Standard 24 on Related Party Disclosures, as applied by UK-adopted international accounting standards on 1 January

FCA 2021/49 Page 47 of 125 2022. (4) The conditions in (3)(b) are: (a) the transaction is realised at similar conditions to other transactions with third parties; and (b) the natural or legal person does not have to rely on the distributions or on the sale of the capital instruments held to support the payment of interest or the repayment of the funding granted by the firm. [Note: article 8 of BTS 241/2014.] 7.21 R (1) The following are non-exhaustive examples of indirect funding for the purposes of the provisions of the UK CRR listed in MIFIDPRU 3 Annex 7.20R(1) where the condition in (2) is also satisfied: (a) funding of an investor’s purchase, at issuance or thereafter, of a firm’s capital instruments by entities over which the firm has direct or indirect control, or by entities included in any of the following: (i) the scope of accounting or prudential consolidation of the firm; or (ii) the scope of supplementary supervision of the firm under Directive 2002/87/EC UK law; (b) funding of an investor’s purchase, at issuance or thereafter, of a firm’s capital instruments by external entities that are protected by a guarantee or by the use of a credit derivative or are secured in some other way so that the credit risk is transferred to the firm or to any entities on which the firm has a direct or indirect control or any entities included in any of the following: (i) the scope of accounting or prudential consolidation of the firm; or (ii) the scope of supplementary supervision of the firm under Directive 2002/87/EC UK law; (c) funding of a borrower that passes the funding on to the ultimate investor for the purchase, at issuance or thereafter, of a firm’s capital instruments. (2) The relevant condition is that the investor or, where applicable, the external entity is not included in any of the following:

FCA 2021/49 Page 48 of 125 (a) the scope of accounting or prudential consolidation of the firm; or (b) the scope of supplementary supervision of the firm under Directive 2002/87/EC UK law. [Note: article 9(1) and 9(2) of BTS 241/2014.] 7.22 R When establishing whether the purchase of a capital instrument involves direct or indirect funding for the purposes of MIFIDPRU 3 Annex 7.20R, the amount to be considered must be net of any individually assessed impairment allowance made. [Note: article 9(3) of BTS 241/2014.] 7.23 R To prevent a loan or other form of funding or guarantee being classified as direct or indirect funding for the purposes of MIFIDPRU 3 Annex 7.20R, the firm must: (1) where the loan, funding or guarantee is granted to any natural or legal person referred to in MIFIDPRU 3 Annex 7.20R(3)(b)(i) or (ii), ensure on an ongoing basis that the loan, funding or guarantee has not been provided for the purpose of subscribing directly or indirectly for the firm’s capital instruments; and (2) where the loan, funding or guarantee has been granted to other types of parties, use the firm’s best efforts to avoid providing the loan, funding or guarantee for the purpose of subscribing directly or indirectly for the firm’s capital instruments. [Note: article 9(4) of BTS 241/2014.] 7.24 R (1) This rule applies to a firm that is: (a) a cooperative society; or (b) a similar institution. (2) Where a firm in (1) has an obligation under the law of the United Kingdom (or any part of it) or the statutes of the firm for a customer to subscribe for capital instruments in the firm in order to receive a loan, that loan shall not be considered as direct or indirect funding for the purposes of MIFIDPRU 3 Annex 7.20R where the following conditions are met: (a) the value of the subscription amount is not material; (b) the purpose of the loan is not the purchase of capital instruments in the firm; and (c) subscription for one or more capital instruments of the

FCA 2021/49 Page 49 of 125 firm is necessary for the customer to become a member of the firm. [Note: article 9(5) of BTS 241/2014.] Requirements relating to the reduction of own funds instruments 7.25 R For the purposes of MIFIDPRU 3.6.4R(1), terms will be sustainable for the income capacity of the firm where: (1) the profitability of the firm will continue to be sound and will not see any negative change in the foreseeable future after the replacement of the original own funds instruments with own funds instruments of equal or higher quality; and (2) the assessment of profitability in the foreseeable future in (1) takes into account the firm’s profitability in stressed situations. [Note: article 27 of BTS 241/2014.] 7.26 R Where the prior permission of the FCA is required for the redemption, repurchase or reduction of own funds instruments under article 77 of the UK CRR, a firm must not announce the redemption, repurchase or reduction to holders of the relevant own funds instruments until it has obtained that permission. [Note: article 28(1) of BTS 241/2014.] 7.27 R (1) A firm must deduct from the corresponding elements of its own funds any amounts of its own funds instruments to be reduced, redeemed or repurchased as soon as the following conditions are met: (a) where required, the firm has obtained permission from the FCA under article 78 of the UK CRR; and (b) the reduction, redemption or repurchase is expected to take place with sufficient certainty. (2) For the purposes of (1)(b), a situation in which sufficient certainty will exist includes, but is not limited to, where the firm has publicly announced its intention to redeem, reduce or repurchase an own funds instrument. [Note: article 28(2) of BTS 241/2014.] 7.28 R (1) This rule applies for the purposes of limitations on redemption applied by any of the following under article 29(2)(b) of the UK CRR or article 78(3) of the UK CRR: (a) a cooperative society; or

FCA 2021/49 Page 50 of 125 (b) a similar institution. (2) A firm may issue common equity tier 1 instruments with a possibility to redeem only where permitted by the applicable law of the United Kingdom (or any part of it) or of a third country. (3) The ability of a firm to limit the redemption of a capital instrument under article 29(2)(b) or article 78(3) of the UK CRR includes: (a) the right to defer the redemption; and (b) the right to limit the amount to be redeemed. (4) There is no specific limit on the period of time for which a firm may defer the redemption of a capital instrument or may limit the amount to be redeemed under (3), but the firm must comply with the requirement in (5). (5) The extent of the limitations on redemption included in the provisions governing the instruments must be determined by the firm on the basis of its prudential situation at any time, having regard in particular to the following non-exhaustive factors: (a) the overall financial, liquidity and solvency situation of the firm; (b) the amount of the firm’s common equity tier 1 capital, tier 1 capital and total own funds compared to the firm’s own funds requirement. (6) A firm must: (a) document any decision to limit the redemption of a capital instrument under this rule; and (b) notify the FCA of the decision by completing the form in MIFIDPRU 1 Annex 6R and submitting it via the online notification and application system, explaining the reasons for the limitation and how the factors in (5) apply. [Note: article 10 and article 11(3) and 11(4) of BTS 241/2014.] Gains on a sale 7.29 R (1) This rule applies for the purpose of defining the concept of a gain on sale under article 32(1)(a) of the UK CRR. (2) A gain on sale is any recognised gain on sale for the firm that: (a) is recorded as an increase in any element of own funds;

FCA 2021/49 Page 51 of 125 and (b) is associated with future margin income arising from a sale of securitised assets when they are removed from the firm’s balance sheet in the context of a securitised transaction. (3) The recognised gain on sale must be determined as the difference between the following, as determined by applying the relevant accounting framework: (a) the net value of the assets received (including any new asset obtained) less any other asset given or any new liability assumed; and (b) the carrying amount of the securitised assets or of the part derecognised. (4) The recognised gain on sale which is associated with the future margin income is the expected future express spread, which is determined as the finance charge collections and other fee income received in respect of the securitised exposures net of costs and expenses. [Note: article 12 of BTS 241/2014.] Deductions from own funds 7.30 R (1) Subject to (3), for the purpose of calculating its common equity tier 1 capital during the year, and irrespective of whether the firm closes its financial accounts at the end of each interim period, the firm must determine its profit and loss accounts and deduct any resulting losses from common equity tier 1 items under MIFIDPRU 3.3.6R(1) as they arise. (2) For the purpose of determining a firm’s profit or loss accounts under (1), a firm must: (a) determine its income and expenses under the same process and on the basis of the same accounting standards as those used for the year-end financial report; (b) prudently estimate income and expenses and assign them to the interim period in which they are incurred so that each interim period bears a reasonable amount of the anticipated annual income and expenses; and (c) consider material or non-recurrent events in full and without delay in the interim period during which they arise.

FCA 2021/49 Page 52 of 125 (3) Where losses for the current financial year have already reduced the firm’s common equity tier 1 items as a result of an interim or a year-end financial report, a deduction is not required. (4) For the purposes of this rule, a “financial report” means that the profit and losses have been determined after a closing of the interim or the annual accounts in accordance with the applicable accounting framework. (5) This rule applies in the same manner to gains and losses included in accumulated other comprehensive income. [Note: article 13 of BTS 241/2014.] 7.31 R (1) This rule applies for the purposes of determining the deduction of deferred tax assets that rely on future profitability under MIFIDPRU 3.3.6R(3). (2) The offsetting between deferred tax assets and associated deferred tax liabilities must be done separately for each taxable entity. (3) Associated deferred tax liabilities must be limited to those that arise from the tax law of the same jurisdiction as the deferred tax assets. (4) For the calculation of deferred tax assets and liabilities at consolidated level, a taxable entity includes any number of entities which are members of the same tax group, fiscal consolidation, fiscal unity or consolidated tax return under any applicable law of the United Kingdom or of a third country. (5) The amount of associated deferred tax liabilities which are eligible for offsetting deferred tax assets that rely on future profitability is equal to the difference between the following: (a) the amount of deferred tax liabilities as recognised under the applicable accounting framework; (b) the amount of associated deferred tax liabilities arising from intangible assets and from defined benefit pension fund assets. [Note: article 14 of BTS 241/2014.] 7.32 R (1) This rule defines an intermediate entity for the purposes of MIFIDPRU 3 Annex 7.33R to MIFIDPRU 3 Annex 7.40R. (2) An intermediate entity is any of the following entities, where that entity holds capital instruments of a financial sector entity:

FCA 2021/49 Page 53 of 125 (a) a collective investment undertaking; (b) a pension fund other than a defined benefit pension fund; (c) a defined benefit pension fund, where the firm is supporting the investment risk and where the defined benefit pension fund is not independent from its sponsoring institution in accordance with (4); (d) an entity that is directly or indirectly under the control or under significant influence of one of the following: (i) the firm or its subsidiaries; (ii) the parent undertaking of the firm or the subsidiaries of that parent undertaking; (iii) the parent financial holding company of the firm or the subsidiaries of that parent financial holding company; (iv) the parent investment holding company of the firm of the subsidiaries of that parent investment holding company; (v) the parent mixed-activity holding company of the firm or the subsidiaries of the parent mixed activity holding company; or (vi) the parent mixed financial holding company of the firm or the subsidiaries of the parent mixed financial holding company; (e) a special purpose entity; (f) an entity whose activity is to hold financial instruments of financial sector entities; and (g) an entity that is used for the purpose of circumventing the rules relating to the deduction of indirect and synthetic holdings. (3) Except where (2)(g) applies, the following are not intermediate entities: (a) mixed-activity holding companies; (b) institutions; (c) MIFIDPRU investment firms;

FCA 2021/49 Page 54 of 125 (d) insurance undertakings; (e) reinsurance undertakings; (f) financial sector entities (other than those in (a) to (e)) that are supervised and required to deduct the following from their regulatory capital: (i) direct and indirect holdings of their own capital instruments; and (ii) holdings of capital instruments of financial sector entities. (4) For the purposes of (2)(c), a defined benefit pension fund will be deemed to be independent from its sponsoring institution where the following conditions are met: (a) the defined benefit pension fund is legally separate from the sponsoring institution and its governance is independent; (b) either: (i) the statutes, the instruments of incorporation and the internal rules of the specific pension fund, as applicable, have been approved by an independent regulator; or (ii) the rules governing the incorporation and functioning of the defined benefit pension fund, as applicable, are established in the applicable law of the relevant country; (c) the trustees or administrators of the defined pension fund have an obligation under applicable national law to: (i) act impartially in the best interests of the scheme beneficiaries instead of those of the sponsor; (ii) manage assets of the defined pension fund prudently; and (iii) conform to the restrictions set out in the statutes, the instruments of incorporation and the internal rules of the specific pension fund, as applicable, or statutory or regulatory framework described in point (b); and (d) the statutes or the instruments of incorporation or the rules governing the incorporation and functioning of the

FCA 2021/49 Page 55 of 125 defined benefit pension fund referred to in point (b) include restrictions on investments that the defined pension scheme can make in own funds instruments issued by the sponsoring institution. (5) Where a defined benefit pension fund referred to in (2)(c) holds own funds instruments of the sponsoring institution, the sponsoring institution must: (a) treat that holding as an indirect holding of its own common equity tier 1 instruments, own additional tier 1 instruments or own tier 2 instruments, as applicable; and (b) determine the amount to be deducted from its common equity tier 1 items, additional tier 1 items or tier 2 items (as applicable) in accordance with MIFIDPRU 3 Annex 7.34R and MIFIDPRU 3 Annex 7.39R. [Note: article 15a of BTS 241/2014.] 7.33 R (1) The following financial products are synthetic holdings of capital instruments for the purposes of MIFIDPRU 3.3.6R(5), (7) and (8): (a) derivative instruments that have capital instruments of a financial sector entity as their underlying or have the financial sector entity as their reference entity; (b) guarantees or credit protection provided to a third party in respect of the third party's investments in a capital instrument of a financial sector entity. (2) The financial products in (1) include the following: (a) investments in total return swaps on a capital instrument of a financial sector entity; (b) call options purchased by the firm on a capital instrument of a financial sector entity; (c) put options sold by the firm on a capital instrument of a financial sector entity or any other actual or contingent contractual obligation of the firm to purchase its own funds instruments; and (d) investments in forward purchase agreements on a capital instrument of a financial sector entity. [Note: article 15b of BTS 241/2014.] 7.34 R (1) The amount of indirect holdings that a firm must deduct from its common equity tier 1 items under MIFIDPRU 3.3.6R(5), (7) or

FCA 2021/49 Page 56 of 125 (8) must be calculated in one of the following ways: (a) according to the default approach set out in MIFIDPRU 3 Annex 7.35R; or (b) subject to (3), with the prior permission of the FCA, the structure-based approach in MIFIDPRU 3 Annex 7.36R. (2) To obtain the permission in (1)(b), a firm must: (a) complete the application form in MIFIDPRU 1 Annex 5R and submit to the FCA using the online notification and application system; and (b) demonstrate to the satisfaction of the FCA that it would be impractical or excessively complex to apply the default approach in MIFIDPRU 3 Annex 7.35R. (3) A firm must not use the structure-based approach to calculate deductions in relation to investments in the intermediate entities in MIFIDPRU 3 Annex 7.32R(2)(d) and (e). [Note: article 15c of BTS 241/2014.] 7.35 R (1) This rule contains the default approach for the deduction of indirect holdings under MIFIDPRU 3 Annex 7.34R(1)(a). (2) A firm must calculate the amount of indirect holdings of common equity tier 1 instruments to be deducted as follows: (a) where the exposures of all investors to the intermediate entity rank pari passu, the amount shall be equal to the percentage of funding multiplied by the amount of common equity tier 1 instruments of the financial sector entity held by the intermediate entity; (b) where the exposures of all investors to the intermediate entity do not rank pari passu, the amount shall be equal to the percentage of funding multiplied by the lower of the following amounts: (i) the amount of common equity tier 1 instruments of the financial sector entity held by the intermediate entity; (ii) the firm’s exposure to the intermediate entity together with all other funding provided to the intermediate entity that rank pari passu with the firm’s exposure. (3) A firm must use the calculation method in (2)(b) for each tranche of funding that ranks pari passu with the funding provided by the

FCA 2021/49 Page 57 of 125 firm. (4) The percentage of funding in (2) is calculated as the firm’s exposure to the intermediate entity divided by the sum of the firm’s exposure to the intermediate entity and all other exposures to the intermediate entity that rank pari passu with the firm’s exposure. (5) A firm must carry out the calculation in (2) separately for each holding in a financial sector entity held by each intermediate entity. (6) Where a firm holds investments in common equity tier 1 instruments of a financial sector entity indirectly through several intermediate entities, the firm must determine the percentage of funding in (2) by dividing the amount in (a) below by the amount in (b): (a) the result of the multiplication of amounts of funding provided by the firm to intermediate entities by the amounts of funding provided by these intermediate entities to subsequent intermediate entities and by amounts of funding provided by these subsequent intermediate entities to the financial sector entity; (b) the result of the multiplication of amounts of capital instruments or other instruments as relevant, issued by each intermediate entity. (7) The percentage of funding referred to in (6) must be calculated separately for each holding in a financial sector entity held by intermediate entities and for each tranche of funding that ranks pari passu with the funding provided by the firm and the subsequent intermediate entities. [Note: article 15d of BTS 241/2014.] 7.36 R (1) This rule contains the structure-based approach for the deduction of indirect holdings under MIFIDPRU 3 Annex 7.34R(1)(b). (2) The amount to be deducted from common equity tier 1 items referred to in MIFIDPRU 3.3.6R(5) shall be equal to the percentage of funding, as defined in MIFIDPRU 3 Annex 7.35R(4), multiplied by the amount of common equity tier 1 instruments of the firm held by the intermediate entity. (3) The amount to be deducted from common equity tier 1 items referred to in MIFIDPRU 3.3.6R(7) and (8) shall be equal to the percentage of funding, as defined in MIFIDPRU 3 Annex 7.35R(4), multiplied by the aggregate amount of common equity tier 1 instruments of financial sector entities held by the

FCA 2021/49 Page 58 of 125 intermediate entity. (4) For the purposes of (2) and (3), a firm must calculate separately for each intermediate entity the aggregate amount of common equity tier 1 instruments of the firm that the intermediate entity holds and the aggregate amount of common equity tier 1 instruments of other financial sector entities that the intermediate entity holds. (5) The firm must treat the amount of holdings in common equity tier 1 instruments of financial sector entities calculated in accordance with (3) as a significant investment referred to in article 43 of the UK CRR and must deduct the amount in accordance with MIFIDPRU 3.3.6R(8). (6) Where investments in common equity tier 1 instruments are held indirectly through subsequent or several intermediate entities, MIFIDPRU 3 Annex 7.35R(6) and (7) apply. (7) Where a firm is not able to identify the aggregate amounts that the intermediate entity holds in common equity tier 1 instruments of the firm or in common equity tier 1 instruments of financial sector entities, the firm must estimate the amounts it cannot identify by using the maximum amounts that the intermediate entity is able to hold on the basis of its investment mandates. (8) Subject to (9), where the firm is not able to determine, on the basis of the investment mandate, the maximum amount that the intermediate entity holds in common equity tier 1 instruments of the institution or in common equity tier 1 instruments of financial sector entities, the firm must treat the amount of funding that it holds in the intermediate entity as an investment in its own common equity tier 1 instruments and must deduct them in accordance with MIFIDPRU 3.3.6R(5). (9) By way of derogation from (8), the firm must treat the amount of funding that it holds in the intermediate entity as a non￾significant investment and must deduct that investment in accordance with MIFIDPRU 3.3.6R(7), where all of the following conditions are met: (a) the amounts of funding are less than 0.25% of the firm’s common equity tier 1 capital; (b) the amounts of funding are less than £10 million; (c) the firm cannot reasonably determine the amounts of its own common equity tier 1 instruments that the intermediate entity holds. (10) Where funding to the intermediate entity is in the form of units

FCA 2021/49 Page 59 of 125 or shares of a CIU, the firm may rely on the third parties referred to in article 132(5) of the UK CRR, and under the conditions set by that article, to calculate and report the aggregate amounts referred to in (7). [Note: article 15e of BTS 241/2014.] 7.37 R (1) The amount of synthetic holdings to be deducted from common equity tier 1 items under MIFIDPRU 3.3.6R(5), (7) and (8) is determined as follows: (a) for holdings in the trading book: (i) for options, the delta equivalent amount of the relevant instruments calculated in accordance with Title IV of Part III of the UK CRR; and (ii) for any other synthetic holdings, the nominal or notional amount, as applicable; and (b) for holdings that are not in the trading book: (i) for call options, the current market value; and (ii) for any other synthetic holdings, the nominal or notional amount, as applicable. (2) A firm must deduct the synthetic holdings in (1) from the date of signature of the contract between the firm and the counterparty. [Note: article 15f of BTS 241/2014.] 7.38 R (1) For the purposes of MIFIDPRU 3.3.6R(8), in order to assess whether a firm owns more than 10% of the common equity tier 1 instruments issued by a financial sector entity in accordance with article 43(a) of the UK CRR, a firm must add together: (a) its gross long positions in direct holdings in the financial sector entity; and (b) its indirect holdings in the financial sector entity, as calculated in accordance with MIFIDPRU 3 Annex 7.32R(2)(d) to (g). (2) A firm must take into account any indirect or synthetic holdings when assessing whether the conditions in article 43(b) or (c) of the UK CRR are met. [Note: article 15g of BTS 241/2014.] 7.39 R (1) The methodology in MIFIDPRU 3 Annex 7.32R to MIFIDPRU 3 Annex 7.38R also applies with the modifications in (2) for the

FCA 2021/49 Page 60 of 125 purposes of the requirements relating to: (a) the deductions of holdings in additional tier 1 instruments in article 56(a), (c) and (d) of the UK CRR; and (b) the deductions of holdings in tier 2 instruments in article 66(a), (c) and (d) of the UK CRR. (2) When applying MIFIDPRU 3 Annex 7.32R to MIFIDPRU 3 Annex 7.38R: (a) for the purpose in (1)(a), references to “common equity tier 1” are references to “additional tier 1”; and (b) for the purpose in (1)(b), references to “common equity tier 1” are references to “tier 2”. [Note: article 15h of BTS 241/2014.] 7.40 R (1) Subject to (2) and (3), where an intermediate entity holds common equity tier 1 instruments, additional tier 1 instruments or tier 2 instruments of financial sector entities: (a) the common equity tier 1 instruments must be deducted first; (b) the additional tier 1 instruments must be deducted second; and (c) the tier 2 instruments must be deducted last. (2) Where the intermediate entity holds own funds instruments of the firm, when applying (1), the firm must deduct the holdings of the firm’s own funds instruments first. (3) Where a firm holds capital instruments of financial sector entities indirectly, the amount to deducted from the firm’s own funds is limited to the lower of the following amounts: (a) the total funding provided by the firm to the intermediate entity; or (b) the amount of own funds instruments held by the intermediate entity in the financial sector entity. [Note: article 15i of BTS 241/2014.] 7.41 R (1) This rule applies for the purposes of the deduction of foreseeable tax charges under MIFIDPRU 3.3.6R(10) and article 56(f) of the UK CRR. (2) A firm may proceed on the basis that foreseeable tax charges

FCA 2021/49 Page 61 of 125 have already been taken into account, and therefore no further deduction is required, where: (a) the firm applies an accounting framework and accounting policies that provide for the full recognition of current and deferred tax liabilities related to transactions and other events recognised in the balance sheet or the profit and loss account; and (b) all other necessary deductions have been made under applicable accounting standards or other adjustments. (3) Where the firm is calculating its common equity tier 1 capital on the basis of financial statements made in accordance with UK￾adopted international accounting standards, the conditions in (2) are deemed to be met. (4) Where the firm does not meet, and has not been deemed to meet, the conditions in (2), it must decrease its common equity tier 1 items by the estimated amount of current and deferred tax charges not yet recognised in: (a) the balance sheet profit and loss account related to transactions; and (b) other events in the balance sheet profit and loss account. (5) The estimated amount of current and deferred tax charges in (4) must be determined using an approach equivalent to the one provided by UK-adopted international accounting standards. (6) The estimated amount of deferred tax charges in (4) may not be netted against deferred tax assets that are not recognised in the financial statements. [Note: article 16 of BTS 241/2014.] Deduction of holdings of capital instruments issued by financial institutions 7.42 R Subject to MIFIDPRU 3 Annex 7.43R, for the purposes of article 36(3) of the UK CRR, a firm must deduct its holdings of capital instruments of financial institutions as follows: (1) the firm must deduct from its common equity tier 1 items any instruments of the financial institution that meet the following conditions: (a) the instruments qualify as capital under the company law applicable to the financial institution; and (b) where the financial institution is subject to solvency requirements, the instruments are included in the highest

FCA 2021/49 Page 62 of 125 quality tier of regulatory own funds without any limits; or (c) where the financial institution is not subject to solvency requirements, the instruments: (i) are perpetual; (ii) absorb the first and proportionately greatest share of losses as they occur; (iii) rank below all other claims in the event of insolvency and liquidation; and (iv) have no preferential or predetermined distributions; (2) the firm must deduct its holdings of subordinated capital instruments of the financial institution on the following basis: (a) where the subordinated instruments absorb losses on a going-concern basis (including where the issuer has the discretion to cancel coupon payments), the firm must: (i) deduct them from the firm’s additional tier 1 items; and (ii) if the value of the subordinated instruments exceeds the value of the firm’s additional tier 1 capital, deduct the excess amount from the firm’s common equity tier 1 items; (b) the firm must deduct all other subordinated instruments not included in (a) on the following basis: (i) the firm must first deduct them from the firm’s tier 2 items; and (ii) if the value of the subordinated instruments exceeds the value of the firm’s tier 2 capital, the firm must deduct the excess amount from the firm’s additional tier 1 items; and (iii) if the additional tier 1 items are not sufficient, the firm must deduct the remaining excess amount from the firm’s common equity tier 1 items; (3) the firm must deduct its holdings of any other instruments of the financial institution from the firm’s common equity tier 1 items where: (a) the instruments are included in the financial institution’s own funds under the prudential framework applicable to

FCA 2021/49 Page 63 of 125 the financial institution; and (b) the instruments do not meet the conditions to be deducted under (a) or (b). [Note: article 36(3) of the UK CRR and article 17(1) of BTS 241/2014.] 7.43 R (1) In the cases set out in (2): (a) the deductions in MIFIDPRU 3 Annex 7.42R do not apply; and (b) a firm must instead apply the deductions in MIFIDPRU 3 and the UK CRR (as applied by MIFIDPRU 3) for holdings of capital instruments based on the approach that would apply to the same component of capital for which those instruments would qualify if they were issued by the firm itself. (2) The relevant cases are where the financial institution is: (a) a UK AIFM; (b) a management company; (c) an authorised payment institution; (d) an authorised electronic money institution; or (e) an entity that is authorised and supervised by an overseas regulator, provided that the firm applying the deduction is able to apply the approach in (1)(b) in relation to that entity. [Note: article 17(2) and 17(3) of BTS 241/2014.] 7.44 R (1) This rule applies to a firm’s holdings of capital instruments in a third country insurance undertaking or a third country reinsurance undertaking where either of the following conditions are met: (a) the third country insurance undertaking or third country reinsurance undertaking is subject to a solvency regime that: (i) before IP completion day, had been assessed as non-equivalent to that laid down in Title I, Chapter VI of the Solvency II Directive according to the procedure set out in article 227 of that directive; and (ii) has not subsequently been subject to a

FCA 2021/49 Page 64 of 125 determination of equivalence by HM Treasury under article 379A of the Solvency II Delegated Regulation (EU) 2015/35 or by the PRA under regulation 19 of the Solvency 2 Regulations 2015; or (b) the third country insurance undertaking or third country reinsurance undertaking is subject to a solvency regime that has not been assessed for equivalence: (i) before IP completion day, in accordance with the procedure in (a)(i); and (ii) on or after IP completion day, in accordance with either of the procedures in (a)(ii). (2) Where this rule applies, a firm must deduct holdings in the capital instruments of the third country insurance undertaking or third country reinsurance undertaking in (1) as follows: (a) all instruments qualifying as capital under the company law applicable to the third country insurance undertaking or third country reinsurance undertaking that issued them, and which are included in the highest quality tier of regulatory own funds without any limits under the third country regime, must be deducted from the firm’s common equity tier 1 items; (b) for subordinated instruments absorbing losses on a going￾concern basis (including where the issuer has discretion to cancel coupon payments): (i) the amount must first be deducted from the firm’s additional tier 1 items; and (ii) where the amount of the subordinated instruments exceeds the amount of the firm’s additional tier 1 capital, the excess amount must be deducted from the firm’s common equity tier 1 items; (c) for any subordinated instruments other than those in (b): (i) the amount must first be deducted from the firm’s tier 2 items; (ii) where the amount of those subordinated instruments exceeds the amount of the firm’s tier 2 capital, the excess amount must be deducted from the firm’s additional tier 1 items; and (iii) where the excess amount exceeds the amount of

FCA 2021/49 Page 65 of 125 the firm’s additional tier 1 capital, the remaining excess amount must be deducted from the firm’s common equity tier 1 items; (d) any holdings of other instruments of the third country insurance undertaking or third country reinsurance undertaking must be deducted from the firm’s common equity tier 1 items where: (i) the third country insurance undertaking or third country reinsurance undertaking is subject to prudential solvency requirements; (ii) the instruments are included in the third country insurance undertaking or third country reinsurance undertaking’s own funds under the applicable solvency regime; and (iii) the instruments do not meet the conditions to be deducted under (a) to (c). [Note: article 18(1) of BTS 241/2014.] 7.45 R (1) This rule applies to a firm’s holdings of capital instruments in a third country insurance undertaking or a third country reinsurance undertaking where the third country solvency regime, including requirements on own funds, applicable to the third country insurance undertaking or third country reinsurance undertaking meets either of the following conditions: (a) before IP completion day, it has been assessed as equivalent to the requirements laid down in Title I, Chapter VI of the Solvency II Directive, according to the procedure set out in article 227 of that directive, and that assessment has not been revoked by HM Treasury on or after IP completion day; or (b) on or after IP completion day, it has been assessed as equivalent to the requirements laid down in the law of the United Kingdom that implemented Title I, Chapter VI of the Solvency II Directive, according to the procedure set out in article 379A of the Solvency II Delegated Regulation (EU) 2015/35, or has been assessed as equivalent by the PRA according to the procedure in regulation 19 of the Solvency 2 Regulations 2015. (2) Where this rule applies, a firm must: (a) treat the relevant holdings of capital instruments as holdings of the capital instruments of insurance undertakings or reinsurance undertakings (as each is

FCA 2021/49 Page 66 of 125 defined in section 417(1) of the Act); and (b) apply the deductions in article 44(b), article 58(b) and article 68(b) of the UK CRR, as applicable, to the holdings in (a). [Note: article 18(2) and (3) of BTS 241/2014.] 7.46 R A firm must deduct holdings of capital instruments of undertakings falling within article 4(1)(27)(k) of the UK CRR as follows: (1) a firm must deduct instruments meeting the following conditions from the firm’s common equity tier 1 capital: (a) the instruments qualify as capital under the company law applicable to the undertaking that issued them; and (b) the instruments are included in the highest quality tier of regulatory own funds of the undertaking that issued them without any limits; (2) a firm must deduct any subordinated instruments that absorb losses on a going-concern basis (including where the issuer has discretion to cancel coupon payments) on the following basis: (a) first, the instruments must be deducted from the firm’s additional tier 1 items; and (b) if the amount of the subordinated instruments exceeds the amount of the firm’s additional tier 1 capital, the excess amount must be deducted from the firm’s common equity tier 1 items; (3) a firm must deduct any subordinated instruments other than those in (2) on the following basis: (a) first, the instruments must be deducted from the firm’s tier 2 items; (b) if the amount of the subordinated instruments exceeds the amount of the firm’s tier 2 capital, the excess amount must be deducted from the firm’s additional tier 1 items; and (c) if the excess amount exceeds the firm’s additional tier 1 capital, the remaining excess amount must be deducted from the firm’s common equity tier 1 items; and (4) a firm must deduct any other holdings of instruments issued by the undertaking from the firm’s common equity tier 1 capital where the instruments:

FCA 2021/49 Page 67 of 125 (a) are included in the undertaking’s own funds under the solvency regime applicable to that undertaking; and (b) do not fall within (1) to (3) above. [Note: article 19 of BTS 241/2014.] Conversion and write-down of additional tier 1 instruments 7.47 R (1) This rule applies for the purposes of: (a) any write-down of the principal amount of an additional tier 1 instrument under article 52(1)(n) of the UK CRR; and (b) any subsequent write-up of the principal amount of an additional tier 1 instrument for the purposes of article 52(2)(c) of the UK CRR. (2) The write-down of the principal amount of an additional tier 1 instrument of a firm must apply on a pro rata basis to all holders of additional tier 1 instruments that include a similar write-down mechanism and an identical trigger level. (3) For a write-down to be considered temporary, all of the following conditions must be met: (a) any distributions payable after a write-down must be based on the reduced amount of the principal; (b) any write-up must be based on profits after the firm has taken a formal decision confirming the final profits; (c) any write-up of the instrument or payment of coupons on the reduced amount of the principal must be operated at the full discretion of the firm, subject to the constraints arising from (d) to (f) below, and there must be no obligation for the firm to operate or accelerate a write-up under specific circumstances; (d) a write-up must be operated on a pro rata basis among similar additional tier 1 instruments of the firm that have been subject to a write-down; (e) the maximum amount to be attributed to the sum of the write-up of the additional tier 1 instruments, together with the payment of coupons on the reduced amount of the principal of additional tier 1 instruments, must be calculated according to the following formula, which must be applied at the time that the write-up operates:

FCA 2021/49 Page 68 of 125 𝑀 = 𝑃 × 𝐴 𝑇 where: M = the maximum amount to be attributed to the write￾up, together with the payment of coupons on the reduced amount of principal; P = the profit of the firm; A = the sum of the nominal value (before write-down) of all additional tier instruments of the firm that have been subject to a write-down; and T = the tier 1 capital of the firm; (f) the sum of any write-up amounts and payments of coupons on the reduced amount of the principal of the additional tier 1 instruments must be treated as a payment that reduces the common equity tier 1 capital of the firm. [Note: article 21 of BTS 241/2014.] 7.48 R (1) This rule applies for the purposes of specifying the procedures and timing for determining that a trigger event has occurred in relation to an additional tier 1 instrument under article 52(1)(n) of the UK CRR. (2) Where a firm establishes that its common equity tier 1 capital has fallen below the level of the trigger event of an additional tier 1 instrument: (a) the management body or any other relevant body of the firm must, without delay, determine that a trigger event has occurred; and (b) the firm is under an irrevocable obligation to write-down or convert the additional tier 1 instrument. (3) The amount to be written down or converted must be determined as soon as possible and in any case, within a maximum period of one month from the time that the firm has determined that a trigger event had occurred under (2). (4) If the terms of the additional tier 1 instrument require an independent review of the amount to be written down or converted, the management body or other relevant body of a firm must ensure that the review: (a) is commenced immediately;

FCA 2021/49 Page 69 of 125 (b) is completed as soon as possible; and (c) does not create impediments to the firm writing-down or converting the additional tier 1 instrument or to meeting the requirement in (3). [Note: article 22(1), (2) and (4) of BTS 241/2014.] 7.49 G In appropriate cases, the FCA may exercise its powers under: (1) section 55L of the Act to impose a requirement on a firm to determine the required write-down or conversion amount more quickly than the one-month period in MIFIDPRU 3 Annex 7.48R(3); or (2) section 166 of the Act to require the firm to commission an independent review of the amount to be written down or converted for the purposes of MIFIDPRU 3 Annex 7.48R. [Note: article 22(3) and (4) of BTS 241/2014.] 7.50 R For the purposes of article 52(1)(o) of the UK CRR, features that could hinder the recapitalisation of a firm include provisions that require the firm to compensate existing holders of capital instruments where a new capital instrument is issued. [Note: article 23 of BTS 241/2014.] Incentives to redeem 7.51 R (1) For the purposes of article 52(1)(g) and article 63(h) of the UK CRR, an incentive to redeem means any feature that provides, at the date of issuance of a capital instrument, an expectation that the capital instrument is likely to be redeemed. (2) An incentive to redeem under (1) includes: (a) a call option combined with an increase in the credit spread of the instrument if the call is not exercised; (b) a call option combined with a requirement or an investor option to convert the instrument into a common equity tier 1 instrument where the call is not exercised; (c) a call option combined with a change in reference rate where the credit spread over the second reference rate is greater than the initial payment rate minus the swap rate; (d) a call option combined with an increase of the redemption amount in the future;

FCA 2021/49 Page 70 of 125 (e) a remarketing option combined with an increase in the credit spread of the instrument or a change in reference rate where the credit spread over the second reference rate is greater than the initial payment rate minus the swap rate where the instrument is not remarketed; and (f) a marketing of the instrument in a way which suggests to investors that the instrument will be called. [Note: article 20 of BTS 241/2014.] Use of special purpose vehicles for indirect issuance of own funds 7.52 R (1) This rule applies for the purposes of article 52(1)(p) and article 63(n) of the UK CRR. (2) Where the firm issues a capital instrument that is subscribed for by a special purpose entity, the capital instrument must not be recognised by the firm as capital of a higher quality than the lowest quality of: (a) the capital issued to the special purpose entity; and (b) the capital issued to third parties by the special purpose entity. (3) Where another entity (“A”) within the same consolidated situation as the firm issues a capital instrument that is subscribed for by a special purpose entity, the capital instrument must not be recognised by A as capital of a higher quality than the lowest quality of: (a) the capital issued to the special purpose entity; and (b) the capital issued to third parties by the special purpose entity. (4) The requirement in (2) also applies on an equivalent basis to a UK parent entity for the purposes of determining its consolidated own funds, with the reference to the “firm” being read as a reference to the UK parent entity. (5) The rights of the holders of instruments issued by a special purpose entity in (2), (3) or (4) must be no more favourable than if the instrument was issued directly by the firm, A or the UK parent entity, as applicable. [Note: article 24 of BTS 241/2014.] Distributions on own funds instruments

FCA 2021/49 Page 71 of 125 7.53 R (1) This rule contains the definition of a broad market index for the purpose of article 73(5) of the UK CRR. (2) An interest rate index is a broad market index if it fulfils all of the following conditions: (a) it is used to set interbank lending rates in one or more currencies; (b) it is used as a reference rate for floating rate debt issued by the firm in the same currency, where applicable; (c) it is calculated as an average rate by a body independent of the institutions or MIFIDPRU investment firms that are contributing to the index (a “panel”); (d) each of the rates set under the index is based on quotes submitted by a panel of institutions or MIFIDPRU investment firms active in that interbank market; and (e) the composition of the panel referred to in point (c) ensures a sufficient level of representativeness of institutions or MIFIDPRU investment firms present in the United Kingdom. (3) For the purposes of (2)(e), a sufficient level of representativeness will be deemed to exist in either of the following cases: (a) where the panel in (2)(c) includes at least six different contributors before any discount of quotes is applied for the purposes of setting the rate; or (b) where both of the following conditions are met: (i) the panel in (2)(c) includes at least four different contributors before any discount of quotes is applied for the purposes of setting the rate; and (ii) the contributors to the panel in (2)(c) represent at least 60% of the related market. (4) The related market referred to in (3)(b)(ii) is calculated by dividing the amount in (a) by the amount in (b): (a) the sum of the assets and liabilities of the effective contributors to the panel in the domestic currency; (b) the sum of assets and liabilities in the domestic currency of credit institutions in the United Kingdom, including branches established in the United Kingdom, and money market funds in the United Kingdom.

FCA 2021/49 Page 72 of 125 (5) A stock index is deemed to be a broad market index where it is appropriately diversified in accordance with article 344 of the UK CRR. [Note: article 24a of BTS 241/2014.] Indirect holdings arising from index holdings 7.54 R (1) This rule applies for the purpose of determining whether an estimate is sufficiently conservative for the purposes of article 76(2) of the UK CRR. (2) An estimate is sufficiently conservative where either of the following conditions are met: (a) the investment mandate of the index specifies that a capital instrument of a financial sector entity that is part of the index cannot exceed a maximum percentage of that index and the firm uses that percentage as an estimate of the value of the holdings that must be deducted from: (i) its common equity tier 1 capital, additional tier 1 capital or tier 2 capital (as applicable) in accordance with MIFIDPRU 3 Annex 7.43R(1)(b); or (ii) its common equity tier 1 capital where the firm cannot determine the precise nature of the holding; or (b) if the firm is unable to determine the maximum percentage referred to in (a) and the index includes capital instruments of financial sector entities (as evidenced by its investment mandate or other relevant information), the firm deducts the full amount of the index holdings from: (i) its common equity tier 1 capital, additional tier 1 capital or tier 2 capital (as applicable) in accordance with MIFIDPRU 3 Annex 7.43R(1)(b); or (ii) its common equity tier 1 capital where the firm cannot determine the precise nature of the holding. (3) For the purposes of (2): (a) an indirect holding arising from an index holding consists of the proportion of the index invested in the common equity tier 1 instruments, additional tier 1 instruments and tier 2 instruments of financial sector entities included in the index; and

FCA 2021/49 Page 73 of 125 (b) an index includes, but is not limited to, index funds, equity or bond indices or any other scheme where the underlying instrument is a capital instrument issued by a financial sector entity. [Note: article 25 of BTS 241/2014.] 7.55 G (1) Under article 76(3) of the UK CRR, a firm may apply for permission to use the conservative estimate approach in article 76(2) of the UK CRR (as supplemented by MIFIDPRU 3 Annex 7.54R) where the firm has demonstrated that it would be operationally burdensome to monitor its underlying exposure to the items referred to in articles 76(2)(a) and (b) of the UK CRR. (2) For these purposes, “operationally burdensome” means situations in which the look-through approach to capital holdings in financial sector entities on an ongoing basis would be unjustified. When considering whether a situation is operationally burdensome, the FCA will take into account whether the firm’s index holding: (a) is immaterial when compared with the firm’s own funds; and (b) has a short holding period or is highly liquid in nature. [Note: article 26 of BTS 241/2014.] Temporary waiver of deduction from own funds 7.56 G (1) In accordance with article 79 of the UK CRR (as applied by MIFIDPRU 3.6.1R), the FCA may waive the requirement for a firm to deduct holdings of capital instruments or subordinated loans that the firm has granted that qualify as common equity tier 1 instruments, additional tier 1 instruments or tier 1 instruments of a financial sector entity where: (a) the firm will hold the capital instruments or subordinated loans only temporarily; and (b) the FCA considers that the holdings are for the purposes of a financial assistance operational designed to reorganise and save the financial sector entity. (2) A firm that wishes to apply for a waiver for the purposes of article 79 of the UK CRR should apply for a waiver of MIFIDPRU 3.6.1R (insofar as it applies that article) under section 138A of the Act. (3) When considering an application for a waiver under (2), the FCA considers that the conditions for a waiver will be unlikely to be

FCA 2021/49 Page 74 of 125 met where: (a) the duration of the waiver exceeds the timeframe envisaged under the financial assistance operation plan or exceeds five years; (b) the waiver is not limited to new holdings of instruments in the financial sector entity; (c) the financial assistance operation has not been discussed with and, where necessary, approved by the FCA; or (d) the financial assistance operation does not clearly state phases, timing and objectives and does not specify the interaction between the firm’s temporary holdings and the broader financial assistance operation. [Note: article 79 of the UK CRR and article 33 of BTS 241/2014.] Own funds instruments issued by special purpose entities 7.57 G (1) Under article 83(1) of the UK CRR (as applied by MIFIDPRU 2.5.10R(1)), a UK parent entity may include additional tier 1 instruments, tier 2 instruments issued by a special purpose entity, and their related share premium accounts, in qualifying own funds under Title II of Part Two only where the conditions in article 83(1) are met. (2) Under article 83(1)(d) of the UK CRR, one of the conditions is that the only asset of the special purpose entity is its investment in the own funds of the parent undertaking or a subsidiary of that parent undertaking that is included within the same prudential consolidation group. (3) Article 83 of the UK CRR permits the FCA to waive the condition in article 83(1)(d) where the assets of the relevant special purpose entity (other than its investment in the own funds of the parent undertaking or subsidiary) are minimal and insignificant for that entity. (4) The FCA expects that a firm that wishes to obtain the waiver in (3) will make an application under section 138A of the Act to waive the application of MIFIDPRU 2.5.10R(1), insofar as it applies the condition in article 83(1)(d) of the UK CRR. When considering any such application, the FCA will normally consider, among other factors, whether the assets of the special purpose entity (other than the investments in the own funds of the parent undertaking or subsidiary within the same prudential consolidation group): (a) are limited to cash assets dedicated to the payment of

FCA 2021/49 Page 75 of 125 coupons and redemption of the own funds instruments that are due; and (b) are no higher than 0.5% of the average total assets of the special purpose entity over the last three years. (5) The FCA considers that it may be appropriate to grant a firm a waiver when a special purpose entity has a higher percentage of assets than that specified in (4)(b) provided that: (a) the higher percentage is necessary exclusively to cover the running costs of the special purpose entity; and (b) the corresponding nominal amount of those assets does not exceed £500,000. [Note: article 83(1) of the UK CRR and article 34 of BTS 241/2014.] 7.58 R (1) For the purpose of the sub-consolidation calculation required under articles 84(2), 85(2) and 87(2) of the UK CRR, the qualifying minority interests of a subsidiary referred to in article 81 of the UK CRR (“X”) that is itself a parent undertaking of an entity referred to in article 81(1) of the UK CRR must be calculated in accordance with the remainder of this rule. (2) Where X complies with either of the following on the basis of its consolidated situation, the treatment in (3) applies: (a) MIFIDPRU 4 and 5; or (b) Part Three of the UK CRR. (3) The relevant treatment in (2) is as follows: (a) the common equity tier 1 capital of X on a consolidated basis (as referred to in article 84(1)(a) of the UK CRR) shall be taken to include the eligible minority interests that arise from X’s own subsidiaries calculated under article 84 of the UK CRR and MIFIDPRU 3 Annex 7R; (b) for the purpose of the sub-consolidation calculation, the amount of common equity tier 1 capital required under article 84(1)(a)(i) of the UK CRR is the amount required to meet X’s common equity tier 1 capital requirements at the level of its consolidated situation calculated in accordance with article 84(1)(a) of the UK CRR: (c) for the purpose of the sub-consolidation calculation, the specific own funds requirements in article 84(1)(a)(i) of the UK CRR are:

FCA 2021/49 Page 76 of 125 (i) any amount in excess of X’s own funds requirement that X is required to hold to meet its own funds threshold requirement; or (ii) any amount specified by the PRA under regulation 34 of the Capital Requirements Regulations 2013 in relation to X; (d) the amount of consolidated common equity tier 1 capital required under article 84(1)(a)(ii) of the UK CRR is the contribution of X on the basis of its consolidated situation to the common equity tier 1 own funds requirements of the firm for which the eligible minority interests are calculated on a consolidated basis (“Y”); (e) for the purpose of calculating the contribution of X under (d): (i) all intra-group transactions between undertakings included in the scope of prudential consolidation of Y must be eliminated; and (ii) X must not include capital requirements arising from its subsidiaries that are not included in the scope of prudential consolidation of Y. (4) Where a UK parent entity has an intermediate subsidiary that meets the following conditions, the treatment in (5) applies: (a) the intermediate subsidiary is not referred to in article 81(1) of the UK CRR; and (b) the intermediate subsidiary has subsidiaries that are referred to in article 81(1) of the UK CRR. (5) Where (4) applies, the UK parent entity: (a) may include in its common equity tier 1 capital the amount of minority interests arising from those subsidiaries calculated in accordance with article 84(1) of the UK CRR; but (b) must not include in its common equity tier 1 capital any minority interests arising from a subsidiary that is not referred to in article 81(1) of the UK CRR. (6) This rule applies on an equivalent basis to the calculation of: (a) qualifying tier 1 instruments under article 85 of the UK CRR, in which case references to “common equity tier 1” in this rule are references to “tier 1”; and

FCA 2021/49 Page 77 of 125 (b) qualifying own funds under article 87 of the UK CRR, in which case references to “common equity tier 1” in this rule are references to “own funds”. [Note: article 34a of BTS 241/2014.] 3 Annex 8R Prudent valuation and additional valuation adjustments Application and purpose 8.1 R (1) This annex applies for the purposes of calculating additional valuation adjustments under article 34 of the UK CRR (as applied by MIFIDPRU 3.3.1AR). (2) Any reference to the UK CRR in this annex is to the UK CRR as applied and modified by MIFIDPRU 3.3.1R. 8.2 G (1) Under article 34 of the UK CRR, a firm must apply the requirements of article 105 of the UK CRR to the firm’s assets measured at fair value when calculating the amount of its own funds. (2) Under MIFIDPRU 3.3.1AR, a firm is only required to apply article 34 of the UK CRR to positions held within its trading book. Sources of market data 8.3 R (1) Where a firm calculates an AVA based on market data, it must consider the same range of market data as the data used in the independent price verification process referred to in article 105(8) of the UK CRR, subject to the adjustments in this rule. (2) A firm must consider the full range of available and reliable market data sources to determine a prudent value, including each of the following to the extent relevant: (a) exchange prices in a liquid market; (b) trades in the financial instrument or a very similar instrument, either from the firm’s own records or, where available, trades from across the market; (c) tradable quotes from brokers and other market participants; (d) consensus service data; (e) indicative broker quotes; and

FCA 2021/49 Page 78 of 125 (f) counterparty collateral valuations. [Note: article 3 of BTS 2016/101.] Determination of AVAs 8.4 R (1) A firm must calculate the value of assets for which the firm must determine AVAs in accordance with this rule. (2) The value in (1) is the sum of the absolute value of fair-valued assets and liabilities, as stated in the firm’s financial statements in accordance with the applicable accounting framework, modified as follows: (a) exactly matching offsetting fair-valued and liabilities must be excluded; and (b) where a change in the accounting valuation of fair-valued assets and liabilities would: (i) only be partially reflected in common equity tier 1 capital, the value of those assets or liabilities must only be included in proportion to the impact of the relevant valuation change on common equity tier 1 capital; or (ii) have no impact on common equity tier 1 capital, the value of those assets or liabilities must be excluded. [Note: article 4 of BTS 2016/101.] 8.5 R A firm’s total AVAs are 0.1% of the sum of the assets calculated under MIFIDPRU 3 Annex 8.4R(1). [Note: articles 5 and 6 of BTS 2016/101.] Documentation, systems and controls 8.6 R A firm must appropriately document its prudent valuation methodology and its policies on the following: (1) the range of methodologies for quantifying AVAs for each valuation position; (2) the hierarchy of methodologies for each asset class, product, or valuation position; (3) the hierarchy of market data sources used in the AVA methodology;

FCA 2021/49 Page 79 of 125 (4) the required characteristics of market data to justify a zero AVA for each asset class, product, or valuation position; and (5) the fair-valued assets and liabilities for which a change in accounting valuation has a partial or no impact on common equity tier 1 capital according to MIFIDPRU 3 Annex 8.4R(2)(b). [Note: article 18(1) of BTS 2016/101.] 8.7 R The firm must ensure that the documentation and policies in MIFIDPRU 3 Annex 8.6R are: (1) reviewed at least annually; and (2) approved by the firm’s senior management following each review. [Note: article 18(3) of BTS 2016/101.] 8.8 R A firm must: (1) maintain records to allow the calculation of AVAs at valuation exposure level to be analysed; and (2) ensure that the senior management of the firm are provided with information from the AVA calculation process to permit them to understand the level of valuation uncertainty on the firm’s portfolio of fair-valued positions. [Note: article 18(3) of BTS 2016/101.] Systems and controls requirements 8.9 R A firm must ensure that AVAs are authorised and subsequently monitored by an independent control function. [Note: article 19(1) of BTS 2016/101.] 8.10 R (1) A firm must have: (a) effective controls related to the governance of all fair￾valued positions; and (b) adequate resources to implement the controls in (a) and ensure robust valuation processes even during a stressed period. (2) The controls and processes in (1) must include the following: (a) a review of the performance of the firm’s valuation model

FCA 2021/49 Page 80 of 125 at least annually; (b) approval by senior management of all significant changes to valuation policies; (c) a clear statement of the firm’s risk appetite for exposure to positions subject to valuation uncertainty, which must be monitored at an aggregate firm-wide level; (d) independence in the valuation process between risk￾taking and internal control functions; and (e) a comprehensive internal audit process relating to valuation processes and controls. [Note: article 19(2) of BTS 2016/101.] 8.11 R (1) A firm must: (a) have effective and consistently applied controls relating to the valuation process for all fair-valued positions; and (b) ensure that the controls in (a) are subject to regular internal audit review. (2) The controls in (1) must include the following: (a) a precisely defined firm-wide product inventory, ensuring that every valuation position is uniquely mapped to a product definition; (b) valuation methodologies for each product in the inventory covering: (i) the choice and calibration of model; (ii) fair value adjustments; (iii) independent price verification; (iv) AVAs; (v) the methodologies applicable to the product; and (vi) the measurement of valuation uncertainty. (c) a validation process ensuring that, for each product, both the risk-taking and relevant control functions approve the product-level methodologies described in point (b) and certify that they reflect the actual practice for every valuation position mapped to the product;

FCA 2021/49 Page 81 of 125 Amend the following as shown. (d) defined thresholds based on observed market data for determining when valuation models are no longer sufficiently robust; (e) a formal independent price verification process based on prices independent from the relevant trading desk; (f) a new product approval process referencing the product inventory and involving all internal stakeholders relevant to risk measurement, risk control, financial reporting and the assignment and verification of valuations of financial instruments; and (g) a new deal review process to ensure that pricing data from new trades are used to assess whether valuations of similar valuation exposures remain appropriately prudent. [Note: article 19(3) of BTS 2016/101.] 4 Own funds requirements … 4.12 K-NPR requirement … 4.12.2 R … (3) When applying the UK CRR in accordance with (1): (a) any provision in the UK CRR relating to the effect that the market risk of a position has on the “own funds requirement” should be interpreted as relating instead to the effect that the position has on the K-NPR requirement of the MIFIDPRU investment firm; (b) article 363 of the UK CRR does not apply; (c) any reference in Title IV of Part Three of the UK CRR to: (i) article 363 of the UK CRR (permission to use internal models) refers to MIFIDPRU 4.12.4R to MIFIDPRU 4.12.7R; and (ii) permissions granted under article 363 of the UK CRR refers to equivalent permissions granted under MIFIDPRU 4.12.4R to MIFIDPRU

FCA 2021/49 Page 82 of 125 4.12.7R. 4.12.2A R (1) When applying the UK CRR for the purposes of this section, a firm must apply the following, as modified by (2): (a) the Appropriately Diversified Indices RTS; (b) the Market Definition RTS; and (c) the Non-Delta Risk of Options RTS. (2) The relevant modifications are as follows: (a) a reference to an “institution” is a reference to the firm; (b) a reference to “Regulation (EU) No 575/2013” is a reference to the UK CRR as modified by the rules in MIFIDPRU; (c) a reference to an “own funds requirement” is a reference to the contribution of a position to the firm’s K-NPR requirement; and (d) a reference to the calculation of requirements “on a consolidated basis” is a reference to the calculation of those requirements on a consolidated basis under MIFIDPRU 2.5. [Note: BTS 525/2014, BTS 528/2014 and BTS 945/2014.] 4.12.2B R Where a provision in Title IV of Part Three of the UK CRR requires a firm to determine a risk weighting by reference to the Standardised Approach to credit risk, for the purposes of this section, a firm must: (1) apply the provisions in the UK CRR relating to the Standardised Approach to credit risk in the form in which they stood on 31 December 2021; but (2) for the purposes of determining any mapping of credit quality steps under the provisions in (1), use the ECAI mappings applied by the PRA for the purposes of the rules in the PRA Rulebook relating to the Standardised Approach to credit risk for CRR firms, as amended from time to time. [Note: BTS 2016/1799.] 4.12.2C G (1) Certain market risk provisions in the UK CRR (in the form in which it stood on 31 December 2021) require a firm to consider the underlying credit risk attaching to a position under the UK CRR Standardised Approach to credit risk. In certain cases, the credit risk rules require a firm to determine the risk attaching to the position by reference to “credit quality steps”, which are

FCA 2021/49 Page 83 of 125 mapped to credit ratings issued by particular credit rating agencies. As the credit risk requirements in the UK CRR are no longer directly relevant under MIFIDPRU, the FCA will no longer be maintaining an FCA version of the ECAI credit quality step mappings in BTS 2016/1799 for these purposes. (2) The effect of MIFIDPRU 4.12.2BR is that where a firm needs to determine the underlying credit risk of a position for the purposes of the K-NPR requirement by reference to credit quality steps, the firm should use the updated ECAI mappings maintained by the PRA for the purposes of the Standardised Approach to credit risk as it applies to CRR firms under the PRA Rulebook. 4.12.2D R A firm may treat the currency pairs listed in MIFIDPRU 4 Annex 13R as closely correlated for the purposes of article 354(1) of the UK CRR. … Permission to use internal models … 4.12.6 R (1) A firm that has a permission under MIFIDPRU 4.12.4R for an internal model must obtain approval from the FCA before it: (a) implements a material change to the use of the model; or (b) makes a material extension to the use of the model. (2) To determine if a change or extension is material for the purposes of (1), a firm must apply the criteria and methodology set out in articles article 3 (to the extent that it relates to the Internal Models Approach (IMA)), articles 7a and 7b and Annex III of the Market Risk Model Extensions and Changes RTS. (3) To obtain the approval in (1), a firm must: (a) complete the application form in MIFIDPRU 4 Annex 3R and submit it to the FCA using the online notification and application system; and (b) perform an initial calculation of stressed value-at-risk in accordance with article 365(2) of the UK CRR on the basis of the model as changed or extended and submit the results as part of the application in (a). …

FCA 2021/49 Page 84 of 125 MIFIDPRU 4 Annex 6R (Application under MIFIDPRU 4.12.66R to use sensitivity models to calculate interest rate risk on derivative instruments) is replaced with the form below. The new text is not underlined. Application under MIFIDPRU 4.12.66R for permission to use sensitivity models to calculate interest rate risk on derivative instruments in accordance with article 331(1) of the UK CRR

1. Please list all group undertakings in respect of which this application is being made. FRN Undertaking name
2. Please confirm the scope of the consolidated application for the model: ☐ Not applicable, as the model will only be applied at solo level ☐ The use of the model at solo and consolidated level will involve the same types of instruments ☐ The consolidated application for a model will include a wider range of instrument types than those covered by the model at solo level Give details below For group applications, the below section (questions 3 to 7) must be completed separately for each entity requiring the permission, including for the consolidated situation of the consolidating UK parent if the application concerns a consolidated application of the model. Questions 5 and onwards must be completed separately for each set of instruments for which a net sensitivity position, weighted by maturity, is computed.
3. Please confirm the FRN and name of the MIFIDPRU investment firm or consolidating UK parent this section relates to: FRN of firm Name of firm
4. Please give a brief description of the nature of the firm’s business and a full and clear explanation of why it is applying for this permission.

FCA 2021/49 Page 85 of 125 5. Please provide summary information for each of the items listed in the below table. For some items you are required to attach additional documentation. Item Summary Information a. Description of the current methodology used for interest rate risk on derivative instruments covered in articles 328 to 330 UK CRR. b. Description of the sensitivity models used to calculate interest rate risk under article 331 UK CRR. c. Product scope of the requested permission – please indicate the instruments for which net sensitivity positions are used and the currencies in which those positions are denominated. d. For the product scope requested, confirm that the interest rate risk is managed on a discounted cashflow basis. e. For the product scope requested, briefly indicate any growth plans for the exposures. f. Capital impact of changing the calculation methodology from the existing approach (i.e. the capital impact of applying article 331 UK CRR) and total capital and market risk capital held at the same date. g. Provide worked examples of capital calculation under the current methodology and the new (article 331 UK CRR) methodology for a test portfolio composed of: • Long 100,000 1Y ATM equity index call option • Short 100,000 1Y ATM equity index put option • Long 100,000 2Y ATM equity index call option • Short 100,000 5Y ATM equity index call option • Short 3M equity index futures in sufficient quantity to hedge the equity delta of the options Assume that the base index level is 100 and that the equity index volatility is 20%. Please

FCA 2021/49 Page 86 of 125 use these interest rate inputs1 for the purposes of calculating the interest rate exposure. All options are European style exercise. h. Please provide documentation describing how you construct interest rate curves from market data. Please list all models that rely on these curves to calculate sensitivity to interest rate movements. For each model, please provide the list of products to which it applies and the date of the last validation. i. Explanation of how you calculate the interest rate sensitivity of your portfolio in each bucket. j. Explanation of how you handle interest rate basis risk. 6. Please confirm whether each of the standards in the below table is met and provide information to demonstrate how it is met: Standard Meets Standard? Firm Analysis Please demonstrate using examples where appropriate how the minimum standards are met a. Sensitivity models generate positions which have the same sensitivity to interest rate changes as the underlying cash flows. Yes No b. Sensitivities are assessed with reference to independent movements in sample rates across the yield curve, with at least one sensitivity point in each of the maturity bands set out in Table 2 in article 339 UK CRR. Yes No c. Sensitivities are appropriate to produce accurate valuation changes based on the assumed interest rate changes set out in Table 2 of article 339 UK CRR. Yes No 1 Editor’s note: The interest rate inputs document is available at the following address: http://www.fca.org.uk/your-fca/documents/forms/crr-article-331-interest-rate-inputs

FCA 2021/49 Page 87 of 125 Insert the following new annex, MIFIDPRU 4 Annex 13R, after MIFIDPRU 4 Annex 12G (Guidance on the interaction between K-AUM and K-COH). The text is not underlined. Part 1 List of closely correlated currencies against the euro (EUR) Albanian lek (ALL), Bosnia and Herzegovina mark (BAM), Bulgarian lev (BGN), Czech koruna (CZK), British pound (GBP), Croatian kuna (HRK), Moroccan dirham (MAD), Romanian leu (RON). Part 2 List of closely correlated currencies against the Arab Emirates dirham (AED) Angolan kwanza (AOA), Canadian dollar (CAD), Chinese yuan (CNY), British pound (GBP), Hong Kong dollar (HKD), Lebanese pound (LBP), Macau pataca (MOP), Peruvian nuevo sol (PEN), Philippine peso (PHP), Singapore dollar (SGD), Thai baht (THB), Taiwanese dollar (TWD), US dollar (USD). Part 3 List of closely correlated currencies against the Albanian lek (ALL) Bosnia and Herzegovina mark (BAM), Bulgarian lev (BGN), Czech koruna (CZK), Danish krone (DKK), Croatian kuna (HRK), Moroccan dirham (MAD), Romanian leu (RON), euro (EUR). Part 4 List of closely correlated currencies against the Angolan kwanza (AOA) Arab Emirates dirham (AED), Chinese yuan (CNY), Hong Kong dollar (HKD), Lebanese pound (LBP), Macau pataca (MOP), Peruvian nuevo sol (PEN), Philippine peso (PHP), Singapore dollar (SGD), Thai baht (THB), Taiwanese dollar (TWD), US dollar (USD). Part 5 List of closely correlated currencies against the Bosnia and Herzegovina mark (BAM) 4 Annex 13R K-NPR requirement - provisions on closely correlated currencies Application and purpose 13.1 R This annex specifies currency pairs that may be treated as closely correlated for the purposes of article 354(1) of the UK CRR (as applied by MIFIDPRU 4.12.2R) when a MIFIDPRU investment firm or UK parent entity is calculating its K-NPR requirement. 13.2 R The following table lists closely correlated currencies for the purposes of MIFIDPRU 4 Annex 13.1R:

FCA 2021/49 Page 88 of 125 Albanian lek (ALL), Bulgarian lev (BGN), Czech koruna (CZK), Danish krone (DKK), British pound (GBP), Croatian kuna (HRK), Moroccan dirham (MAD), Romanian leu (RON), euro (EUR). Part 6 List of closely correlated currencies against the Bulgarian lev (BGN) Albanian lek (ALL), Bosnia and Herzegovina mark (BAM), Czech koruna (CZK), Danish krone (DKK), British pound (GBP), Croatian kuna (HRK), Moroccan dirham (MAD), Romanian leu (RON), euro (EUR). Part 7 List of closely correlated currencies against the Canadian dollar (CAD) Arab Emirates dirham (AED), Hong Kong dollar (HKD), Macau pataca (MOP), Singapore dollar (SGD), Taiwanese dollar (TWD), US dollar (USD). Part 8 List of closely correlated currencies against the Chinese yuan (CNY) Arab Emirates dirham (AED), Angolan kwanza (AOA), British pound (GBP), Hong Kong dollar (HKD), Lebanese pound (LBP), Macau pataca (MOP), Peruvian nuevo sol (PEN), Philippine peso (PHP), Singapore dollar (SGD), Thai baht (THB), Taiwanese dollar (TWD), US dollar (USD). Part 9 List of closely correlated currencies against the Czech koruna (CZK) Albanian lek (ALL), Bosnia and Herzegovina mark (BAM), Bulgarian lev (BGN), Danish krone (DKK), Croatian kuna (HRK), Moroccan dirham (MAD), Romanian leu (RON), euro (EUR). Part 10 List of closely correlated currencies against the Danish krone (DKK) Albanian lek (ALL), Bosnia and Herzegovina mark (BAM), Bulgarian lev (BGN), Czech koruna (CZK), British pound (GBP), Croatian kuna (HRK), Moroccan dirham (MAD), Romanian leu (RON), Singapore dollar (SGD). Part 11 List of closely correlated currencies against the British pound (GBP) Arab Emirates dirham (AED), Bosnia and Herzegovina mark (BAM), Bulgarian lev (BGN), Chinese yuan (CNY), Danish krone (DKK), Hong Kong dollar (HKD), Croatian kuna (HRK), Lebanese pound

FCA 2021/49 Page 89 of 125 (LBP), Moroccan dirham (MAD), Macau pataca (MOP), Singapore dollar (SGD), Taiwanese dollar (TWD), US dollar (USD), euro (EUR). Part 12 List of closely correlated currencies against the Hong Kong dollar (HKD) Arab Emirates dirham (AED), Angolan kwanza (AOA), Canadian dollar (CAD), Chinese yuan (CNY), British pound (GBP), Lebanese pound (LBP), Macau pataca (MOP), Peruvian nuevo sol (PEN), Philippine peso (PHP), Singapore dollar (SGD), Thai baht (THB), Taiwanese dollar (TWD), US dollar (USD). Part 13 List of closely correlated currencies against the Croatian kuna (HRK) Albanian lek (ALL), Bosnia and Herzegovina mark (BAM), Bulgarian lev (BGN), Czech koruna (CZK), Danish krone (DKK), British pound (GBP), Moroccan dirham (MAD), Romanian leu (RON), Singapore dollar (SGD), euro (EUR). Part 14 List of closely correlated currencies against the South Korean won (KRW) Peruvian nuevo sol (PEN), Philippine peso (PHP), Singapore dollar (SGD), Taiwanese dollar (TWD). Part 15 List of closely correlated currencies against the Lebanese pound (LBP) Arab Emirates dirham (AED), Angolan kwanza (AOA), Chinese yuan (CNY), British pound (GBP), Hong Kong dollar (HKD), Macau pataca (MOP), Peruvian nuevo sol (PEN), Philippine peso (PHP), Singapore dollar (SGD), Thai baht (THB), Taiwanese dollar (TWD), US dollar (USD). Part 16 List of closely correlated currencies against the Moroccan dirham (MAD) Albanian lek (ALL), Bosnia and Herzegovina mark (BAM), Bulgarian lev (BGN), Czech koruna (CZK), Danish krone (DKK), British pound (GBP), Croatian kuna (HRK), Romanian leu (RON), Singapore dollar (SGD), Thai baht (THB), Taiwanese dollar (TWD), euro (EUR). Part 17 List of closely correlated currencies against the Macau pataca (MOP) Arab Emirates dirham (AED), Angolan kwanza (AOA), Canadian dollar (CAD), Chinese yuan (CNY), British pound (GBP), Hong Kong dollar (HKD), Lebanese pound (LBP), Peruvian nuevo sol (PEN), Philippine peso (PHP), Singapore dollar (SGD), Thai baht (THB), Taiwanese dollar (TWD), US dollar (USD).

FCA 2021/49 Page 90 of 125 Part 18 List of closely correlated currencies against the Peruvian nuevo sol (PEN) Arab Emirates dirham (AED), Angolan kwanza (AOA), Chinese yuan (CNY), Hong Kong dollar (HKD), South Korean won (KRW), Lebanese pound (LBP), Macau pataca (MOP), Philippine peso (PHP), Singapore dollar (SGD), Thai baht (THB), Taiwanese dollar (TWD), US dollar (USD). Part 19 List of closely correlated currencies against the Philippine peso (PHP) Arab Emirates dirham (AED), Angolan kwanza (AOA), Chinese yuan (CNY), Hong Kong dollar (HKD), South Korean won (KRW), Lebanese pound (LBP), Macau pataca (MOP), Malaysian Ringgit (MYR), Peruvian nuevo sol (PEN), Singapore dollar (SGD), Thai baht (THB), Taiwanese dollar (TWD), US dollar (USD). Part 20 List of closely correlated currencies against the Romanian leu (RON) Albanian lek (ALL), Bosnia and Herzegovina mark (BAM), Bulgarian lev (BGN), Czech koruna (CZK), Danish krone (DKK), Croatian kuna (HRK), Moroccan dirham (MAD), euro (EUR). Part 21 List of closely correlated currencies against the Singapore dollar (SGD) Arab Emirates dirham (AED), Angolan kwanza (AOA), Canadian dollar (CAD), Chinese yuan (CNY), Danish krone (DKK), British pound (GBP), Hong Kong dollar (HKD), Croatian kuna (HRK), South Korean won (KRW), Lebanese pound (LBP), Moroccan dirham (MAD), Macau pataca (MOP), Malaysian ringgit (MYR), Peruvian nuevo sol (PEN), Philippine peso (PHP), Thai baht (THB), Taiwanese dollar (TWD), US dollar (USD). Part 22 List of closely correlated currencies against the Thai baht (THB) Arab Emirates dirham (AED), Angolan kwanza (AOA), Chinese yuan (CNY), Hong Kong dollar (HKD), Lebanese pound (LBP), Moroccan dirham (MAD), Macau pataca (MOP), Peruvian nuevo sol (PEN), Philippine peso (PHP), Singapore dollar (SGD), Taiwanese dollar (TWD), US dollar (USD). Part 23 List of closely correlated currencies against the Taiwanese dollar (TWD) Arab Emirates dirham (AED), Angolan kwanza (AOA), Canadian dollar (CAD), Chinese yuan (CNY), British pound (GBP), Hong Kong

FCA 2021/49 Page 91 of 125 dollar (HKD), South Korean won (KRW), Lebanese pound (LBP), Moroccan dirham (MAD), Macau pataca (MOP), Malaysian Ringgit (MYR), Peruvian nuevo sol (PEN), Philippine peso (PHP), Singapore dollar (SGD), Thai baht (THB), US dollar (USD). Part 24 List of closely correlated currencies against the US dollar (USD) Arab Emirates dirham (AED), Angolan kwanza (AOA), Canadian dollar (CAD), Chinese yuan (CNY), British pound (GBP), Hong Kong dollar (HKD), Lebanese pound (LBP), Macau pataca (MOP), Peruvian nuevo sol (PEN), Philippine peso (PHP), Singapore dollar (SGD), Thai baht (THB), Taiwanese dollar (TWD). Amend the following as shown. Section Summary of content MIFIDPRU 7.2 General requirements relating to a firm’s governance arrangements MIFIDPRU 7.2A Requirements relating to the risk management function … 5 Concentration risk … 5.8 Procedures to prevent investment firms from avoiding the K‐CON own funds requirement … 5.8.2 R A firm must maintain systems which ensure that any closing out or transfer that is prohibited by MIFIDPRU 5.8.1R is immediately reported to the FCA in accordance with SUP 15.7 (Form and method of notification) MIFIDPRU 1.1.10R. … 7 Governance and risk management 7.1 Application … 7.1.2 G The following table summarises the content of MIFIDPRU 7:

FCA 2021/49 Page 92 of 125 Section of MIFIDPRU 7 Application to SNI MIFIDPRU investment firms Application to non-SNI MIFIDPRU investment firms Application at the level of an investment firm group MIFIDPRU 7.2 (Senior management and systems and controls) (Internal governance) Applies to the UK parent entity of an investment firm group to which consolidation applies under MIFIDPRU 2.5 MIFIDPRU 7.2A (Risk management function) Does not apply Applies to a non￾SNI MIFIDPRU investment firm that has a risk management function in accordance with article 23 of the MIFID Org Regulation Does not apply … … 7.1.3 R MIFIDPRU 7 applies as follows: … 7.2 Internal governance … Governance for risk management 7.2.3 R (1) The management body of a MIFIDPRU investment firm has overall responsibility for risk management. It must devote sufficient time to the consideration of risk. (2) The management body of a MIFIDPRU investment firm must be actively involved in, and ensure that adequate resources are allocated to, the management of all material risks, including the

FCA 2021/49 Page 93 of 125 valuation of assets, the use of external ratings and internal models relating to those risks. (3) A MIFIDPRU investment firm must establish reporting lines to the management body that cover all material risks and risk management policies and changes thereof. 7.2.4 R (1) A MIFIDPRU investment firm must ensure that the management body in its supervisory function and any risk committee that has been established have adequate access to information on the risk profile of the firm and, if necessary and appropriate, to the risk management function and to external expert advice. (2) The management body in its supervisory function and any risk committee that has been established must determine the nature, the amount, the format, and the frequency of the information on risk which they are to receive. 7.2A Risk management function 7.2A.1 R MIFIDPRU 7.2A.2R and MIFIDPRU 7.2A.3R apply to a non-SNI MIFIDPRU investment firm that has a risk management function in accordance with article 23 of the MIFID Org Regulation. 7.2A.2 R (1) A firm must ensure that its risk management function is independent from its operational functions and has sufficient authority, stature, resources and access to the management body. (2) The risk management function in (1) must ensure that all material risks are identified, measured and properly reported. It must be actively involved in elaborating the firm’s risk strategy and in all material risk management decisions, and it must be able to deliver a complete view of the whole range of risks of the firm. (3) A firm in (1) must ensure that its risk management function is able to report directly to the management body in its supervisory function, independent from senior management, and that it can raise concerns and warn the management body, where appropriate, where specific risk developments affect or may affect the firm, without prejudice to the responsibilities of the management body in its supervisory and/or managerial functions. 7.2A.3 R The head of the risk management function must be an independent senior manager with distinct responsibility for the risk management function. Where the nature, scale and complexity of the activities of the MIFIDPRU investment firm do not justify a specially appointed person, another senior person within the firm may fulfil that function, provided there is no conflict of interest. The head of the risk management function must not be removed without prior approval of the management body and must be able to have direct access to the management body where necessary.

FCA 2021/49 Page 94 of 125 The following text replaces the text of MIFIDPRU 8 (Disclosure). The text is not underlined. 7.3 Risk, remuneration and nomination committees Risk committee 7.3.1 R (1) Subject to (2), a non-SNI MIFIDPRU investment firm to which this rule applies must establish a risk committee. … (5A) In order to assist in the establishment of sound remuneration policies and practices, the risk committee must, without prejudice to the tasks of the remuneration committee, examine whether incentives provided by the remuneration system take into consideration risk, capital, liquidity and the likelihood and timing of earnings. … … 8 Disclosure 8.1 Application 8.1.1 R (1) Subject to (2) and (3), the requirements in this chapter apply to a non-SNI MIFIDPRU investment firm. (2) MIFIDPRU 8.2 (Risk management objectives and policies), MIFIDPRU 8.4 (Own funds) and MIFIDPRU 8.5 (Own funds requirements) also apply to an SNI MIFIDPRU investment firm that has additional tier 1 instruments in issue. (3) MIFIDPRU 8.6 (Remuneration policies and practices) applies to every MIFIDPRU investment firm. (4) MIFIDPRU 8.7 (Investment policy) applies only to a non-SNI MIFIDPRU investment firm that does not fall within MIFIDPRU 7.1.4R(1). 8.1.2 G The requirements in MIFIDPRU 8.6 (Remuneration policies and practices) apply to all MIFIDPRU investment firms, with certain exceptions that are explained in that section. 8.1.3 G The basic conditions to be classified as an SNI MIFIDPRU investment firm are set out in MIFIDPRU 1.2.1R. MIFIDPRU 1.2.13R explains the circumstances in which a non-SNI MIFIDPRU investment firm will be reclassified as an SNI MIFIDPRU investment firm.

FCA 2021/49 Page 95 of 125 8.1.4 R Where a non-SNI MIFIDPRU investment firm is reclassified as an SNI MIFIDPRU investment firm, it must comply with the disclosure obligations that apply to a non-SNI MIFIDPRU investment firm in relation to the financial year in which it is reclassified. 8.1.5 R Where an SNI MIFIDPRU investment firm is reclassified as a non-SNI MIFIDPRU investment firm, it must comply with the disclosure obligations that apply to an SNI MIFIDPRU investment firm in relation to the financial year in which it ceased to be an SNI MIFIDPRU investment firm. 8.1.6 G Where an SNI MIFIDPRU investment firm is reclassified as a non-SNI MIFIDPRU investment firm, it may choose to comply with the higher disclosure requirements applicable to a non-SNI MIFIDPRU investment firm in relation to the financial year in which it is reclassified. Application: Level of application 8.1.7 R A MIFIDPRU investment firm must comply with the rules in this chapter on an individual basis, unless the firm is exempt in accordance with MIFIDPRU 2.3.1R. Application: proportionality 8.1.8 R In complying with the rules in this chapter, a MIFIDPRU investment firm must provide a level of detail in its qualitative disclosures that is appropriate to its size and internal organisation, and to the nature, scope, and complexity of its activities. 8.1.9 G By way of example, applying a proportionate approach to the qualitative disclosure requirements in MIFIDPRU 8.6 (Remuneration policies and practices) means that the FCA would expect a non-SNI MIFIDPRU investment firm with a detailed remuneration policy to disclose more information than an SNI MIFIDPRU investment firm. Application: when? 8.1.10 R As a minimum, a firm must publicly disclose the information specified in this chapter annually on: (1) the date it publishes its annual financial statements; or (2) where it does not publish annual financial statements, the date on which its annual solvency statement is submitted to the FCA in accordance with requirements in SUP 16.12. 8.1.11 G The FCA considers it would be appropriate for a firm to consider making more frequent public disclosure where particular circumstances demand it, for example, in the event of a major change to its business model or where a merger has taken place.

FCA 2021/49 Page 96 of 125 8.1.12 G A MIFIDPRU investment firm is reminded of the transitional provisions for disclosure requirements in MIFIDPRU TP 12. Application: how? 8.1.13 R A firm must publish the information required by this chapter in a manner that: (1) is easily accessible and free to obtain; (2) is clearly presented and easy to understand; (3) is consistent with the presentation used for previous disclosure periods or otherwise allows a reader of the information to make comparisons easily; and (4) highlights in a summary any significant changes to the information disclosed, when compared with previous disclosure periods. 8.1.14 G A firm should consider the best way to make the disclosed information easy to understand, for example, by using tables, charts or diagrams, or cross-references to other information where relevant. 8.1.15 R A firm is not required to comply with MIFIDPRU 8.1.13R to the extent that compliance would breach the law of another jurisdiction. 8.1.16 E Making the disclosures required by this chapter available on a website will tend to establish compliance with the rule in MIFIDPRU 8.1.13R. 8.1.17 G Whilst the FCA’s expectation is that a firm will use a website for the purpose of complying with MIFIDPRU 8.1.13R, if a firm does not maintain a website, or cannot use a website to publish some or all of the information required without breaching the law of another jurisdiction, it must nonetheless ensure that the alternative method of disclosure used complies with the overarching requirement in MIFIDPRU 8.1.13R. 8.2 Risk management objectives and policies 8.2.1 R A firm must disclose its risk management objectives and policies for the categories of risk addressed by: (1) MIFIDPRU 4 (Own funds requirements); (2) MIFIDPRU 5 (Concentration risk); and (3) MIFIDPRU 6 (Liquidity). 8.2.2 R The risk management objectives and policies for each of the items listed in MIFIDPRU 8.2.1R must include:

FCA 2021/49 Page 97 of 125 (1) a concise statement approved by the firm’s governing body describing the potential for harm associated with the business strategy; and (2) a summary of the strategies and processes used to manage each of the categories of risk listed in MIFIDPRU 8.2.1R and how this helps to reduce the potential for harm. 8.2.3 G In complying with MIFIDPRU 8.2.2R, a firm may consider that information drawn from the ICARA process is a relevant and useful way of disclosing: (1) the firm’s approach to risk management by reference to its risk management policies; (2) details of the firm’s risk management structure and operations, for example, the senior management responsible for each area of risk (where applicable), and any relevant committees and their responsibilities; (3) how the firm sets its risk appetite; and (4) a summary of how the firm assesses the effectiveness of its risk management processes. 8.3 Governance arrangements 8.3.1 R A non-SNI MIFIDPRU investment firm must disclose the following information regarding internal governance arrangements: (1) an overview of how the firm complies with the requirement in SYSC 4.3A.1R to ensure the management body defines, oversees and is accountable for the implementation of governance arrangements that ensure effective and prudent management of the firm, including the segregation of duties in the organisation and the prevention of conflicts of interest, and in a manner that promotes the integrity of the market and the interests of clients; (2) subject to MIFIDPRU 8.3.2R, the number of directorships (executive and non-executive) held by each member of the management body; (3) where relevant, whether the FCA has granted a modification or waiver of SYSC 4.3A.6R(1)(a) or (b) in order to allow a member of the management body to hold additional directorships; (4) a summary of the policy promoting diversity on the management body, including explanations of: (a) the objectives of the policy and any target(s) set out in the policy; and

FCA 2021/49 Page 98 of 125 (b) the extent to which the objectives and any target(s) have been achieved; and (c) where the objectives or target(s) have not been achieved: (i) the reasons for the shortfall; and (ii) the firm’s proposed actions to address the shortfall; and (iii) the proposed timeline for taking those actions; (5) whether the firm has a risk committee; and (6) whether the firm: (a) is required by MIFIDPRU 7.3.1R to establish a risk committee; or (b) would have been required by MIFIDPRU 7.3.1R to establish a risk committee, but that obligation has been removed as a result of a waiver or modification granted by the FCA. 8.3.2 R The following directorships are not within the scope of MIFIDPRU 8.3.1R(2): (1) executive and non-executive directorships held in organisations which do not pursue predominantly commercial objectives; and (2) executive and non-executive directorships held within the same group or within an undertaking (including a non-financial sector entity) in which the firm holds a qualifying holding. 8.3.3 G When deciding what information to disclose to satisfy the obligations in MIFIDPRU 8.3.1R(1), a firm may find it helpful to consider: (1) the requirements in SYSC 4.3A.1R(1) to (7) regarding the responsibilities of the management body; and (2) the requirements in SYSC 4.3A.3R regarding the necessary skills and attributes of members of the management body. 8.4 Own funds 8.4.1 R (1) Subject to (2), a firm must disclose the following information regarding its own funds: (a) a reconciliation of common equity tier 1 items, additional tier 1 items, tier 2 items, and the applicable filters and

FCA 2021/49 Page 99 of 125 deductions applied in order to calculate the own funds of the firm; (b) a reconciliation of (a) with the capital in the balance sheet in the audited financial statements of the firm; and (c) a description of the main features of the common equity tier 1 instruments, additional tier 1 instruments and tier 2 instruments issued by the firm. (2) A firm that is not required to publish annual financial statements is only required to disclose the information specified at (1)(a) and (c). 8.4.2 R A firm must use the template available at MIFIDPRU 8 Annex 1R in order to disclose the information requested at MIFIDPRU 8.4.1R. 8.5 Own funds requirements 8.5.1 R A firm must disclose the following information regarding its compliance with the requirements set out in MIFIDPRU 4.3 (Own funds requirement): (1) the K-factor requirement, broken down as follows: (a) the sum of the K-AUM requirement, the K-CMH requirement and the K-ASA requirement; (b) the sum of the K-COH requirement and the K-DTF requirement; and (c) the sum of the K-NPR requirement, the K-CMG requirement, the K-TCD requirement and the K-CON requirement; and (2) the fixed overheads requirement. 8.5.2 R A firm must disclose its approach to assessing the adequacy of its own funds in accordance with the overall financial adequacy rule in MIFIDPRU 7.4.7R. 8.6 Remuneration policy and practices Application: general 8.6.1 R The rules in this section apply to all MIFIDPRU investment firms, unless otherwise specified. Qualitative disclosures 8.6.2 R A MIFIDPRU investment firm must disclose a summary of:

FCA 2021/49 Page 100 of 125 (1) its approach to remuneration for all staff (“staff” interpreted according to SYSC 19G.1.24G); (2) the objectives of its financial incentives; (3) the decision-making procedures and governance surrounding the development of the remuneration policies and practices the firm is required to adopt in accordance with the MIFIDPRU Remuneration Code, to include, where applicable: (a) the composition of and mandate given to the remuneration committee; and (b) details of any external consultants used in the development of the remuneration policies and practices. 8.6.3 G In complying with MIFIDPRU 8.6.2R(1), a firm may consider it appropriate to disclose: (1) the principles or philosophy guiding the firm’s remuneration policies and practices; (2) how the firm links variable remuneration and performance; (3) the firm’s main performance objectives; and (4) the categories of staff eligible to receive variable remuneration. 8.6.4 R A non-SNI MIFIDPRU investment firm must disclose the types of staff it has identified as material risk takers under SYSC 19G.5, including any criteria in addition to those in SYSC 19G.5.3R that the firm has used to identify material risk takers 8.6.5 R A MIFIDPRU investment firm must disclose the key characteristics of its remuneration policies and practices in sufficient detail to provide the reader with: (1) an understanding of the risk profile of the firm and/or the assets it manages; and (2) an overview of the incentives created by the remuneration policies and practices. 8.6.6 R For the purpose of MIFIDPRU 8.6.5R, a firm must disclose at least the following information: (1) the different components of remuneration, together with the categorisation of those remuneration components as fixed or variable;

FCA 2021/49 Page 101 of 125 (2) a summary of the financial and non-financial performance criteria used across the firm, broken down into the criteria for the assessment of the performance of: (a) the firm; (b) business units; and (c) individuals. (3) for a non-SNI MIFIDRU investment firm: (a) the framework and criteria used for ex-ante and ex-post risk adjustment of remuneration, including a summary of: (i) current and future risks identified by the firm; (ii) how the firm takes into account current and future risks when adjusting remuneration; and (iii) how malus (where relevant) and clawback are applied; (b) the policies and criteria applied for the award of guaranteed variable remuneration; and (c) the policies and criteria applied for the award of severance pay. (4) for a non-SNI MIFIDPRU investment firm not falling within SYSC 19G.1.1R(2): (a) details of the firm’s deferral and vesting policy, including as a minimum: (i) the proportion of variable remuneration that is deferred; (ii) the deferral period; (iii) the retention period; (iv) the vesting schedule; and (v) an explanation of the rationale behind each of the policies referred to in (i) to (iv). Where the firm’s deferral and vesting policy differs for different categories of material risk takers, the information should be presented and sub-divided accordingly.

FCA 2021/49 Page 102 of 125 (b) a description of the different forms in which fixed and variable remuneration are paid, for example, whether paid in: (i) cash; (ii) share-linked instruments; (iii) equivalent non-cash instruments; (iv) options; or (v) short or long-term incentive plans. 8.6.7 G In complying with MIFIDPRU 8.6.6R(1), a firm is reminded of the rules and guidance in SYSC 19G.4 on categorising fixed and variable remuneration. Quantitative disclosures 8.6.8 R (1) Subject to (7), a MIFIDPRU investment firm must disclose the quantitative information required by (2) to (6) for the financial year to which the disclosure relates. (2) An SNI-MIFIDPRU investment firm must disclose the total amount of remuneration awarded to all staff, split into: (a) fixed remuneration; and (b) variable remuneration. (3) A non-SNI MIFIDPRU investment firm must disclose the total number of material risk takers identified by the firm under SYSC 19G.5. (4) A non-SNI MIFIDPRU investment firm must disclose the following information, split into categories for senior management, other material risk takers, and other staff: (a) the total amount of remuneration awarded; (b) the fixed remuneration awarded; and (c) the variable remuneration awarded. (5) A non-SNI MIFIDPRU investment firm must disclose the following information, split into categories for senior management and other material risk takers:

FCA 2021/49 Page 103 of 125 (a) the total amount of guaranteed variable remuneration awards made during the financial year and the number of material risk takers receiving those awards; (b) the total amount of the severance payments awarded during the financial year and the number of material risk takers receiving those payments; and (c) the amount of the highest severance payment awarded to an individual material risk taker. (6) A non-SNI MIFIDPRU investment firm not meeting the conditions in SYSC 19G.1.1R(2) must disclose the following information, split into categories for senior management, and other material risk takers: (a) the amount and form of awarded variable remuneration, split into cash, shares, share-linked instruments and other forms of remuneration, with each form of remuneration also split into deferred and non-deferred; (b) the amounts of deferred remuneration awarded for previous performance periods, split into the amount due to vest in the financial year in which the disclosure is made, and the amount due to vest in subsequent years; (c) the amount of deferred remuneration due to vest in the financial year in respect of which the disclosure is made, split into that which is or will be paid out, and any amounts that were due to vest but have been withheld as a result of performance adjustment; (d) information on whether the firm uses the exemption for individual material risk takers set out in SYSC 19G.5.9R, together with details of: (i) the provisions in SYSC 19G.5.9R(2) in respect of which the firm relies on the exemption; (ii) the total number of material risk takers who benefit from an exemption from each provision referred to in (i); and (iii) the total remuneration of those material risk takers who benefit from an exemption, split into fixed and variable remuneration. (7) (a) For the purposes of (4), (5)(a), (5)(b) and (6), a non-SNI MIFIDPRU investment firm must aggregate the information to be disclosed for senior management and other material risk takers, where splitting the information

FCA 2021/49 Page 104 of 125 between those two categories would lead to the disclosure of information about one or two people. (b) Where aggregation in accordance with (a) would still lead to the disclosure of information about one or two people, a non-SNI MIFIDPRU investment firm is not required to comply with the obligation in (4), (5)(a), (5)(b) or (6). 8.6.9 R A non-SNI MIFIDPRU investment firm that relies on MIFIDPRU 8.6.8R(7) must include a statement in the main body of its remuneration disclosure that: (1) explains the obligations in relation to which it has relied on the exemption; and (2) confirms that the exemption is relied on to prevent individual identification of a material risk taker. 8.6.10 G The purpose of the exemption referred to in MIFIDPRU 8.6.8R(7) is to avoid firms having to disclose information: (1) that would enable a material risk taker to be identified; or (2) that could be associated with a particular material risk taker. 8.6.11 G (1) When considering the exemptions in MIFIDPRU 8.6.8R(7), the non-SNI MIFIDPRU investment firm should apply the conditions to each information item separately. Where the information contained in at least one of the categories of senior management and other material risk takers relates to one or two material risk takers, the non-SNI MIFIDPRU investment firm is exempt from the requirement to split the information into these categories, and should aggregate the information. Where the aggregated information still relates to only one or two individuals, the non￾SNI MIFIDPRU investment firm is exempt from the requirement to disclose that information. (2) The guidance in (1) is illustrated by the following example: (a) Firm A does not meet the conditions in SYSC 19G.1.1R(2). It has identified eight material risk takers under SYSC 19G.5. (b) In relation to the information items required in MIFIDPRU 8.6.8R(4), five of the material risk takers are senior management, and three are other material risk takers. Firm A cannot rely on the exemption in MIFIDPRU 8.6.8R(7) because neither of the categories of senior management and other material risk takers contains one or two individuals. It must disclose the remuneration information required at MIFIDPRU 8.6.8R(4) broken down into the categories of

FCA 2021/49 Page 105 of 125 senior management, other material risk takers, and other staff. (c) In relation to the information items required in MIFIDPRU 8.6.8R(5)(a), Firm A has awarded guaranteed remuneration to two material risk takers. Both are also senior management. The information in the category of senior management therefore relates to only two individuals. If Firm A aggregates the information from the senior management and other material risk taker categories in line with MIFIDPRU 8.6.8R(7), the figure is still two. Therefore, Firm A can rely on the exemption in MIFIDPRU 8.6.8R(7). It is exempt from the requirement to disclose the information on guaranteed remuneration required at MIFIDPRU 8.6.8(5)(a). (d) In relation to the information items required in MIFIDPRU 8.6.8R(5)(b), Firm A has awarded severance payments to four material risk takers, of which three are members of senior management and one is another material risk taker. Because the category of other material risk takers relates only to one individual, Firm A can rely on the exemption in MIFIDPRU 8.6.8R(7). It should aggregate the total for both categories and disclose the information on severance payments required at MIFIDPRU 8.6.8(5)(b) as a single item. Firm A cannot rely on the exemption in MIFIDPRU 8.6.8R(7) because the aggregated total of senior management and other material risk takers is more than two. (e) Firm A is not in scope of the disclosure requirements in MIFIDPRU 8.6.8R(6) because it meets the conditions in SYSC 19G.1.1R(2). 8.7 Investment policy 8.7.1 R A non-SNI MIFIDPRU investment firm not meeting the conditions in MIFIDPRU 7.1.4R must disclose: (1) the proportion of voting rights attached to the shares held directly or indirectly by the firm, broken down by country or territory; and (2) a complete description of voting behaviour in the general meetings of companies the shares of which are held in accordance with MIFIDPRU 8.7.4R, including: (a) an explanation of the votes; and (b) the ratio of proposals put forward by the administrative or governing body of the company that the firm has approved; and

FCA 2021/49 Page 106 of 125 (3) an explanation of the use of proxy adviser firms; and (4) a summary of the voting guidelines regarding the companies in which the shares referred to in (1) are held with links to supporting non-confidential documents where available. 8.7.2 R A firm must use the template available at MIFIDPRU 8 Annex 2R in order to disclose the information requested at MIFIDPRU 8.7.1R. 8.7.3 R The disclosure requirements in MIFIDPRU 8.7.1R(2) do not apply if the contractual arrangements of all shareholders represented by the firm at the shareholders’ meeting only authorise the firm to vote on their behalf when express voting orders are given by the shareholders after receiving the meeting’s agenda. 8.7.4 R (1) To the extent that any data item required by MIFIDPRU 8.7 is treated as proprietary information in accordance with (2), or confidential information in accordance with (3), a firm may refuse to disclose it, noting on the template available at MIFIDPRU 8 Annex 2R which item has not been disclosed and why. (2) A firm may only treat information as proprietary information if sharing that information with the public would have a material adverse effect upon its business. (3) A firm may only treat information as confidential information if there are obligations to customers or other counterparty relationships binding the firm to confidentiality. 8.7.5 R Where a firm refuses to disclose information in reliance on MIFIDPRU 8.7.4 R(2), the firm should record why the information is considered proprietary and make that information available to the FCA if requested. 8.7.6 R A firm referred to in MIFIDPRU 8.7.1R must comply with that rule: (1) only in respect of a company whose shares are admitted to trading on a regulated market; (2) only where the proportion of voting rights that the MIFIDPRU investment firm directly or indirectly holds in that company is greater than 5% of all voting rights attached to the shares issued by the company; and (3) only in respect of shares in that company to which voting rights are attached. 8.7.7 R The voting rights referred to in MIFIDPRU 8.7.6R(2) must be calculated on the basis of all shares to which voting rights are attached, even if the exercise of any of those voting rights is suspended.

FCA 2021/49 Page 107 of 125 8.7.8 G For the purpose of complying with MIFIDPRU 8.7.1R and MIFIDPRU 8.7.6R: (1) reference to “directly or indirectly” held shares means that: (a) a firm directly holds the shares on its balance sheet or the balance sheet of another group member; or (b) the firm may exercise a voting right attaching to a share in a fiduciary capacity; (2) in the circumstances described in (1), the disclosure requirement will apply where the voting rights are attached to shares held in the name of the firm and to shares held by clients where the firm exercises those voting rights; (3) the fact that a firm has voting rights but chooses not to exercise them doesn’t remove its obligation to comply with MIFIDPRU 8.7.1R and MIFIDPRU 8.7.6R; and (4) “greater than 5% of all voting rights” means that the firm holds at least 5% of shares with voting rights plus one share, and the requirement is triggered when the firm meets this threshold at any point during the course of the year.

FCA 2021/49 Page 108 of 125 Composition of regulatory own funds Item Amount (GBP thousands) Source based on reference numbers/letters of the balance sheet in the audited financial statements 1 OWN FUNDS 2 TIER 1 CAPITAL 3 COMMON EQUITY TIER 1 CAPITAL 4 Fully paid up capital instruments 5 Share premium 6 Retained earnings 7 Accumulated other comprehensive income 8 Other reserves 9 Adjustments to CET1 due to prudential filters 10 Other funds 11 (-)TOTAL DEDUCTIONS FROM COMMON EQUITY TIER 1 19 CET1: Other capital elements, deductions and adjustments 20 ADDITIONAL TIER 1 CAPITAL 21 Fully paid up, directly issued capital instruments 22 Share premium 23 (-) TOTAL DEDUCTIONS FROM ADDITIONAL TIER 1 24 Additional Tier 1: Other capital elements, deductions and adjustments 25 TIER 2 CAPITAL 26 Fully paid up, directly issued capital instruments 27 Share premium 28 (-) TOTAL DEDUCTIONS FROM TIER 2 29 Tier 2: Other capital elements, deductions and adjustments Disclosure template for information required under MIFIDPRU 8.4.1R in respect of own funds 8 Annex 1R [Editor’s note: The form can be found at this address: https://www.fca.org.uk/publication/forms/[xxx]]

FCA 2021/49 Page 109 of 125 Own funds: reconciliation of regulatory own funds to balance sheet in the audited financial statements Flexible template - rows to be reported in line with the balance sheet included in the audited financial statements of the investment firm. Columns should be kept fixed, unless the investment firm has the same accounting and regulatory scope of consolidation, in which case the volumes should be entered in column (a) only. Figures should be given in GBP thousands unless noted otherwise. a b c Balance sheet as in published/audited financial statements Under regulatory scope of consolidation Cross￾reference to template OF1 As at period end As at period end Assets - Breakdown by asset classes according to the balance sheet in the audited financial statements 1 2 3 4 5 xxx Total Assets Liabilities - Breakdown by liability classes according to the balance sheet in the audited financial statements 1 2 3 4 xxx Total Liabilities Shareholders' Equity 1 2 3 xxx Total Shareholders' equity

FCA 2021/49 Page 110 of 125 Own funds: main features of own instruments issued by the firm Free text. A non-exhaustive list of example features is included below. Examples Public or private placement Instrument type Amount recognised in regulatory capital (GBP thousands, as of most recent reporting date) Nominal amount of instrument Issue price Redemption price Accounting classification Original date of issuance Perpetual or dated Maturity date Issuer call subject to prior supervisory approval Optional call date, contingent call dates and redemption amount Subsequent call dates, if applicable Coupons/dividends Fixed or floating dividend/coupon Coupon rate and any related index Existence of a dividend stopper Convertible or non-convertible Write-down features Link to the terms and conditions of the instrument

FCA 2021/49 Page 111 of 125 PROPORTION OF VOTING RIGHTS (insert additional rows as needed) Company name LEI Proportion of voting rights attached to shares held directly or indirectly in accordance with MIFIDPRU 8.7.6R Disclosure template for information required under MIFIDPRU 8.7.1R in respect of voting rights 8 Annex 2R [Editor’s note: The form can be found at this address: https://www.fca.org.uk/publication/forms/[xxx]]

FCA 2021/49 Page 112 of 125 Insert the following Annexes after MIFIDPRU TP 10 (Transitional capital and liquidity requirements for former IFPRU investment firms, BIPRU firms or their groups with ICG or ILG issued before 1 January 2022). The text is not underlined. TP 11 Prudential reporting with a reference date before 1 January 2022 11.1 R Except where the context otherwise requires, a reference in MIFIDPRU TP 11 to any provision of SUP is to that provision as it applied on 31 December 2021. 11.2 R MIFIDPRU TP 11 applies where the following conditions are met: (1) the reference date for a data item under SUP 16.12 was before 1 January 2022; (2) the submission date under SUP 16.12 for the data item in (1) fell on or after 1 January 2022; and (3) a firm is no longer required to submit the data item in (1) due to amendments to SUP 16.12 that took effect on 1 January 2022. 11.3 R Where MIFIDPRU TP 11 applies to a firm in relation to a data item, the firm must submit the data item to the FCA in accordance with the provisions of SUP 16.12 (as applied under MIFIDPRU TP 11.1R). 11.4 G (1) As a result of the introduction of the MIFIDPRU regime for MIFIDPRU investment firms, SUP 16.12 was amended with effect from 1 January 2022 to introduce updated prudential reporting requirements. (2) The effect of MIFIDPRU TP 11 is that where the reference date for a report falls on or before 31 December 2021, but the submission date for that report falls on after 1 January 2022, the firm must still submit the report in accordance with the reporting and submission requirements that applied on 31 December 2021. (3) The purpose of MIFIDPRU TP 11 is to ensure that the FCA receives appropriate information on the prudential position of firms during the transition from previous prudential regimes to the MIFIDPRU regime. (4) MIFIDPRU TP 11 does not apply to remuneration reporting. This is because SYSC TP 11.4R(1) requires a firm that was subject to any of the remuneration codes listed in SYSC TP 11.4R(2) on 31 December 2021 to comply with any reporting requirements relating to remuneration awarded for performance periods before the performance period to which the MIFIDPRU Remuneration Code first applies. 11.5 G (1) The following is an example of how MIFIDPRU TP 11 applies

FCA 2021/49 Page 113 of 125 in practice. (2) A BIPRU firm is required to report data item FSA003 (Capital adequacy) under SUP 16.12.11R. The reporting reference date for FSA003 is determined by reference to the firm’s accounting reference date. Under SUP 16.12.13R, the firm has 30 business days after the reporting reference rate to submit the relevant data item to the FCA. The firm’s accounting reference date is 1 December 2021. (3) The reporting reference date for the firm’s FSA003 return (i.e. 1 December 2021) falls before 1 January 2022. The submission date for the return (which is 30 business days later on 17 January 2022) falls after 1 January 2022. SUP 16.12 was amended on 1 January 2022 to delete the requirement for firms to submit data item FSA003. (4) Under MIFIDPRU TP 11, the firm must still submit data item FSA003 to the FCA, reflecting the firm’s position as at 1 December 2021. The data item must be submitted in accordance with the relevant rules in SUP 16.12 that applied on 31 December 2021. TP 12 Disclosure requirements: transitional provisions 12.1 R MIFIDPRU TP 12 applies to a MIFIDPRU investment firm. 12.2 R For the purposes of MIFIDPRU TP 12, the “reference date” in relation to a set of disclosures means the date by reference to which those disclosures are prepared, being: (1) in relation to disclosures showing the position of a firm at a fixed point in time, that point in time; and (2) in relation to disclosures that must be prepared by reference to a period, the last day of that period. Delayed application of rules for a commodity and emission allowance dealer 12.3 R (1) This rule applies until 31 December 2026. (2) A commodity and emission allowance dealer is exempt from the following requirements in this chapter: (a) MIFIDPRU 8.2 (Risk management objectives and policies); (b) MIFIDPRU 8.3 (Governance arrangements); (c) MIFIDPRU 8.4 (Own funds);

FCA 2021/49 Page 114 of 125 (d) MIFIDPRU 8.5 (Own funds requirements), and (e) MIFIDPRU 8.6 (Remuneration policies and practices). Disclosures under BIPRU 11 or Part Eight of the UK CRR that have a publication date on or after 1 January 2022 12.4 R (1) This rule applies to disclosures required under either of the following, where the conditions in (2) are met: (a) BIPRU 11; or (b) Part Eight of the UK CRR. (2) The conditions referred to in (1) are that: (a) the reference date for the relevant disclosures in (1) is before 1 January 2022; (b) the deadline to publish the disclosures in (1) falls on or after 1 January 2022; and (c) as a result of one of the following, a firm is no longer required to publish the disclosures in (1): (i) the deletion of the BIPRU sourcebook with effect from 1 January 2022; or (ii) changes to the scope of the UK CRR that took effect on 1 January 2022. (3) Where this rule applies, a firm must publish the relevant disclosures by no later than the deadline that would have applied under BIPRU 11 or Part Eight of the UK CRR (as applicable) if the firm had continued to be subject to those rules or that legislation in the form in which it stood immediately before 1 January 2022. (4) A firm may comply with this rule by being included within disclosures made on a consolidated basis where that would have been permitted by BIPRU 11 or Part Eight of the UK CRR (as applicable) in the form in which those rules or that legislation stood immediately before 1 January 2022. 12.5 G The effect of MIFIDPRU TP 12.4R is that where a firm is required by BIPRU 11 or Part Eight of the UK CRR to makes disclosures with a reference date before 1 January 2022, it must still publish those disclosures even if the permitted deadline for publication falls on or after 1 January 2022. The deletion of BIPRU 11 or the removal of MIFIDPRU investment firms from the scope of the UK CRR with effect from 1 January 2022 does not relieve the firm of its obligation to make

FCA 2021/49 Page 115 of 125 those disclosures in accordance with the original deadline. Disclosures under MIFIDPRU 8 with a reference date falling on or before 30 December 2022 12.6 R (1) This rule applies to disclosures required under MIFIDPRU 8 for which the reference date falls on or before 30 December 2022. (2) Where this rule applies, a firm is not required to disclose the information required by the following: (a) MIFIDPRU 8.2 (Risk management objectives and policies); (b) MIFIDPRU 8.7 (Investment policy). 12.7 G (1) The effect of MIFIDPRU TP 12.6R is that for disclosures that have a reference date under MIFIDPRU 8 that falls on or before 30 December 2022, a firm is not required to disclose the information about its risk management or its investment policy that would ordinarily be required by that chapter. The reference date under MIFIDPRU 8 is the firm’s accounting reference date. (2) This means that for firms with an accounting reference date other than 31 December, their first disclosures under MIFIDPRU 8 in respect of the accounting year ending in 2022 do not need to include the information required under MIFIDPRU 8.2 or MIFIDPRU 8.7. Their disclosures for all subsequent accounting years must include all of the information required by MIFIDPRU 8. (3) Conversely, for firms with an accounting reference date of 31 December, their first disclosures under MIFIDPRU 8 in respect of the accounting year ending on 31 December 2022 must include all of the information required by MIFIDPRU 8 (i.e. including the information required by MIFIDPRU 8.2 and MIFIDPRU 8.7), except for remuneration disclosures to which MIFIDPRU TP 12.8R applies. This is because MIFIDPRU will have been in force for an entire calendar year by that date and the firm should therefore have all of the information required to produce a complete disclosure reflecting the position as at 31 December 2022. Remuneration disclosures that relate to a performance period that began before and ends after 1 January 2022 12.8 R (1) This rule applies to remuneration disclosures required under either of the following, where the conditions in (2) are met: (a) BIPRU 11.5.18R to BIPRU 11.5.20R;

FCA 2021/49 Page 116 of 125 (b) article 450 of the UK CRR. (2) The conditions referred to in (1) are that: (a) the performance period to which the relevant disclosures in (1) relate; (i) began before 1 January 2022, and (ii) ends on or after 1 January 2022; and (b) as a result of one of the following, a firm is no longer required to publish the disclosures in (1): (i) the deletion of the BIPRU sourcebook with effect from 1 January 2022; or (ii) changes to the scope of the UK CRR that took effect on 1 January 2022. (3) Where this rule applies, a firm: (a) is not required to publish the information specified in MIFIDPRU 8.6 for the performance period in (2)(a); and (b) must publish the relevant disclosures that would have been required for that performance period under the rules in (1)(a) or (1)(b) (as applicable) if the firm had continued to be subject to those rules or that legislation in the form in which they stood immediately before 1 January 2022. (4) A firm may comply with this rule by the remuneration disclosures required under (3)(b) being included within disclosures made on a consolidated basis where that would have been permitted by BIPRU 11 or article 450 of the UK CRR (as applicable) in the form in which those rules or that legislation stood immediately before 1 January 2022. 12.9 G (1) The effect of MIFIDPRU 12.8R is that for disclosures that relate to a remuneration performance period that begins before 1 January 2022 and ends on or after 1 January 2022, a firm is not required to disclose the information about its remuneration policies and practices that would ordinarily be required by MIFIDPRU 8.6. Instead, the firm must publish the remuneration information specified in the disclosure requirements that applied to the firm at the time at which the relevant performance period began (i.e. the remuneration information required either by BIPRU 11.5 or article 450 of the UK CRR, as applicable). (2) For the first full performance period starting after 1 January 2022, a MIFIDPRU investment firm will be required to make its

FCA 2021/49 Page 117 of 125 Insert the following schedule after MIFIDPRU Schedule 5 (Rules that can be waived or modified). The text is not underlined. first disclosures under MIFIDPRU 8.6 (Remuneration policies and practices) on the next occasion following the end of the relevant performance period on which: (a) the firm publishes its annual financial statements; or (b) where it does not publish annual financial statements, the date on which its annual solvency statement is submitted to the FCA in accordance with the requirements in SUP 16.12. Sch 6 List of Part 9C rules Sch 6.1 G This schedule contains a list of Part 9C rules (as defined in section 143F(1) of the Act) for the purposes of section 143F(2) of the Act. Sch 6.2 G (1) Except as specified in (2), each of the following is a Part 9C rule: (a) every rule in MIFIDPRU; and (b) every rule in SYSC 19G (MIFIDPRU Remuneration Code). (2) The following provisions are not Part 9C rules: (a) MIFIDPRU 4.4.1R(3); (b) MIFIDPRU 4.4.3R(2)(c); (c) MIFIDPRU 4.4.4R(2)(c); and (d) MIFIDPRU 4.4.6R.

FCA 2021/49 Page 118 of 125 Annex D Amendments to the Supervision manual (SUP) In this Annex, underlining indicates new text and striking through indicates deleted text. Data item Non-SNI MIFIDPRU investment firm SNI MIFIDPRU investment firm Investment firm group Firm other than a MIFIDPRU investment firm … … … … … Section F RMAR Half yearly (note 1) Quarterly (note 2) Note 1 Annual regulated business revenue up to and including £5 million. Note 2 Annual regulated business revenue over £5 million. … … 16 Reporting requirements … 16.12 Integrated Regulatory Reporting … Regulated Activity Group 4 … 16.12.16 R The applicable reporting frequencies for data items referred to in SUP 16.12.15R are set out in the table below according to firm type. Reporting frequencies are calculated from a firm’s accounting reference date, unless indicated otherwise.

FCA 2021/49 Page 119 of 125 Description of data item Firms’ prudential category and applicable data item (note 1) MIFIDPRU investment firms Firms subject to IPRU(INV) Chapter 13 Firms that are also in one or more of RAGs 2 to 6 and not subject to IPRU(INV) Chapter 13 … Professional indemnity insurance (note 15 note 11) Section E RMAR Section E RMAR Section E RMAR … Note 10 Only applicable to firms that are collective portfolio management investment firms. Note 11 Only applicable to firms that are subject to an FCA requirement to hold professional indemnity insurance and are not MIFIDPRU investment firms. … Regulated Activity Group 7 … 16.12.22A R The applicable data items referred to in SUP 16.12.4R are set out according to type of firm in the table below: …

FCA 2021/49 Page 120 of 125 Annex E Amendments to the Decision Procedure and Penalties manual (DEPP) In this Annex, underlining indicates new text and striking through indicates deleted text. 2 Statutory notices and the allocation of decision making … 2 Annex 1G Warning notices and decision notices under the Act and certain other enactments … Section of the Act Description Handbook reference Decision maker … S142T(1)/ (4) When the FCA is proposing or deciding to take action against a person under section 142S* RDC S143T(1) S143T(3) When the FCA is proposing or deciding to make a Part 9C prohibition order under S143S(2) of the Act RDC or executive procedures S143U(2) (b) S143U(2) (c) When the FCA is proposing or deciding to refuse an application for the variation or revocation of a prohibition order under S143U RDC or executive procedures S143W(1) S143W(5) When the FCA is proposing or deciding to impose a penalty on a person under section 143V (2) of the Act RDC or executive procedures S143X(1) S143X(5) When the FCA is proposing or deciding to publish a statement on a RDC or executive procedures

FCA 2021/49 Page 121 of 125 … 2 Annex 2G Supervisory notices … Section of the Act Description Handbook reference Decision maker … 137S(5) 137S(8)(a) when the FCA gives a direction under section 137S Executive procedures S143U(2)(a) When the FCA decides to grant an application for the variation or revocation of a prohibition order under S143N(1) of the Act Executive procedures S143X When the FCA decides to vary or cancel a restriction under S143W(6) of the Act RDC or executive procedures … … … … 6A The power to impose a suspension, restriction, condition limitation or disciplinary prohibition … 6A.1 Introduction 6A.1.1 G DEPP 6A sets out the FCA’s statement of policy with respect to: (1) The imposition of suspensions or restrictions under sections 88A, 89Q, 143W and 206A of the Act, and the period for which person under section 143P 143W((3) of the Act … … … …

FCA 2021/49 Page 122 of 125 those suspensions or restrictions are to have effect, as required by sections 88C(1), 89S(1) and 210(1) of the Act; … 6A.1.2 G … (2) “restriction” refers to limitations or other restrictions in relation to: … (c) the performance of services to which a sponsor’s approval relates (under section 88A(2)(c) of the Act), and; (d) the dissemination of regulated information by a primary information provider (under section 89Q(2)(c) of the Act); and (e) the exercising of functions by a person of an FCA investment firm or a parent undertaking of an FCA investment firm (under section 143W(5) of the Act)). … 6A.1.3 G … (1) … … (3) we may impose a restriction on the exercise of the functions by a person of an FCA investment firm or a parent undertaking of an FCA investment firm. 6A.1.4 G The powers to impose a suspension, restriction, condition or limitation in relation to authorised persons and approved persons, to impose a restriction on non-authorised parent undertakings of FCA investment firms, members of the management body and employees of non￾authorised parent undertakings who are knowingly concerned in contravention of FCA rules and to impose a disciplinary prohibition in relation to individuals, are disciplinary measures; where the FCA considers it necessary to take action, for example, to protect consumers from an authorised person, the FCA will seek to cancel or vary the authorised person’s permissions. … … …

FCA 2021/49 Page 123 of 125 6A.3 Determining the appropriate length of the period of suspension, restriction, condition or disciplinary prohibition … 6A.3.2 G … (1) … … (4) The impact of suspension, restriction, condition or disciplinary prohibition on the person in breach The following considerations may be relevant to the assessment of the impact of suspension or restriction on an authorised person, sponsor, or primary information provider or non￾authorised parent undertaking: (a) the authorised person’s, sponsor’s, or primary information provider’s, or non-authorised parent undertaking’s expected lost revenue and profits from not being able to carry out the suspended or restricted activity; (b) the cost of any measures the authorised person, sponsor, or primary information provider or non-authorised parent undertaking must undertake to comply with the suspension or restriction; … (d) the effect on other areas of the authorised person’s, sponsor’s, or primary information provider’s or non￾authorised parent undertaking’s business; and (e) whether the suspension or restriction would cause the authorised person, sponsor, or primary information provider or non-authorised parent undertaking serious financial hardship. The following considerations may be relevant to the assessment of the impact of suspension or condition on an approved person or the impact of a disciplinary prohibition or restriction on an individual: … … 6A.3.3 G The FCA may delay the commencement of the period of suspension, restriction or disciplinary prohibition. In deciding whether this is

FCA 2021/49 Page 124 of 125 appropriate, the FCA will take into account all the circumstances of a case. Considerations that may be relevant in respect of an authorised person, sponsor, or primary information provider or non-authorised parent undertaking include: … (2) any practical measures the authorised person, sponsor, or primary information provider or non-authorised parent undertaking needs to take before the period of suspension or restriction begins, for example, changes to its systems and controls to enable it to stop or limit the activity in question; (3) the impact of the suspension or restriction on other costs incurred by the authorised person, sponsor or primary information provider or non-authorised parent undertaking, for example, cancelling suppliers or suspending employees. … Sch 3 Fees and other required payments … 3.2 G The FCA’s power to impose financial penalties is contained in: … section 131G (Power to impose penalty or issue censure) of the Act Section 143W (Disciplinary powers for non-authorised parent undertakings) of the Act. … … Sch 4 Powers Exercised 4.1 G The following powers and related provisions in or under the Act have been exercised by the FCA to make the statements of policy in DEPP: … Section 139A (Power of the FCA to give guidance) Section 143Y (Statement of policy for penalties under section 143W) … …

FCA 2021/49 Page 125 of 125 Annex F Amendments to the Enforcement Guide (EG) In this Annex, underlining indicates new text and striking through indicates deleted text. 7 Financial penalties and other disciplinary sanctions … 7.1 The FCA’s use of sanctions … 7.1.2 The FCA has the following powers to impose sanctions. (1) … … (3) It may impose a suspension, limitation or other restriction: … (c) on a primary information provider under section 89Q of the Act; and (d) on an authorised person under sections 123B or 206A of the Act.; and (e) on a non-authorised parent undertaking under section 143W of the Act. … …

PS21/17 Appendix 2 Financial Conduct Authority Implementation of Investment Firms Prudential Regime Appendix 2 Made rules (technical standards instrument)

FCA 2021/50 INVESTMENT FIRMS PRUDENTIAL REGIME (CONSEQUENTIAL AMENDMENTS) INSTRUMENT 2021 Powers exercised A. The Financial Conduct Authority (“the FCA”) makes this instrument in the exercise of the following powers and related provisions: (1) the following sections of the Financial Services and Markets Act 2000 (“the Act”): (a) section 73A (Part 6 Rules); (b) section 89A (Transparency rules); (c) section 89B (Provision of voteholder information) (d) section 137A (The FCA’s general rules); (e) section 137D (Product intervention rules); (f) section 137H (General rules about remuneration); (g) section 137R (Financial promotion rules); (h) section 137T (General supplementary powers); (i) section 138D (Actions for damages); (j) section 139A (Power of the FCA to give guidance); (k) section 247 (Trust scheme rules); (l) section 261I (Contractual scheme rules); (m) paragraph 23 (Fees) of Part 3 (Penalties and Fees) of Schedule 1ZA (the Financial Conduct Authority); (2) regulation 6(1) of the Open-Ended Investment Companies Regulations 2001 (SI 2001/1228); and (3) the other rule and guidance making powers listed in Schedule 4 (Powers exercised) to the General Provisions of the FCA’s Handbook. B. The rule-making provisions listed above are specified for the purposes of section 138G(2) (Rule-making instruments) of the Act. Commencement C. This instrument comes into force on 1 January 2022. Revocation of the Prudential sourcebook for Investment Firms (IFPRU) D. The Prudential sourcebook for Investment Firms (IFPRU) is revoked. Amendments to the Handbook E. The modules of the FCA’s Handbook of rules and guidance listed in column (1) below are amended in accordance with the Annexes to this instrument listed in column (2).

FCA 2021/50 Page 2 of 184 (1) (2) Glossary of definitions Annex A Senior Management Arrangements, Systems and Controls sourcebook (SYSC) Annex B Code of Conduct sourcebook (COCON) Annex C General Provisions (GEN) Annex D Fees manual (FEES) Annex E General Prudential sourcebook (GENPRU) Annex F Prudential sourcebook for MiFID investment firms (MIFIDPRU) Annex G Market Conduct sourcebook (MAR) Annex H Supervision manual (SUP) Annex I Collective Investment Schemes sourcebook (COLL) Annex J Consumer Credit sourcebook (CONC) Annex K Investment Funds sourcebook (FUND) Annex L Regulated Covered Bonds sourcebook (RCB) Annex M F. The FCA confirms and remakes in the Glossary of definitions any defined expressions used in the modules of the FCA’s Handbook of rules and guidance referred to in paragraph E where such defined expressions relate to any UK legislation that has been amended since those defined expressions were last made. Amendments to material outside the Handbook G. The material outside the Handbook listed in column (1) below is amended in accordance with the Annexes to this instrument listed in column (2). (1) (2) Energy Market Participants guide (EMPS) Annex N Oil Market Participants guide (OMPS) Annex O Perimeter Guidance manual (PERG) Annex P The Wind-down Planning Guide (WDPG) Annex Q Notes H. In the annexes to this instrument, the “notes” (indicated by “Note:” or “Editor’s note:”) are included for the convenience of readers, but do not form part of the legislative text. Citation I. This instrument may be cited as the Investment Firms Prudential Regime (Consequential Amendments) Instrument 2021. By order of the Board 25 November 2021

FCA 2021/50 Page 3 of 184 Annex A Amendments to the Glossary of definitions In this Annex, underlining indicates new text and striking through indicates deleted text, unless otherwise stated. Insert the following new definitions in the appropriate alphabetical position. The text is not underlined. CRR investment services sector a sector composed of one or more of the following entities: (a) a designated investment firm; and (b) a financial institution that is not an investment firm. MIFIDPRU investment services sector a sector composed of one or more of the following entities: (a) an investment firm (other than a designated investment firm); (b) a financial institution that is not an investment firm; and (c) (in the circumstances described in GENPRU 3.1.39R (The financial sectors: asset management companies and alternative investment fund managers)) an asset management company or an alternative investment fund manager. significant SYSC firm has the meaning in SYSC 1.5 (Significant SYSC firm). Amend the following definitions as shown. ancillary services undertaking (1) (for the purpose of GENPRU (except in GENPRU 3) and BIPRU (except in BIPRU 12) and subject to (2)) and in relation to an undertaking in a consolidation group, sub-group or another group of persons) an undertaking complying with the following conditions: (a) its principal activity consists of: (i) owning or managing property; or (ii) managing data-processing services; or (iii) any other similar activity; (b) the activity in (a) is ancillary to the principal activity of one or more credit institutions or investment firms; and

FCA 2021/50 Page 4 of 184 (c) those credit institutions or investment firms are also members of that consolidation group, sub-group or group. [deleted] [Note: article 4(21) of the Banking Consolidation Directive (Definitions)] (2) (for the purpose of GENPRU 1.3 (Valuation) and INSPRU 6.1 (Group Risk: Insurance Groups) an undertaking in (1) and an . [deleted] (3) (except in (1)) has the meaning in article 4(1)(18) of the UK CRR. means an undertaking the principal activity of which consists of owning or managing property, managing data￾processing services, or a similar activity which is ancillary to the principal activity of one or more investment firms. asset backed commercial paper programme (for the purposes of BIPRU 9 (Securitisation) a programme of securitisations (within the meaning of paragraph (2) of the definition of securitisation) the securities issued by which predominantly take the form of commercial paper with an original maturity of one year or less. [Note: Part 1 of Annex IX of the Banking Consolidation Directive (Securitisation definitions)] banking and investment group … (a) form a group in respect of which the consolidated capital adequacy requirements for the banking sector or the investment services sector under the appropriate regulator’s sectoral rules apply.: (i) the appropriate regulator’s sectoral rules; or [deleted] … … Banking sector … (b) a financial institution that is not an investment firm; and … base currency … (2) (in GENPRU and BIPRU) (in relation to a firm) the currency in which that firm’s books of account are drawn up. [deleted] base own funds requirement (1) (for the purpose of IFPRU) an amount of own funds that an IFPRU investment firm must hold as set out in IFPRU 3.1.6R (Own funds: main requirement). [deleted]

FCA 2021/50 Page 5 of 184 … capital instrument (in COBS, GENPRU and BIPRU and in relation to an undertaking) any security issued by or loan made to that undertaking or any other investment in, or external contribution to the capital of, that undertaking. central bank (1) (for the purposes of GENPRU (except GENPRU 3) and BIPRU (except BIPRU 12)) includes the European Central Bank unless otherwise indicated, the Bank of England and the central banks of other countries. [Note: article 4(23) of the Banking Consolidation Directive (Definitions)] [deleted] (2) (except in (1)) has the meaning in article 4(1)(46) of the UK CRR. charity (in BCOBS, BIPRU and in the definition of relevant credit union client) includes: … CIU (1) (except in IFPRU) collective investment undertaking. (2) (in IFPRU) has the meaning in article 4(1)(7) of the UK CRR. [deleted] class (1) (in GENPRU, INSPRU and SUP) (in relation to a contract of insurance) any class of contract of insurance listed in Schedule 1 to the Regulated Activities Order (Contracts of insurance) and references to: … clean-up call option (1) (for the purposes of BIPRU 9 (Securitisation), in relation to a securitisation (within the meaning of paragraph (2) of the definition of securitisation) a contractual option for the originator to repurchase or extinguish the securitisation positions before all of the underlying exposures have been repaid, when the amount of outstanding exposures falls below a specified level. [Note: Part 1 of Annex IX of the Banking Consolidation Directive (Securitisation definitions)] [deleted] … client money … (2A) (in MIFIDPRU, FEES, CASS 6, CASS 7, CASS 7A and CASS 10 and, in so far as it relates to matters covered by CASS 6, CASS 7,

FCA 2021/50 Page 6 of 184 COBS or GENPRU and IPRU(INV) 11) subject to the client money rules, money of any currency: … (5) (in SYSC 1.5) has the meaning in (1) to (4). commodity … (2) (for the purpose of calculating position risk requirements and for the purposes of COBS 22.5) any of the following (but excluding gold): … … competent authority … (3) (in relation to a group, and for the purposes of SYSC 12 (Group risk systems and controls requirement), and GENPRU) and BIPRU, any national authority of the UK which is empowered by law or regulation to supervise regulated entities, whether on an individual or group￾wide basis. … (10) (for the purposes of IFPRU) has the meaning in article 4(1)(40) of the UK CRR. [deleted] … consolidation group (1) the following (a) a conventional group; or (b) undertakings linked by a consolidation Article 12(1) relationship or either of (for the purposes of BIPRU) an Article 134 relationship or an article 18(6) relationship. If a parent undertaking or subsidiary undertaking in a conventional group (the first person) has a consolidation Article 12(1) relationship or either of (for the purposes of BIPRU) an Article 134 relationship or an article 18(6) relationship with another person (the second person), the second person (and any subsidiary undertaking of the second person) is also a member of the same consolidation group. (2) (for the purposes of SUP 16) the undertakings included in the scope of prudential consolidation to the extent and in the manner prescribed in Part One, Title II, Chapter 2, Sections 2 and 3 of

FCA 2021/50 Page 7 of 184 the UK CRR and IFPRU 8.1.3R to IFPRU 8.1.4R (Prudential consolidation) for which the FCA is the consolidating supervisor under article 4B of the UK CRR. [deleted] contingent convertible instrument a financial instrument which meets the requirements for either: (a) Additional Tier 1 instruments under article 52; or (b) Tier 2 instruments under article 63, provided: (i) the provisions governing the instrument require that, upon the occurrence of a trigger event, the principal amount of the instrument be written down on a permanent or temporary basis or the instrument be converted to one or more common equity Tier 1 instruments; and (ii) the trigger mechanism in (i) is different from, or additional to, any discretionary mechanism for converting or writing down the principal amount of the instrument which is activated following a determination by the relevant authority that the issuer of the financial instrument (or its group, or any member of its group) is no longer viable, or will no longer be viable unless the relevant instrument is converted or written down; in each case of the UK CRR, or (where applicable) its provisions as applied and amended by MIFIDPRU 3. counterparty … (3) (for the purposes of the rules relating to BIPRU firms in GENPRU and BIPRU and in relation to an exposure of a person (‘A’)) the counterparty with respect to that exposure or, if the context requires, another person in respect of whom, under that exposure, A is exposed to credit risk or the risk of loss if that person fails to meet its obligations, such as the issuer of the underlying security in relation to a derivative held by A. [deleted] covered bond (1) (except for the purposes of the IRB approach or the standardised approach to credit risk) a bond that is issued by a credit institution which has its registered office in the UK or an EEA State and is subject by law to special public supervision designed to protect bondholders and in particular protection under which sums deriving from the issue of the bond must be invested in conformity with the law in assets which, during the whole period of validity of the bond, are capable of covering claims attaching to the bond and which, in the event of failure of the issuer, would be used on a priority basis for the reimbursement of the principal and payment of the accrued interest.

FCA 2021/50 Page 8 of 184 [Note: article 52(4) of the UCITS Directive] (2) (for the purposes of the IRB approach or the standardised approach to credit risk in BIPRU) a covered bond as defined in (1) that meets the following conditions: (a) it is issued by a credit institution which has its registered office in the United Kingdom; and (b) it is collateralised in accordance with BIPRU 3.4.107R (Exposures in the form of covered bonds). [Note: point 68 of Part 1 of Annex VI of the Banking Consolidation Directive (Exposures in the form of covered bonds)] [deleted] … credit enhancement (1) (for the purposes of BIPRU) a contractual arrangement whereby the credit quality of a position in a securitisation (within the meaning of paragraph (2) of the definition of securitisation) is improved in relation to what it would have been if the enhancement had not been provided, including the enhancement provided by more junior tranches in the securitisation and other types of credit protection. [Note: article 4(43) of the Banking Consolidation Directive (Definitions)] [deleted] … credit quality step (1) (except in MIPRU) a credit quality step in a credit quality assessment scale as set out in BIPRU 3.4 (Risk weights under the standardised approach to credit risk) and BIPRU 9 (Securitisation). [deleted] … credit risk capital requirement (1) (for a BIPRU firm) the part of the capital resources requirement of a BIPRU firm in respect of credit risk, calculated in accordance with GENPRU 2.1.51R (Calculation of the credit risk capital requirement). [deleted] … CRM eligibility conditions (1) (in relation to the standardised approach to credit risk), BIPRU 5.3.1R-BIPRU 5.3.2R, BIPRU 5.4.1R-BIPRU 5.4.8R, BIPRU 5.5.1R, BIPRU 5.5.4R, BIPRU 5.5.8R, BIPRU 5.1.6R and BIPRU 5.7.1R-BIPRU 5.7.4R; or [deleted] (2) (in relation to the IRB approach), the provisions in (1) and BIPRU 4.4.83R, BIPRU 4.10-BIPRU 4.10.7R, BIPRU

FCA 2021/50 Page 9 of 184 4.10.9R, BIPRU 4.10.10R-BIPRU 4.10.12R, BIPRU 4.10.14R, BIPRU 4.10.16R, BIPRU 4.10.19R, and BIPRU 4.10.38R-BIPRU 4.10.39R; or [deleted] … CRR firm (for the purposes of SYSC) a UK bank, building society and an investment firm that is subject to the UK CRR a UK designated investment firm. default (1) (in relation to the IRB approach and for the purposes of BIPRU) has the meaning in BIPRU 4.3 (The IRB approach: Provisions common to different exposure classes). [deleted] … ECAI (1) (except in MIPRU) an external credit assessment institution, as defined in article 4(1)(98) of the UK CRR. [deleted] (2) (in MIPRU) an external credit assessment institution. eligible ECAI an ECAI: (a) (for exposure risk weighting purposes other than those in (b) or (d)) recognised by the appropriate regulator under regulation 22 of the Capital Requirements Regulations 2006 (Recognition for exposure risk-weighting purposes); or [deleted] (b) (for securitisation risk weighting purposes except under MIPRU 4.2BA) recognised by the appropriate regulator under regulation 23 of the Capital Requirements Regulations 2006 (Recognition for securitisation risk-weighting purposes). [deleted] (c) (in BIPRU 12) that is listed in the first row in the table set out in BIPRU 12 Annex 1R; or [deleted] (d) (in MIPRU) an ECAI listed in the table in MIPRU 4.2E.14R. eligible LLP members’ capital members’ capital of a limited liability partnership that meets the conditions in IPRU(INV) Annex A or, for a BIPRU firm, the requirements of GENPRU 2.2.94R (Core tier one capital: Eligible LLP members’ capital). energy market participant a firm: … (b) which is not an authorised professional firm, bank, BIPRU firm (unless it is an exempt BIPRU commodities firm), IFPRU investment firm (unless it is an exempt IFPRU commodities firm), building society, credit union, friendly society, ICVC, insurer, MiFID investment firm (unless it is

FCA 2021/50 Page 10 of 184 an exempt BIPRU commodities firm or exempt IFPRU commodities firm), media firm, oil market participant, service company, insurance intermediary, home finance administrator, home finance provider or regulated benchmark administrator. exposure … (2) (for the purposes of the calculation of the credit risk capital component and the counterparty risk capital component (including BIPRU 3 (Standardised credit risk), BIPRU 4 (The IRB approach), BIPRU 5 (Credit risk mitigation), BIPRU 9 (Securitisation) an asset or off-balance sheet item. [Note: article 77 of the Banking Consolidation Directive] [deleted] (3) [delete] [deleted] (4) (in IFPRU and to calculate own funds requirements under Part Three Title II (credit risk and counterparty credit risk)) has the meaning in article 5(1) of the UK CRR. [deleted] (5) (in IFPRU 8.2 (Large exposures) for the purpose of Part Four ((Large exposures) of the UK CRR) has the meaning in article 389 of the UK CRR (Large exposures: definitions). [deleted] … financial instrument … (3) (in IFPRU) has the meaning in article 4(50) of the UK CRR. [deleted] … financial sector (1) (subject to (2)) one of the banking sector, the insurance sector or the investment services sector, the MIFIDPRU investment services sector or the CRR investment services sector. (2) (for the purposes of the definition of financial conglomerate and for any other provision of GENPRU 3 that treats the banking sector and the investment services sector as one) one of the banking and investment services sector or the insurance sector. financial year … (3) (in GENPRU and INSPRU) the period at the end of which the balance of the accounts of the insurer is struck, or, if no balance is struck, the calendar year.

FCA 2021/50 Page 11 of 184 foreign currency (in GENPRU and BIPRU) (in relation to a firm) any currency other than the base currency. group … (3) (for the purposes of SYSC 12 (Group risk systems and controls requirement), SYSC 20 (Reverse stress testing) and GENPRU 1.2 (Adequacy of financial resources) as applicable to a BIPRU firm MIFIDPRU investment firm and in relation to a person “A”) A and any person: (a) who falls into (1); (b) who is a member of the same financial conglomerate as A; (c) who has a consolidation Article 12(1) relationship with A; (d) who has a consolidation Article 12(1) relationship with any person in (3)(a); (e) who is a subsidiary undertaking of a person in (3)(c) or (3)(d); or (f) whose omission from an assessment of the risks to A of A’s connection to any person coming within (3)(a)-(3)(e) or an assessment of the financial resources available to such persons would be misleading. (3A) (for the purposes of SYSC 12 (Group risk systems and controls requirement) and SYSC 20 (Reverse stress testing), as applicable to an IFPRU investment firm and IFPRU) and in relation to a person “A”), A and any person: (a) who falls into (1); (b) who is a member of the same financial conglomerate as A; (c) who has a consolidation Article 12(1) relationship with A; (d) who has a consolidation Article 12(1) relationship with any person in (a); (e) who is a subsidiary undertaking of a person in (c) or (d); or (f) whose omission from an assessment of the risks to A of A’s connection to any person coming within (a)-(e) or an

FCA 2021/50 Page 12 of 184 assessment of the financial resources available to such persons would be misleading. [deleted] … immediate group … (2) (in BIPRU and in relation to any person) has the same meaning as in paragraph (1), with the omission of (1)(e). [deleted] implicit items (in relation to long-term insurance business) economic reserves arising in respect of future profits, assets which relate to future surpluses, zillmerising or hidden reserves as more fully described in GENPRU 2 Annex 8. in the money … (2) (for the purposes of BIPRU 7 (Market risk) and in relation to an option or warrant) the strike price of that option or warrant being less than the current market value of the underlying instrument (in the case of a call option or warrant) or vice versa (for a put option). [deleted] individual liquidity guidance (other than in (2)) guidance given to a firm about the amount, quality and funding profile of liquidity resources that the appropriate regulator has asked the firm to maintain. [deleted] investment firm … (3) (in the definition of IDD ancillary insurance intermediary, and in IFPRU and BIPRU 12) has the meaning in article 4(1)(2) of the UK CRR. [Note: article 2(1)(4) of the IDD] [deleted] (4) (in GENPRU (except GENPRU 3) and BIPRU (except BIPRU 12) any of the following: (a) a firm in (3); and (b) a BIPRU firm. [deleted] (5) (in SYSC 19A (IFPRU Remuneration Code)) a firm in (3). [deleted] … investment services sector (1) a sector composed of one or more of the following entities: (a) an investment firm;

FCA 2021/50 Page 13 of 184 (b) a financial institution; and (c) (in the circumstances described in GENPRU 3.1.39R (The financial sectors: Asset management companies and alternative investment fund managers)) an asset management company or an alternative investment fund manager. [deleted] (2) (in BIPRU (except in BIPRU 12) a sector comprised of one or more of the following entities: (a) the entities in (1); and (b) a CAD investment firm. [deleted] The MIFIDPRU investment services sector and the CRR investment services sector taken together. lead regulated firm a firm which is the subject of the financial supervision requirements of an overseas regulator in accordance with an agreement between the appropriate regulator and that regulator relating to the financial supervision of firms whose head office is within the country of that regulator. This definition is not related to the defined terms UK lead regulated firm or non UK lead regulated firm. long-term insurance capital requirement (in relation to a firm carrying on long-term insurance business) an amount of capital resources that the firm must hold calculated in accordance with GENPRU 2.1.36R. means: (a) (for a non-directive friendly society) the required margin of solvency with respect to long-term insurance business, as calculated under rule 3.1 of the Friendly Society – Overall Resources and Guarantee Fund part of the PRA Rulebook; (b) (for a non-directive insurer other than a non-directive friendly society) the requirement in rule 14.1 of the Insurance Company – Capital Resources Requirement part of the PRA Rulebook; and (c) (for a Solvency II firm) the equivalent PRA rules transposing the Solvency II directive. management body (1) (other than in (2) or (3)) (in accordance with article 4(1)(9) of the UK CRR) the governing body and senior personnel who are empowered to set the person’s strategy, objectives and overall direction, and which oversee and monitor management decision￾making in the following:

FCA 2021/50 Page 14 of 184 (a) a common platform firm (in relation to the requirements imposed by or under the UK provisions which implemented MiFID or MiFIR); or (ai) a MIFIDPRU investment firm (in relation to the requirements in MIFIDPRU); or … … matched principal exemption conditions (for the purposes of any limitation that is placed on a firm’s permission to deal as principal): (1) (for the purposes of BIPRU) for a firm that would have been subject to BIPRU on 31 December 2021) the conditions set out in BIPRU 1.1.23R(2) (Meaning of dealing on own account), as they applied on 31 December 2021. (2) (other than in BIPRU for a firm that would have been subject to IFPRU on 31 December 2021) the conditions set out in IFPRU 1.1.12R (Meaning of dealing on own account), as they applied on 31 December 2021. most important financial sector (in relation to a financial sector in a consolidation group or a financial conglomerate and in accordance with GENPRU 3.1 (Cross sector groups)) the financial sector, being either the insurance sector or the banking and investment services sector, with which has the largest average referred to in the box titled Threshold Test 2 in the financial conglomerate definition decision tree (10% ratio of balance sheet size and solvency requirements); and so that the investment services sector and the banking sector are treated as one for the purpose of the definition of financial conglomerate and for any other purpose that GENPRU 3.1 (Cross sector groups) says they are. nominated ECAI (a) (in the case of an eligible ECAI within paragraph (a) of the definition of that term (Recognition for exposure risk-weighting purposes)) an eligible ECAI nominated by a firm in accordance with BIPRU 3.6 (Use of rating agencies’ credit assessments for the determination of risk weights under the standardised approach to credit risk) for the purpose of calculating its risk weighted exposure amounts under the standardised approach to credit risk except under (b); [deleted] (b) (in the case of an eligible ECAI within paragraph (b) of the definition of that term (Recognition securitisation risk￾weighting purposes)) an eligible ECAI nominated by a firm in accordance with BIPRU 9.8 (Use of ECAI credit assessments for the determination of applicable risk weights) for the purpose of calculating its securitisation risk weighted exposure amounts. [deleted]

FCA 2021/50 Page 15 of 184 (c) (for paragraph (d) of the definition of an eligible ECAI (in MIPRU)) an eligible ECAI nominated by a firm in accordance with MIPRU 4.2E for calculating its risk weighted exposure amounts. oil market participant a firm: … (b) which is not an authorised professional firm, bank, BIPRU firm (unless it is an exempt BIPRU commodities firm), IFPRU investment firm (unless it is an exempt IFPRU commodities firm), building society, credit union, friendly society, ICVC, insurer, MiFID investment firm (unless it is an exempt BIPRU commodities firm or exempt IFPRU commodities firm), media firm, service company, insurance intermediary, home finance administrator, mortgage intermediary, home finance provider or regulated benchmark administrator. operational risk (1) … (2) (in GENPRU (except GENPRU 3 (Cross sector groups) and BIPRU (except BIPRU 12 (Liquidity Standards)) the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events, including legal risk. [Note: article 4(22) of the Banking Consolidation Directive] [deleted] (3) (except in (1) and (2)) has the meaning in article 4(1)(52) of the UK CRR. [deleted] originator (1) (in GENPRU (except GENPRU 3), MIPRU and BIPRU (except BIPRU 12)) in relation to a securitisation within the meaning of paragraph (2) of the definition of securitisation) either of the following: … (2) (except in (1)) has the meaning in article 4(1)(13) of the UK CRR. means an entity which: (a) itself or through related entities, directly or indirectly, was involved in the original agreement which created the obligations or potential obligations of the debtor or potential debtor giving rise to the exposure being securitised; or

FCA 2021/50 Page 16 of 184 PD (1) (except in GENPRU and BIPRU) Prospectus Directive. (2) (in GENPRU, BIPRU and BSOCS) probability of default. [deleted] PRR (1) (in BIPRU) position risk requirement. [deleted] (2) (except in BIPRU) the Prospectus Regulation Rules sourcebook. qualifying holding (1) (in GENPRU and BIPRU) has the meaning in GENPRU 2.2.203R (Qualifying holdings), which is in summary a direct or indirect holding of a bank or building society in a non-financial undertaking which represents 10% or more of the capital or of the voting rights or which makes it possible to exercise a significant influence over the management of that undertaking. [deleted] (2) … rated position (for the purposes of MIPRU and BIPRU 9 (Securitisation), and in relation to a securitisation position) describes a securitisation position which has an eligible credit assessment by an eligible ECAI. [Note: Part 1 of Annex IX of the Banking Consolidation Directive (Securitisation definitions)] (b) purchases a third party’s exposures for its own account and then securitises them. [Note: article 4(1)(13) of the UK CRR] overall financial sector a sector composed of one or more of the following types of entities: (a) members of each of the financial sectors; and (b) (except where GENPRU 3.1 (Cross sector groups) or GENPRU 3 Ann 1R (Capital adequacy calculations for financial conglomerates) provide otherwise) a mixed financial holding company. recognised third country investment firm (1) (in BIPRU and GENPRU 3.2 (Third-country groups) as applies to a BIPRU firm in relation to a third-country banking and investment group and a banking and investment group) a CAD investment firm that satisfies the following conditions: (a) its head office is outside the UK; (b) it is authorised by a third country competent authority in the state or territory in which the CAD investment firm’s head office is located; (c) that third country competent authority is named in Part 2 of BIPRU 8 Annex 6 (Non UK investment firm regulators’

FCA 2021/50 Page 17 of 184 risk weight (1) (in relation to an exposure for the purposes of BIPRU) a degree of risk expressed as a percentage assigned to that exposure in accordance with whichever is applicable of the standardised approach to credit risk and the IRB approach, including (in relation to a securitisation position) under BIPRU 9 (Securitisation). [deleted] … risk weighted exposure amount (1) (in relation to an exposure for the purposes of BIPRU) the value of an exposure for the purposes of the calculation of the credit risk capital component after application of a risk weight. [deleted] (2) … requirements deemed CRD-equivalent for individual risks); and (d) that investment firm is subject to and complies with prudential rules of or administered by that third country competent authority that are at least as stringent as those laid down for BIPRU firms in GENPRU and BIPRU. [deleted] (2) (except for the purpose in (1)) (in GENPRU 3.2 (Third country groups) 3 (Cross sector groups) in relation to a third-country banking and investment group and a banking and investment group) an investment firm that falls within the meaning of “investment firm” in article 4(1)(2) of the UK CRR and which satisfies the following conditions: (a) its head office is outside the UK; (b) it is authorised by a third country competent authority in the state or territory in which the investment firm’s head office is located; and (c) that investment firm is subject to and complies with prudential rules of or administered by that third country competent authority that are at least as stringent as those laid down in the whichever of the UK CRR or MIFIDPRU would apply if its head office was in the UK. (3) (in GENPRU 3.1) a firm in either (1) or (2), or both. [deleted] sectoral rules (in relation to a financial sector) rules and requirements relating to the prudential supervision of regulated entities applicable to regulated entities in that financial sector as follows: (a) (for the purposes of GENPRU 3.1.12R (Definition of financial conglomerate: Solvency requirement)) UK prudential sectoral regulation UK prudential sectoral legislation for that financial

FCA 2021/50 Page 18 of 184 securitisation (1) … (2) (in BIPRU and MIPRU 4) a transaction or scheme whereby the credit risk associated with an exposure or pool of exposures is tranched having the following characteristics: … (3) (in IFPRU) has the meaning in article 4(1)(61) of the UK CRR. [deleted] … securitisation position (1) (in GENPRU, MIPRU and BIPRU) an exposure to a securitisation within the meaning of paragraph (2) of the definition of securitisation; and so that: … sector together with as appropriate the rules and requirements in (c); or (b) (for the purpose of calculating solo capital resources and a solo capital resources requirement): (i) (to the extent provided for in paragraphs 6.4 to 6.6 of GENPRU 3 Annex 1R) rules and requirements that are referred to in those paragraphs; and (ii) the rules and requirements in (c); or (c) (for all other purposes) rules and requirements of the appropriate regulator and so that: (d) (i) (in relation to consolidated supervision for any financial sector) those requirements include ones relating to the form and extent of consolidation; (e) (ii) (in relation to any financial sector) those requirements include ones relating to the eligibility of different types of capital; (f) (iii) (in relation to any financial sector) those requirements include both ones applying on a solo basis and ones applying on a consolidated basis; and (g) [deleted] (h) references References to the appropriate regulator’s sectoral rules are to sectoral rules in the form of rules and, as applicable, the UK CRR.

FCA 2021/50 Page 19 of 184 (2) (in IFPRU) has the meaning in article 4(1)(62) of the UK CRR. [deleted] securitisation special purpose entity (1) (for the purposes of BIPRU) a corporation, trust or other entity, other than a credit institution, organised for carrying on a securitisation or securitisations (within the meaning of paragraph (2) of the definition of securitisation), the activities of which are limited to those appropriate to accomplishing that objective, the structure of which is intended to isolate the obligations of the SSPE from those of the originator, and the holders of the beneficial interests in which have the right to pledge or exchange those interests without restriction. [Note: article 4(44) of the Banking Consolidation Directive (Definitions)] [deleted] … securitised exposure (for the purposes of BIPRU and MIPRU) an exposure in the pool of exposures that has been securitised, either via a traditional securitisation or a synthetic securitisation. The cash-flows generated by the securitised exposures are used to make payments to the securitisation positions. senior management (1) (in BIPRU 7.10 (Use of a value at risk model) and in relation to a firm) the firm’s governing body and those of the firm’s senior managers and other senior management who have responsibilities relating to the measurement and control of the risks which the firm’s VaR model is designed to measure or whose responsibilities require them to take into account those risks. [deleted] (2) (in SYSC (except SYSC 4.3A) and IFPRU and in accordance with article 4(1)(10) of the UK CRR) those persons who are a natural person and who exercise executive functions in an institution and who are responsible and accountable to the management body for the day-to-day management of the institution. … (4) (in MIFIDPRU) those natural persons who exercise executive functions in MIFIDPRU investment firms and who are responsible and accountable to the management body for the day-to-day management of the firm, including for the implementation of the policies concerning the distribution of services and products to clients by it and its personnel. solo capital resources requirement (1) (for the purpose of GENPRU 3) a capital resources requirement calculated on a solo basis as defined in paragraph 6.2 to 6.7 of GENPRU 3 Ann 1R.

FCA 2021/50 Page 20 of 184 (2) (for the purposes of GENPRU 1) a capital resources requirement calculated on a solo basis as defined in paragraph 6.2 to 6.7 of GENPRU 3 Ann 1R as it would apply if references to financial conglomerate in those paragraphs were replaced with references to insurance group. [deleted] (3) (for the purposes of GENPRU 2.2.214R (Deductions from tiers one and two: Material holdings)) a capital resources requirement calculated on a solo basis as defined in paragraph 6.2 to 6.7 of GENPRU 3 Ann 1R as those paragraphs apply to the insurance sector. [deleted] specific risk … (2) (in GENPRU and BIPRU) the risk of a price change in an investment due to factors related to its issuer or, in the case of a derivative, the issuer of the underlying investment. [Note: paragraph 12 of Annex I of the Capital Adequacy Directive] [deleted] sponsor … (2) (in BIPRU), and in MIPRU 4 and in relation to a securitisation within the meaning of paragraph (2) of the definition of securitisation, an undertaking other than an originator that establishes and manages an asset backed commercial paper programme or other securitisation scheme that purchases exposures from third party entities. [Note: article 4(42) of the Banking Consolidation Directive (Definitions)] (3) (in IFPRU) has the meaning in article 4(1)(14) of the UK CRR. [deleted] trading book … (5) (in DTR) has the meaning in article 4.1(86) of UK CRR. all positions in financial instruments and commodities held by a credit institution or an investment firm that are: third-country banking and investment group a banking and investment group that meets the following conditions: … (b) it is not part of a wider consolidation group that is required by UK prudential sectoral regulation UK prudential sectoral legislation for the banking sector, the CRR investment services sector or the MIFIDPRU investment services sector to be subject to consolidated supervision.

FCA 2021/50 Page 21 of 184 (a) positions held with trading intent; or (b) held in order to hedge positions held with trading intent. … traditional securitisation (for the purpose of BIPRU and MIPRU) a securitisation (within the meaning of paragraph (2) of the definition of securitisation) involving the economic transfer of the exposures being securitised to a securitisation special purpose entity which issues securities; and so that: … tranche in relation to a securitisation within the meaning of paragraph (2) of the definition of securitisation and for the purposes of BIPRU and MIPRU) a contractually established segment of the credit risk associated with an exposure or number of exposures, where a position in the segment entails a risk of credit loss greater than or less than a position of the same amount in each other such segment, without taking account of credit protection provided by third parties directly to the holders of positions in the segment or in other segments. [Note: article 4(39) of the Banking Consolidation Directive (Definitions)] UK consolidation group (1) (for the purposes of SYSC as it applies to a CRR firm) the group of undertakings which are included in the consolidated situation of a UK parent institution, a UK parent financial holding company or a UK parent mixed financial holding company (including any undertaking which is included in that consolidation because of a consolidation article 12(1) relationship, article 18(5) relationship or article 18(6) relationship). (2) (for the purposes of BIPRU and SYSC as it applies to a BIPRU firm) has the meaning in BIPRU 8.2.4R (Definition of UK consolidation group), which is in summary the group that is identified as a UK consolidation group in accordance with the decision tree in BIPRU 8 Annex 1R (Decision tree identifying a UK consolidation group); in each case only persons included under BIPRU 8.5 (Basis of consolidation) are included in the UK consolidation group. [deleted] UK designated investment firm (in BIPRU 12 and in SYSC 19D and the definitions of CRR firm and institution) a designated investment firm which is a body corporate or partnership formed under the law of any part of the UK. UK prudential sectoral legislation (in relation to a financial sector) requirements applicable to persons in that financial sector in accordance with UK legislation and rules about prudential supervision of regulated entities in that financial sector and so that: (a) (in relation to the banking sector and the CRR investment services sector) in particular this includes the requirements laid down in

FCA 2021/50 Page 22 of 184 the UK CRR and the PRA Rulebook (in relation to a CAD investment firm), GENPRU and BIPRU; and (b) (in relation to the insurance sector) in particular this includes requirements laid down in the UK provisions which implemented the Solvency II Directive and Solvency II Regulations.; and (c) (in relation to the MIFIDPRU investment services sector) in particular this includes the requirements laid down in MIFIDPRU. unfunded credit protection (1) (in BIPRU) a technique of credit risk mitigation where the reduction of the credit risk on the exposure of an undertaking derives from the undertaking of a third party to pay an amount in the event of the default of the borrower or on the occurrence of other specified events. [Note: article 4(32) of the Banking Consolidation Directive (Definitions)] [deleted] (2) (in IFPRU) has the meaning in article 4(1)(59) of the UK CRR. [deleted] … working day … (2) (in relation to an underwriter and for the purpose of BIPRU but not for the purpose of the definition of working day 0) the number of business days after working day 0 specified by the provision in question so that, for example, working day one means the business day following working day 0. [deleted] … Delete the following definitions. The text is not shown struck through. ABCP internal assessment approach the method for calculating the risk weighted exposure amount for a securitisation position in relation to an asset backed commercial paper programme as set out in BIPRU 9.12.20R. ABCP programme (for the purposes of BIPRU 9 (Securitisation)) an asset backed commercial paper programme. advanced IRB approach one of the following: (a) (in relation to the sovereign, institutional and corporate IRB exposure class) the approach under the IRB approach under which a firm supplies its own estimates of LGD and conversion factors;

FCA 2021/50 Page 23 of 184 (b) (where the approach in (a) is being applied on a consolidated basis) the method in (a) as applied on a consolidated basis in accordance with BIPRU 8 (Group risk - consolidation); or (c) when the reference is to the rules of or administered by a regulatory body other than the appropriate regulator, whatever corresponds to the approach in (a) or (b), as the case may be, under those rules. Advanced Measurement Approach has the meaning in the PRA Rulebook. advanced prudential calculation approach one of the following: (a) the IRB approach; or (b) the advanced measurement approach; or (c) the VaR model approach; or (d) the CAD 1 model approach; or (e) the master netting agreement internal models approach; or (f) the CCR internal model method; including, in each case, whatever corresponds to that approach under the rules of or administered by a regulatory body other than the appropriate regulator. advanced prudential calculation approach permission one of the following: (a) an IRB permission; or (b) an AMA permission; or (c) a VaR model permission; or (d) a CAD 1 model waiver; or (e) a master netting agreement internal models approach permission; or (f) a CCR internal model method permission. all price risk measure (in BIPRU 7.10 (Use of a Value at Risk Model)) has the meaning in BIPRU 7.10.116AR (Capital calculations for VaR models), which is, in relation to a business day, the all price risk measure required under the provisions in BIPRU 7.10 about specific risk for the correlation trading portfolio.

FCA 2021/50 Page 24 of 184 allocation period a single 24-hour period or, with the agreement of each professional client concerned, a period spanning five consecutive business days, during which an aggregated series of transactions may be executed. alternative standardised approach one of the following: (a) a version of the standardised approach to operational risk under which a firm uses different indicators for certain business lines as referred to in BIPRU 6.4.19R (The alternative standardised approach); (b) (where the approach in (a) is being applied on a consolidated basis) the method in (a) as applied on a consolidated basis in accordance with BIPRU 8 (Group risk - consolidation); or (c) when the reference is to the rules of or administered by a regulatory body other than the appropriate regulator, whatever corresponds to the approach in (a) or (b), as the case may be, under those rules. appropriate position risk adjustment (1) (in relation to a position treated under BIPRU 7.6 (Option PRR)) the percentage figure applicable to that position under the table in BIPRU 7.6.8R (Appropriate Position Risk Adjustment); (2) (for any other purpose and in relation to a position) the position risk adjustment applicable to that position under BIPRU 7 (Market risk). Article 134 relationship (in accordance with Article 134 of the Banking Consolidation Directive) a relationship of one of the following kinds: (a) where a person exercises a significant influence over one or more persons, but without holding a participation or other capital ties in these persons and without being a parent undertaking of these persons; or (b) where two or more persons are placed under single management other than pursuant to a contract or clauses of their memoranda or articles of association. at the money (for the purposes of BIPRU 7 (Market risk) and in relation to an option or warrant) the strike price of that option or warrant being equal to the current market value of the underlying instrument. backtesting exception (in BIPRU 7.10 (Use of a value at risk model)) an exception (excluding a specific risk backtesting exception) arising out of backtesting a VaR model as more fully defined in BIPRU 7.10.103R.

FCA 2021/50 Page 25 of 184 Bank Accounts Directive Council Directive 86/635/EEC of 8 December 1986 on the annual accounts and consolidated accounts of banks and other financial institutions. base capital resources requirement (1) an amount of capital resources that an insurer must hold as set out in GENPRU 2.1.30R (Table: Base capital resources requirement for an insurer) or a BIPRU firm must hold under GENPRU 2.1.41R (Base capital resources requirement for a BIPRU firm) and GENPRU 2.1.48R (Table: Base capital resources requirement for a BIPRU firm). (2) [deleted] basic indicator approach the approach to calculating the ORCR set out in BIPRU 6.3 (Operational risk: Basic indicator approach). basis risk the risk that the relationship between two financial variables will change, particularly between two sorts of interest rate or between a hedge and the position it ostensibly hedges. BIPRU Remuneration Code SYSC 19C (BIPRU Remuneration Code). BIPRU Remuneration Code staff for a BIPRU firm and a third country BIPRU firm, has the meaning given in SYSC 19C.3.4R. BIPRU remuneration principles proportionality rule (in SYSC 19C) has the meaning given in SYSC 19C.3.3R. buffer securities restriction BIPRU 12.6.16R. CAD 1 model a risk management model of the type described in BIPRU 7.9 (Use of a CAD 1 model). CAD 1 model approach one of the following: (a) the approach to calculating part of the market risk capital requirement set out in BIPRU 7.9 (Use of a CAD 1 model); (b) (where the approach in (a) is being applied on a consolidated basis) the method in (a) as applied on a consolidated basis in accordance with BIPRU 8 (Group risk - consolidation); or

FCA 2021/50 Page 26 of 184 (c) when the reference is to the rules of or administered by a regulatory body other than the appropriate regulator, whatever corresponds to the approach in (a) or (b), as the case may be, under those rules. CAD 1 model waiver a waiver that requires a firm to use the CAD 1 model approach on a solo basis or, if the context requires, a consolidated basis. CAD Article 22 group a UK consolidation group or non-UK sub-group that meets the conditions in BIPRU 8.4.9R (Definition of a CAD Article 22 group). CAD investment firm a firm that is subject to the requirements imposed by the UK implementation of MiFID (or a firm which would be subject to those requirements if its head office were in the UK) but excluding a bank, a building society, a credit institution, a local firm and an exempt CAD firm that meets the following conditions: (a) it is a firm as defined in article 4(1)(2)(c) of the UK CRR; (b) it is authorised to provide one or more the following investment services: (i) execution of orders on behalf of clients; (ii) portfolio management; and (c) it may provide one or more of the following investment services: (i) reception and transmission of orders in relation to one or more financial instruments; (ii) investment advice. capital conservation buffer (in accordance with regulation 2(1) (Interpretation) of the Capital Requirements (Capital Buffers and Macro-prudential Measures) Regulations 2014) the amount of common equity tier 1 capital a firm must calculate in line with IFPRU 10.2. capital market￾driven transaction (in accordance with point 2 of Part 1 of Annex VIII of the Banking Consolidation Directive (Eligible forms of credit risk mitigation)) any transaction giving rise to an exposure secured by collateral which includes a provision conferring upon the person with the exposure the right to receive margin frequently. capital planning buffer (in BIPRU 2.2 or IFPRU 2) the amount and quality of capital resources that a firm should hold at a given time in accordance with the general stress and scenario testing rule, so that the firm is able to continue to meet the overall financial adequacy rule throughout the relevant capital planning period in the face of adverse circumstances, after allowing for realistic management actions. Capital Requirements the Capital Requirements Regulations 2006 (SI 2006/3221).

FCA 2021/50 Page 27 of 184 Regulations 2006 capital resources gearing rules (1) [deleted] (2) [deleted] (3) (in relation to a BIPRU firm) GENPRU 2.2.30R, GENPRU 2.2.46R and GENPRU 2.2.49R and GENPRU 2.2.50R. capital resources table (1) [deleted] (2) [deleted] (3) [deleted] (4) (in relation to a BIPRU firm) whichever of the tables in GENPRU 2 Annex 4, GENPRU 2 Annex 5 or GENPRU 2 Annex 6 applies to the firm under GENPRU 2.2.19R. cash assimilated instrument a certificate of deposit or other similar instrument issued by a lending firm. [Note: article 4(35) of the Banking Consolidation Directive (Definitions)] CCR counterparty credit risk CCR internal model method one of the following: (a) the method of calculating the amount of an exposure set out in BIPRU 13.6 (CCR internal model method); (b) (where the approach in (a) is being applied on a consolidated basis) the method in (a) as applied on a consolidated basis in accordance with BIPRU 8 (Group risk - consolidation); or (c) when the reference is to the rules of or administered by a regulatory body other than the appropriate regulator, whatever corresponds to the approach in (a) or (b), as the case may be, under those rules. CCR internal model method permission a requirement or a waiver that requires a BIPRU firm or a CAD investment firm to use the CCR internal model method CCR mark to market method the method of calculating the amount of an exposure set out in BIPRU 13.4 (CCR mark to market method). CCR standardised method the method of calculating the amount of an exposure set out in BIPRU 13.5 (CCR standardised method).

FCA 2021/50 Page 28 of 184 CIU look through method one of the standard CIU look through method or the modified CIU look through method. CIU PRR the collective investment undertaking PRR. closely related (in GENPRU and BIPRU) describes a relationship between two or more persons under which one or more of the following applies: (a) the insolvency or default of one of them is likely to be associated with the insolvency or default of the others; (b) it would be prudent when assessing the financial condition or creditworthiness of one to consider that of the others; or (c) there is, or there is likely to be, a close relationship between the financial performance of those persons. collective investment undertaking PRR the part of the market risk capital requirement calculated in accordance with BIPRU 7.7.5R (Calculation of the collective investment undertaking PRR). combined buffer has the meaning in regulation 2(1) (Interpretation) of the Capital Requirements (Capital Buffers and Macro-prudential Measures) Regulations 2014). commodity extended maturity ladder approach the method of calculating the commodity PRR in BIPRU 7.4.32R (Extended maturity ladder approach). commodity maturity ladder approach the method of calculating the commodity PRR in BIPRU 7.4.25R (Maturity ladder approach). commodity PRR the part of the market risk capital requirement calculated in accordance with BIPRU 7.4 (Commodity PRR) or, in relation to a particular position, the portion of the overall commodity PRR attributable to that position. commodity simplified approach the method of calculating the commodity PRR in BIPRU 7.4.24R (Simplified approach). consolidated capital resources (in relation to a UK consolidation group or a non-UK sub-group and in GENPRU and BIPRU) that group’s capital resources calculated in accordance with BIPRU 8.6 (Consolidated capital resources).

FCA 2021/50 Page 29 of 184 consolidated capital resources requirement (in relation to a UK consolidation group or a non-UK sub-group and in GENPRU and BIPRU) an amount of consolidated capital resources that that group must hold in accordance with BIPRU 8.7 (Consolidated capital resources requirement). consolidated credit risk requirement (in relation to a UK consolidation group or a non-EEA sub-group and in GENPRU and BIPRU) has the meaning in BIPRU 8.7 (Consolidated capital resources requirements) which is in summary the part of that group’s consolidated capital resources requirement relating to credit risk calculated in accordance with BIPRU 8.7.11R (Calculation of the consolidated requirement components) and as adjusted under BIPRU 8.7. consolidated fixed overheads requirement (in relation to a UK consolidation group or a non-EEA sub-group and in GENPRU and BIPRU) has the meaning in BIPRU 8.7 (Consolidated capital resources requirements) which is in summary the part of that group’s consolidated capital resources requirement relating to the fixed overheads requirement (as referred to Article 21 of the Capital Adequacy Directive and the definition of fixed overheads requirement) calculated in accordance with BIPRU 8.7.11R (Calculation of the consolidated requirement components) and as adjusted under BIPRU 8.7. consolidated indirectly issued capital has the meaning in BIPRU 8.6.12R (Indirectly issued capital and group capital resources), which is in summary any capital instrument issued by a member of a UK consolidation group or non-UK sub-group where the conditions in BIPRU 8.6.12R are met. consolidated market risk requirement (in relation to a UK consolidation group or a non-EEA sub-group and in GENPRU and BIPRU) has the meaning in BIPRU 8.7 (Consolidated capital resources requirement) which is in summary the part of that group’s consolidated capital resources requirement relating to market risk calculated in accordance with BIPRU 8.7.11R (Calculation of the consolidated requirement components) and as adjusted under BIPRU 8.7. consolidated requirement component has the meaning in BIPRU 8.7.11R (Calculation of the consolidated requirement components), which in summary is one of the following: (a) the consolidated credit risk requirement; or (b) the consolidated fixed overheads requirement; or (c) the consolidated market risk requirement (d) [deleted] consolidating supervisor has the meaning in article 4(1)(41) of the UK CRR. contingency funding plan (1) [deleted]

FCA 2021/50 Page 30 of 184 (2) (in BIPRU 12 and BSOCS) a plan for dealing with liquidity crises as required by BIPRU 12.4.10R. contractual cross product netting agreement (for the purpose of BIPRU 13.7 (Contractual netting)) has the meaning set out in BIPRU 13.7.2R, which is in summary a written bilateral agreement between a firm and a counterparty which creates a single legal obligation covering all included bilateral master agreements and transactions belonging to different product categories. conversion factor (for the purposes of BIPRU) the ratio of the currently undrawn amount of a commitment that will be drawn and outstanding at default to the currently undrawn amount of the commitment; the extent of the commitment is determined by the advised limit, unless the unadvised limit is higher. [Note: article 4(28) of the Banking Consolidation Directive (Definitions)] core business lines business lines and associated services which represent material sources of revenue, profit or franchise value for an RRD institution or an RRD group. [Note: article 2(1)(36) of RRD] core concentration risk group counterparty (in relation to a firm) a counterparty which is its parent undertaking, its subsidiary undertaking or a subsidiary undertaking of its parent undertaking, provided that (in each case) both the counterparty and the firm are: (a) included within the scope of consolidation on a full basis with respect to the same UK consolidation group; and (b) (where relevant) held by one or more intermediate parent undertaking or financial holding company, all of which are incorporated in the United Kingdom. core market participant an entity of a type listed in BIPRU 5.4.64R (The financial collateral comprehensive method: Conditions for applying a 0% volatility adjustment). core tier one capital an item of capital that is stated in stage A of the capital resources table (Core tier one capital) to be core tier one capital. core UK group (1) (in relation to a BIPRU firm) all undertakings which, in relation to the firm, satisfy the conditions set out in BIPRU 3.2.25R (Zero risk-weighting for intra-group exposures: core UK group). (2) (in relation to an IFPRU investment firm) all counterparties which: (a) are listed in the firm’s core UK group permission; (b) satisfy the conditions in article 113(6) of the UK CRR (Calculation of risk-weighted exposure amounts: intragroup); and

FCA 2021/50 Page 31 of 184 (c) (unless it is an IFPRU limited-activity firm or IFPRU limited-licence firm, or an exempt IFPRU commodities firm to which article 493(1) of the UK CRR (Transitional provision for large exposures) apply) for which exposures are exempted, under article 400(1)(f) of the UK CRR (Large exposures: exemptions), from the application of article 395(1) of the UK CRR (Limits to large exposures). core UK group eligible capital means the eligible capital in the core UK group calculated in line with IFPRU 8.2.7R. core UK group permission a permission given by the FCA under article 113(6) of the UK CRR (see IFPRU 8.1.14G to IFPRU 8.1.21G). core UK group waiver (in BIPRU) a waiver that has the result of requiring a firm to apply: (a) (in relation to the credit risk capital requirement) BIPRU 3.2.25R (Zero risk-weighting for intra-group exposures: core UK group), which in summary allows a firm to assign a risk weight of 0% to exposures to members of its core UK group instead of complying with BIPRU 3.2.20R (Calculation of risk-weighted exposure amounts under the standardised approach); or (b) [deleted] corporate (in relation to the IRB approach or the standardised approach to credit risk) a person an exposure to whom is a corporate exposure. corporate exposure (1) (in relation to the IRB approach) an exposure falling into BIPRU 4.3.2R(3) (IRB exposure classes). (2) (in relation to the standardised approach to credit risk) an exposure falling into BIPRU 3.2.9R(7) (Standardised approach to credit risk exposure classes). correlation trading portfolio (in BIPRU 7) a portfolio consisting of securitisation positions and nth-to￾default credit derivatives that meet the criteria set out at BIPRU 7.2.42AR, or other positions which may be included in accordance with BIPRU 7.2.42BR. countercyclical buffer rate the rate: (a) expressed as a percentage of total risk exposure amount set by the UK countercyclical buffer authority; or (b) expressed in terms equivalent to a percentage of total risk exposure amount set by a third-country countercyclical buffer authority, that a firm must apply in order to calculate its countercyclical capital

FCA 2021/50 Page 32 of 184 buffer. [Note: article 128(7) of the CRD (Definitions)] countercyclical capital buffer (in accordance with regulation 2(1) (Interpretation) of the Capital Requirements (Capital Buffers and Macro-prudential Measures Regulations 2014)) the amount of common equity tier 1 capital a firm must calculate in line with IFPRU 10.3. counterparty credit risk (1) (for the purposes of BIPRU) the risk that the counterparty to a transaction could default before the final settlement of the transaction’s cash flows. (2) (other than in (1)) has the meaning as used in the UK CRR. [Note: Part 1 of Annex III of the Banking Consolidation Directive (Definitions] counterparty risk capital component the part of the credit risk capital requirement calculated in accordance with BIPRU 14.2.1R (Calculation of the counterparty risk capital component). CRD bank a bank which uses the UK CRR to measure the capital requirement on its trading book. CRD financial instrument has the meaning set out in BIPRU 1.2.7R to BIPRU 1.2.8R (CRD financial instruments), which is in summary any contract that gives rise to both a financial asset of one party and a financial liability or equity instrument of another party. CRD full-scope firm an investment firm as defined in article 4(1)(2) of the UK CRR that is subject to the requirements imposed by the UK provisions that implemented MiFID (or which would be subject to those requirements if its head office were in the UK) and that is not a limited activity firm or a limited licence firm. CRD implementation measure (in relation to an person and for the purposes of GENPRU and BIPRU (except in GENPRU 3 and BIPRU 12), a provision of the Banking Consolidation Directive or the Capital Adequacy Directive and an EEA State other than the United Kingdom) a measure implementing that provision of that Directive for that type of person in that EEA State. CRD ITS on templates, definitions and IT-solutions the UK version of Regulation (EU) 2016/2070 of 14 September 2016 laying down implementing technical standards for templates, definitions and IT-solutions to be used by institutions when reporting in accordance with Article 78(2) of the CRD which is part of UK law by virtue of the EUWA. CRD RTS on the identification of the geographical the UK version of Regulation (EU) No 1152/2014 of 4 June 2014 supplementing Directive 2013/36/EU of the European Parliament and of the Council with regard to regulatory technical standards on the identification of the geographical location of the relevant credit exposures

FCA 2021/50 Page 33 of 184 location of credit exposures for calculating institution￾specific countercyclical capital buffer rates for calculating institution-specific countercyclical capital buffer rates which is part of UK law by virtue of the EUWA. credit quality assessment scale the credit quality assessment scale: (1) onto which the credit assessments of an export credit agency are mapped under the table in BIPRU 3.4.9R (Exposure for which a credit assessment by an export credit agency is recognised); or (2) published by the appropriate regulator in accordance with the Capital Requirements Regulations 2006 which determine: (a) (in relation to an eligible ECAI whose recognition is for risk weighting purposes other than those in (2)(b)) with which of the credit quality steps set out in BIPRU 3.4 (Risk weights under the standardised approach to credit risk) the relevant credit assessments of an eligible ECAI are to be associated; or (b) (in relation to an eligible ECAI whose recognition is for securitisation risk-weighting purposes) with which of the credit quality steps set out in BIPRU 9 (Securitisation) the relevant credit assessments of the eligible ECAI are to be associated. credit risk capital component the part of the credit risk capital requirement calculated in accordance with BIPRU 3.1.5R (Calculation of the credit risk capital component). credit risk mitigation (1) (in GENPRU (except in GENPRU 3) and BIPRU (except in BIPRU 12)) a technique used by an undertaking to reduce the credit risk associated with an exposure or exposures which the undertaking continues to hold. [Note: article 4(30) of the Banking Consolidation Directive (Definitions)] (2) (except in (1)) has the meaning in article 4(1)(58) of the UK CRR. credit valuation adjustment (in accordance with Part 1 of Annex III of the Banking Consolidation Directive (Definitions) and for the purposes of BIPRU) an adjustment to the mid-market valuation of the portfolio of transactions with a counterparty; and so that this adjustment: (a) reflects the market value of the credit risk due to any failure to

FCA 2021/50 Page 34 of 184 perform on contractual agreements with a counterparty; and (b) may reflect the market value of the credit risk of the counterparty or the market value of the credit risk of both the firm and the counterparty. critical functions activities, services or operations (wherever carried out) the discontinuance of which is likely to lead to the disruption of essential services to the real economy of the UK or to disrupt financial stability in the UK due to the: (a) size; (b) market share; (c) external and internal interconnectedness; (d) complexity; or (e) cross-border activities, of an RRD institution or RRD group, particularly bearing in mind the substitutability of those activities, service or operations. [Note: article 2(1)(35) of RRD] CRM minimum requirements (1) in relation to the standardised approach to credit risk); BIPRU 5.2.9R-BIPRU 5.2.10R, BIPRU 5.3.3R, BIPRU 5.4.9R-BIPRU 5.4.13R, BIPRU 5.5.2R, BIPRU 5.5.5R-BIPRU 5.5.6R, BIPRU 5.6.2R-BIPRU 5.6.3R, BIPRU 5.7.6R-BIPRU 5.7.14R; or (2) (in relation to the IRB approach), the provisions in (1) and BIPRU 4.4.85R, BIPRU 4.10.13R, BIPRU 4.10.15R, and BIPRU 4.10.18R-BIPRU 4.10.19R. cross product netting (for the purpose of BIPRU 13 (The calculation of counterparty risk exposure values for financial derivatives, securities financing transactions and long settlement transactions)) the inclusion of transactions of different product categories within the same netting set pursuant to the rules about cross-product netting set out in BIPRU 13. [Note: Part 1 of Annex III of the Banking Consolidation Directive (Definitions)] CRR ITS on supervisory reporting the UK version of Regulation (EU) 2015/1278 of 9 July 2015 amending Implementing Regulation (EU) No 680/2014 laying down implementing technical standards with regard to supervisory reporting of institutions as regards instructions, templates and definitions which is part of UK law by virtue of the EUWA. current exposure (for the purpose of BIPRU 13 (The calculation of counterparty risk exposure values for financial derivatives, securities financing transactions and long settlement transactions)) the larger of zero, or the market value

FCA 2021/50 Page 35 of 184 of a transaction or portfolio of transactions within a netting set with a counterparty that would be lost upon the default of the counterparty, assuming no recovery on the value of those transactions in bankruptcy. [Note: Part 1 of Annex III of the Banking Consolidation Directive (Definitions)] defined liquidity group a DLG by default or DLG by modification. designated committee (in relation to a firm) a management body of the firm with delegated authority from the firm’s governing body for approving either: (a) (in relation to a firm that uses the IRB approach) all material aspects of the firm’s rating systems and material changes to the firm’s rating systems; or (b) (in relation to a firm that uses the advanced measurement approach) all material aspects of the advanced measurement approach as carried out by the firm and material changes to the firm’s advanced measurement approach; and (c) a policy statement defining the firm’s overall approach to material aspects of rating and estimation processes for all rating systems including non-material rating systems in relation to the IRB approach, or its overall approach to the advanced measurement approach, as relevant; at least one of whose members is a member of the firm’s governing body. designated money market fund (in BIPRU 12 and BSOCS) an authorised fund which satisfies the following conditions: (a) its primary investment objective must be to maintain the net asset value of the undertaking either constant at par (net of earnings), or at the value of the investors’ initial capital plus earnings; (b) it must, with a view to achieving that primary investment objective, invest exclusively in either or both assets (i) of the kind mentioned in BIPRU 12.7.2R(1) and (2), or (ii) sight deposits with credit institutions that are at all times fully secured against assets of the kind mentioned in BIPRU 12.7R(1) and (2); (c) it must, for the purpose of condition (b), only count assets with a maturity or residual maturity of no more than 397 days, or regular yield adjustments consistent with such a maturity, and with a weighted average maturity of no more than 60 days; (d) it must, for the purpose of condition (b), ensure that if it invests in sight deposits with credit institutions of the kind mentioned in

FCA 2021/50 Page 36 of 184 (b)(ii), no more than 20% of those deposits are held with any one body; and (e) it must provide liquidity through same day settlement in respect of any request for redemption made at or before 1200 hours GMT or, as the case may be, BST. designated multilateral development bank Any of the following: (a) African Development Bank; (b) Asian Development Bank; (ba) Asian Infrastructure Investment Bank; (bb) Caribbean Development Bank; (d) European Bank for Reconstruction and Development; (e) European Investment Bank; (ea) European Investment Fund; (f) Inter-American Development Bank; (g) International Bank for Reconstruction and Development; (ga) International Development Association; (h) International Finance Corporation; (ha) International Finance Facility for Immunisation; (i) Islamic Development Bank; (ia) Multilateral Investment Guarantee Agency; and (j) Nordic Investment Bank. dilution risk the risk that an amount receivable is reduced through cash or non-cash credits to the obligor. [Note: article 4(24) of the Banking Consolidation Directive (Definitions)] distribution in connection with common equity tier 1 capital includes: (a) a payment of cash dividends; (b) a distribution of fully or partly paid bonus shares or other capital instruments referred to in article 26(1)(a) of the UK CRR (Common equity tier 1 items);

FCA 2021/50 Page 37 of 184 (c) a redemption or purchase by a firm of its own shares or other capital instruments referred to in article 26(1)(a) of the UK CRR (Common equity tier 1 items); (d) a repayment of amounts paid in connection with capital instruments referred to in article 26(1)(a) of the UK CRR (Common equity tier 1 items); and (e) a distribution of items referred to in article 26(1)(b) to (e) of the UK CRR124 (Common equity tier 1 items). [Note: article 141(10) of CRD] distribution of exposures for the purpose of BIPRU 13 (The calculation of counterparty risk exposure values for financial derivatives, securities financing transactions and long settlement transactions)) the forecast of the probability distribution of market values that is generated by setting forecast instances of negative net market values equal to zero. [Note: Part 1 of Annex III of the Banking Consolidation Directive (Definitions)] distribution of market values for the purpose of BIPRU 13 (The calculation of counterparty risk exposure values for financial derivatives, securities financing transactions and long settlement transactions)) the forecast of the probability distribution of net market values of transactions within a netting set for some future date (the forecasting horizon), given the realised market value of those transactions up to the present time. [Note: Part 1 of Annex III of the Banking Consolidation Directive (Definitions)] DLG by default (in relation to a UK ILAS BIPRU firm (a group liquidity reporting firm) and any reporting period under SUP 16 (Reporting requirements)) the firm and each person identified in accordance with the following: (a) (in a case in which the firm is the only UK ILAS BIPRU firm in its group) that person meets any of the following conditions for any part of that period: (i) that person provides material support to the firm against liquidity risk; or (ii) that person is committed to provide such support or would be committed to do so if that person were able to provide it; or (iii) the firm has reasonable grounds to believe that that person would supply such support if asked or would do so if it were able to provide it; or

FCA 2021/50 Page 38 of 184 (iv) the firm provides material support to that person against liquidity risk; or (v) the firm is committed to provide such support to that person or would be committed to do so if the firm were able to provide it; or (vi) the firm has reasonable grounds to believe that that person would expect the firm to supply such support if asked or that the firm would do so if it were able to provide it; or (b) (in a case in which the firm is not the only UK ILAS BIPRU firm in its group): (i) each of those other UK ILAS BIPRU firms; and (ii) each person identified by applying the tests in (a) separately to the firm and to each of those other UK ILAS BIPRU firms, so that applying (b) to the firm and to each of those UK ILAS BIPRU firms results in their having the same defined liquidity group; (iii) no DLG by default exists where the group consists only of UK ILAS BIPRU firms. The following provisions also apply for the purpose of this definition. (c) A person is not a member of a firm’s DLG by default unless it also satisfies one of the following conditions: (i) it is a member of the firm’s group; or (ii) it is a securitisation special purpose entity or a special purpose vehicle; or (iii) it is an undertaking whose main purpose is to raise funds for the firm or for a group to which that firm belongs. (ca) In the case of a group liquidity reporting firm that is within paragraph (a) of the definition of UK lead regulated firm (it is not part of a group that is subject to consolidated supervision by the FCA or the PRA or any other regulatory body), paragraph (c)(i) of the definition of DLG by default is amended so that it only includes a member of the firm’s group that falls into one of the following categories: (i) it is a credit institution; or (ii) it is an investment firm or third country investment firm authorised to deal on own account.

FCA 2021/50 Page 39 of 184 For these purposes: (iii) credit institution has the meaning used in SUP 16 (Reporting requirements), namely either of the following: (A) a credit institution authorised under the CRD or (B) an institution which would satisfy the requirements for authorisation as a credit institution under the UK provisions which implemented the CRD if it had its registered office (or if it does not have a registered office, its head office) in the UK; and (iv) a person is authorised to deal on own account if: (A) it is a firm and its permission includes that activity; or (B) [deleted] (C) (if the carrying on of that activity is prohibited in a state or territory without an authorisation in that state or territory) that person has such an authorisation. (d) Group has the meaning in paragraph (1) of the definition in the Glossary (the definition in section 421 of the Act). (e) The conditions in (a) are satisfied even if the firm or person in question provides or is committed or expected to provide support for only part of the period. (f) In deciding for the purpose (f) In deciding for the purpose of (a) or (b) whether the firm is the only UK ILAS BIPRU firm in its group and identifying which are the other UK ILAS BIPRU firms in its group, any group member that is a member of the group through no more than a participation is ignored. (g) A firm has a DLG by default for a period even if it only has one during part of that period. (h) Liquidity support may be supplied by or to the firm directly or indirectly. (i) Support is material if it is material either by reference to the person giving it or by reference to the person receiving it.

FCA 2021/50 Page 40 of 184 (Guidance about this definition, and its inter-relation with other related definitions, is set out in SUP 16 Annex 26 (Guidance on designated liquidity groups in SUP 16.12).) DLG by modification either of the following: (a) a DLG by modification (firm level); or (b) a non-UK DLG by modification (DLG level). (Guidance about this definition, and its inter-relation with other related definitions, is set out in SUP 16 Annex 26 (Guidance on designated liquidity groups in SUP 16.12).) DLG by modification (firm level) (in relation to any reporting period under SUP 16 (Reporting requirements) and a UK ILAS BIPRU firm that has an intra-group liquidity modification during any part of that period (a group liquidity reporting firm)) the firm and each person on whose liquidity support the firm can rely, under that intra-group liquidity modification, for any part of that period for the purpose of the overall liquidity adequacy rule (as the overall liquidity adequacy rule applies to the firm on a solo basis). A firm has a ‘DLG by modification (firm level)’ for a period even if it only has one during part of that period. (Guidance about this definition, and its inter-relation with other related definitions, is set out in SUP 16 Annex 26 (Guidance on designated liquidity groups in SUP 16.12).) early amortisation provision (1) (in BIPRU) (in relation to a securitisation within the meaning of paragraph (2) of the definition of securitisation) a contractual clause which requires, on the occurrence of defined events, investors’ positions to be redeemed prior to the originally stated maturity of the securities issued. [Note: article 100 of the Banking Consolidation Directive (Securitisation of revolving exposures)] (2) (except in (1)) has the meaning in article 242(16) of the UK CRR. EE expected exposure. effective EE effective expected exposure. effective EPE effective expected positive exposure. effective expected exposure for the purpose of BIPRU 13 (The calculation of counterparty risk exposure values for financial derivatives, securities financing transactions and long settlement transactions) and as at a specific date) the maximum expected exposure that occurs at that date or any prior date; alternatively, it may be defined for a specific date as the greater of the expected exposure at that date, or the effective exposure at the previous date.

FCA 2021/50 Page 41 of 184 [Note: Part 1 of Annex III of the Banking Consolidation Directive (Definitions)] effective expected positive exposure for the purpose of BIPRU 13) the weighted average over time of effective expected exposure over the first year, or, if all the contracts within the netting set mature before one year, over the time period of the longest maturity contract in the netting set, where the weights are the proportion that an individual expected exposure represents of the entire time interval. [Note: Part 1 of Annex III of the Banking Consolidation Directive (Definitions)] effective maturity for the purpose of the CCR internal model method and with respect to a netting set with maturity greater than one year) the ratio of the sum of expected exposure over the life of the transactions in the netting set discounted at the risk-free rate of return divided by the sum of expected exposure over one year in a netting set discounted at the risk-free rate; this effective maturity may be adjusted to reflect rollover risk by replacing expected exposure with effective expected exposure for forecasting horizons under one year. [Note: Part 1 of Annex III of the Banking Consolidation Directive (Definitions)] EL expected loss. eligible capital has the meaning in article 4(1)(71) of the UK CRR. eligible partnership capital (in relation to a BIPRU firm) has the meaning in GENPRU 2.2.93R. EPE expected positive exposure. equity (for the purposes of BIPRU 7 and IFPRU 6) a share equity exposure (in relation to the IRB approach) an exposure falling into the IRB exposure class referred to in BIPRU 4.3.2R(5) (equity exposures). equity PRR the part of the market risk capital requirement calculated in accordance with BIPRU 7.3 (Equity PRR and basic interest rate PRR for equity derivatives) but so that: (a) the equity PRR excludes the part of the market risk capital requirement calculated under BIPRU 7.3.45R (Basic interest rate PRR for equity derivatives); and (b) in relation to a particular position, it means the portion of the overall equity PRR attributable to that position. excess spread (for the purposes of BIPRU 9 (Securitisation), in relation to a securitisation (within the meaning of paragraph (2) of the definition of

FCA 2021/50 Page 42 of 184 securitisation137)) finance charge collections and other fee income received in respect of the securitised exposures net of costs and expenses. [Note: Part 1 of Annex IX of the Banking Consolidation Directive (Securitisation definitions)] excess trading book position has the meaning in GENPRU 2.2.264R (Deductions from total capital: Excess trading book position). exempt full scope IFPRU investment firm a full-scope IFPRU investment firm falling into BIPRU 12.1.4R. expected exposure for the purpose of BIPRU 13 (The calculation of counterparty risk exposure values for financial derivatives, securities financing transactions and long settlement transactions)) the average of the distribution of exposures at any particular future date before the longest maturity transaction in the netting set matures. [Note: Part 1 of Annex III of the Banking Consolidation Directive (Definitions)] expected loss for the purposes of the IRB approach and the standardised approach to credit risk) the ratio of the amount expected to be lost on an exposure from a potential default of a counterparty or dilution over a one year period to the amount outstanding at default. [Note: article 4(29) of the Banking Consolidation Directive (Definitions)] expected positive exposure for the purpose of BIPRU 13 (The calculation of counterparty risk exposure values for financial derivatives, securities financing transactions and long settlement transactions)) the weighted average over time of expected exposures where the weights are the proportion that an individual expected exposures represents of the entire time interval; when calculating the minimum capital requirement, the average is taken over the first year or, if all the contracts within the netting set mature before one year, over the time period of the longest-maturity contract in the netting set. [Note: Part 1 of Annex III of the Banking Consolidation Directive (Definitions)] extraordinary public financial support has the meaning provided in section 3 of the Banking Act 2009. facility grade (in relation to the advanced IRB approach and the sovereign, institutional and corporate IRB exposure class and in accordance with BIPRU 4.4.49R) a risk category within a rating system’s facility scale to which exposures are assigned on the basis of a specified and distinct set of rating criteria from which own estimates of LGDs are derived.

FCA 2021/50 Page 43 of 184 FCA consolidation group the undertakings included in the scope of prudential consolidation to the extent and in the manner prescribed in Part One, Title II, Chapter 2, Sections 2 and 3 of the UK CRR and IFPRU 8.1.3R to IFPRU 8.1.4R (Prudential consolidation) for which the FCA is the consolidating supervisor under article 4B of the UK CRR. FICOD 1 the European Parliament and Council Directive amending Directives 98/78/EC, 2002/87/EC, 2006/48/EC and 2009/138/EC regarding the supplementary supervision of financial entities in a financial conglomerate (No 2011/89/EU). financial collateral comprehensive method the method for calculating the effects of credit risk mitigation described in those parts of BIPRU 5.4 (Financial collateral) that are expressed to apply to that method. financial collateral simple method the method for calculating the effects of credit risk mitigation described in those parts of BIPRU 5.4 (Financial collateral) that are expressed to apply to that method. Financial Collateral Directive the Council Directive of 6 June 2002 relating to financial collateral arrangements (No. 2002/47/EC). financial derivative instrument (for the purposes of BIPRU) has the meaning in BIPRU 13.3.3R (Definition of a financial derivative instrument); the definition is adjusted for the purposes of the definition of counterparty risk capital component in accordance with BIPRU 14.2.3R (Credit derivatives). FINREP firm (a) a credit institution or investment firm subject to the UK CRR that is also subject to section 403(1) of the Companies Act 2006; or (b) a credit institution other than one referred to in section 403(1) of the Companies Act 2006 that prepares its consolidated accounts in conformity with UK-adopted international accounting standards. [Note: article 99 of the UK CRR] firm-specific liquidity stress (in relation to a firm and any reporting obligations under SUP 16 (Reporting requirements)): (a) (in the case of reporting obligations on a solo basis (including on the basis of the firm’s UK branch) the firm failing to meet, not complying with or being in breach of: (i) the liquidity resources requirement calculated by that firm as adequate in its current Individual Liquidity Adequacy Assessment or Individual Liquidity Systems Assessment; or

FCA 2021/50 Page 44 of 184 (ii) the level of its liquid assets buffer advised in any current individual liquidity guidance that the firm has accepted; or (iii) its funding profile advised in any current individual liquidity guidance that the firm has accepted; or (iv) the overall liquidity adequacy rule; or (v) BIPRU 12.2.8R (ILAS BIPRU firm adequate buffer of high quality, unencumbered assets) or BIPRU 12.2.11R (liquid assets buffer is at least equal to the simplified buffer requirement); or (vi) the simplified buffer requirement (taking into account BIPRU TP 29 (Liquid assets buffer scalar: simplified ILAS BIPRU firms) unless this has been superseded by individual liquidity guidance that it has accepted; or (vii) any requirement imposed by or under the regulatory system under which the firm must hold a specified level of liquidity resources; or it being likely that the firm will do so; (b) (in the case of reporting obligations with respect to the firm and a group of other persons) has the same meaning as in (a) except that references to any rule or other requirement, Individual Liquidity Adequacy Assessment, Individual Liquidity Systems Assessment or individual liquidity guidance are to any such thing so far as it applies to the firm and that group considered together. foreign currency PRR the part of the market risk capital requirement calculated in accordance with BIPRU 7.5 (Foreign currency PRR) or, in relation to a particular position, the portion of the overall foreign currency PRR attributable to that position. forward rate agreement an agreement under which one party agrees to pay another an amount of interest based on an agreed interest rate for a specified period from a specified settlement date applied to an agreed principal amount but under which no commitment is made by either party to lend or borrow the principal amount. foundation IRB approach one of the following: (a) (in relation to the sovereign, institutional and corporate IRB exposure class) the approach under the IRB approach, described in BIPRU 4.4 (The IRB approach: Exposures to corporates, institutions and sovereigns) under which a firm uses the values

FCA 2021/50 Page 45 of 184 for LGD and conversion factors set out in BIPRU 4.4 rather than supplying its own estimates; (b) (where the approach in (a) is being applied on a consolidated basis) the method in (a) as applied on a consolidated basis in accordance with BIPRU 8 (Group risk - consolidation); or (c) when the reference is to the rules of or administered by a regulatory body other than the appropriate regulator, whatever corresponds to the approach in (a) or (b), as the case may be, under those rules. FRA forward rate agreement. free delivery (for the purposes of BIPRU) a transaction of the type set out in BIPRU 14.4.2R (Requirement to hold capital resources with respect to free deliveries) which, in summary, is a transaction under which a person: (a) has paid for securities, foreign currencies or commodities before receiving them or it has delivered securities, foreign currencies or commodities before receiving payment for them; and (b) in the case of cross-border transactions, one day or more has elapsed since it made that payment or delivery. full-scope IFPRU investment firm a CRD full-scope firm that is an IFPRU investment firm. funded credit protection (for the purposes of BIPRU) a technique of credit risk mitigation where the reduction of the credit risk on the exposure of an undertaking derives from the right of the undertaking, in the event of the default of the counterparty or on the occurrence of other specified credit events relating to the counterparty, to liquidate, or to obtain transfer or appropriation of, or to retain certain assets or amounts, or to reduce the amount of the exposure to, or to replace it with, the amount of the difference between the amount of the exposure and the amount of a claim on the undertaking. [Note: article 4(31) of the Banking Consolidation Directive (Definitions)] GCR group capital resources. GCRR group capital resources requirement. general market risk the risk of a price change in an investment: (a) (in relation to items that may or must be treated under BIPRU 7.2 (Interest Rate PRR)) owing to a change in the level of interest rates; or

FCA 2021/50 Page 46 of 184 (b) (in relation to items that may or must be treated under BIPRU 7.3 (Equity PRR and basic interest rate PRR for equity derivatives) except insofar as BIPRU 7.3 relates to the calculation of the interest rate PRR) owing to a broad equity-market movement unrelated to any specific attributes of individual securities. [Note: paragraph 12 of Annex I of the Capital Adequacy Directive] general market risk position risk adjustment a position risk adjustment with respect to general market risk general stress and scenario testing rule (1) (in GENPRU, BIPRU and INSPRU) GENPRU 1.2.42R (Stress and scenario tests). (2) (for the purpose of IFPRU) IFPRU 2.2.37R (Stress and scenario tests). general wrong￾way risk for the purpose of BIPRU 13 (The calculation of counterparty risk exposure values for financial derivatives, securities financing transactions and long settlement transactions)) the risk that arises when the probability of default of counterparties is positively correlated with general market risk factors. [Note: Part 1 of Annex III of the Banking Consolidation Directive (Definitions)] gross leverage the ratio of total assets to total equity. group liquidity low frequency reporting conditions (in relation to a group liquidity reporting firm and its defined liquidity group) the defined liquidity group meets the group liquidity low frequency reporting conditions if the defined liquidity group meets the following conditions: (a) the firm or any other member is a low frequency liquidity reporting firm; and (b) no member of that group is a standard frequency liquidity reporting firm. For the purpose of deciding whether these conditions are met in relation to a DLG by default, any group member (other than the group liquidity reporting firm itself) that is a member of the group through no more than a participation is ignored. group liquidity reporting firm see the definitions of DLG by default, DLG by modification (firm level), and non-UK DLG by modification (DLG level). (Guidance about this definition, and its inter-relation with other related definitions, is set out in SUP 16 Annex 26 (Guidance on designated liquidity groups in SUP 16.12).)

FCA 2021/50 Page 47 of 184 group liquidity standard frequency reporting conditions (in relation to a group liquidity reporting firm and its defined liquidity group) the defined liquidity group meets the group liquidity standard frequency reporting conditions if the group does not meet the group liquidity low frequency reporting conditions. group recovery plan a document which provides for measures to be taken in relation to an RRD group, or any RRD institution in the group, to achieve the stabilisation of the group as a whole, in cases of financial stress, to address or remove the causes of the stress and restore the financial position of the group or the RRD institution. [Note: articles 2(1)(33) and 7(4) of RRD] guarantee fund (1) (a) subject to (1)(b), in relation to a firm carrying on general insurance business, the higher of one third of the general insurance capital requirement and the base capital resources requirement applicable to that firm; (b) where the firm is required to calculate a UK MCR or an EEA MCR under INSPRU 1.5, for the purposes of that section in (1)(a) the reference to the general insurance capital requirement is replaced by UK MCR or EEA MCR, as appropriate , and the reference to the base capital resources requirement is replaced by the amount which is one half of the base capital resources requirement applicable to the firm set out in GENPRU 2.1.30R. (2) (a) subject to (2)(b), in relation to a firm carrying on long￾term insurance business, the higher of one third of the long-term insurance capital requirement and the base capital resources requirement applicable to that firm; (b) where the firm is required to calculate a UK MCR or an EEA MCR under INSPRU 1.5, for the purposes of that section in (2)(a) the reference to the long-term insurance capital requirement is replaced by UK MCR or EEA MCR, as appropriate, and the reference to the base capital resources requirement is replaced by the amount which is one half of the base capital resources requirement applicable to the firm set out in GENPRU 2.1.30R. hedging set for the purpose of BIPRU 13 (The calculation of counterparty risk exposure values for financial derivatives, securities financing transactions and long settlement transactions)) a group of risk positions from the transactions within a single netting set for which only their balance is relevant for determining the exposure value under the CCR standardised method.

FCA 2021/50 Page 48 of 184 [Note: Part 1 of Annex III of the Banking Consolidation Directive (Definitions] higher stage of capital (with respect to a particular item of capital in the capital resources table) a stage in the capital resources table above that in which that item of capital appears. hybrid capital an item of capital that is stated in GENPRU 2.2 as eligible for inclusion at stage B1, B2 or C of the calculation in the capital resources table. ICAAP the internal capital adequacy assessment process. ICAAP rules (1) (in GENPRU) the rules in GENPRU 1.2.30R to GENPRU 1.2.39R (Systems, strategies, processes and reviews), GENPRU 1.2.42R (Main Requirements: Stress and scenario tests) and GENPRU 1.2.60R to GENPRU 1.2.61R (Documentation of risk assessments) as they apply on a solo level and on a consolidated level. (2) (for the purpose of IFPRU) the rules in IFPRU 2.2.2R to IFPRU 2.2.7R (Strategies, processes and systems) to IFPRU 2.2.16R, IFPRU 2.2.37G (Stress and scenario tests) in relation to a significant IFPRU firm and IFPRU 2.2.43R to IFPRU 2.2.44R (Documentation of risk assessments) as they apply on a individual basis and on a consolidated basis. ICG individual capital guidance. IFPRU limited-activity firm a limited activity firm that meets the following conditions: (a) it is a firm; and (b) its head office is in the UK and it is not otherwise excluded under IFPRU 1.1.5R. IFPRU limited-licence firm a limited licence firm that meets the following conditions: (a) it is a firm; and (b) its head office is in the UK and it is not otherwise excluded under IFPRU 1.1.5R. ILAA Individual Liquidity Adequacy Assessment. ILAS Individual Liquidity Adequacy Standards. ILAS BIPRU firm a firm falling into BIPRU 12.1.1AR, but excluding a firm that is: (a) an exempt full scope IFPRU investment firm; or

FCA 2021/50 Page 49 of 184 (b) an IFPRU limited-licence firm; or (c) an IFPRU limited-activity firm; or (d) an exempt BIPRU commodities firm; or (e) an exempt IFPRU commodities firm; or (f) a BIPRU firm. illiquid asset has the meaning in GENPRU 2.2.260R (Deductions from total capital: Illiquid assets). ILSA Individual Liquidity Systems Assessment. incremental risk charge (in BIPRU 7.10 (Use of a value at risk model)) has the meaning in BIPRU 7.10.116R (Capital calculations for VaR models), which is in summary, in relation to a business day, the incremental risk charge required under the provisions in BIPRU 7.10 about specific risk, in respect of the previous business day’s close-of-business positions with respect to which those provisions apply. Individual Liquidity Adequacy Assessment a standard ILAS BIPRU firm’s assessment of the adequacy of its liquidity resources and systems and controls as required by the rules in BIPRU 12.5. Individual Liquidity Adequacy Standards the regime of liquidity assessment set out in the rules and guidance in BIPRU 12.5. Individual Liquidity Systems Assessment a simplified ILAS BIPRU firm’s assessment of the adequacy of its systems and controls as required by the rules in BIPRU 12.6. initial commitment (for the purposes of BIPRU and in relation to underwriting) the date specified in BIPRU 7.8.13R (Time of initial commitment). initial coupon rate (in relation to a tier one instrument) the coupon rate of the instrument at the time it is issued. innovative tier one capital an item of capital that is stated in GENPRU 2.2 (Capital resources) to be innovative tier one capital. in the money percentage (for the purposes of BIPRU 7 (Market risk) and in relation to an option or warrant) the percentage calculated under BIPRU 7.6.6R (The in the money percentage).

FCA 2021/50 Page 50 of 184 innovative tier one capital resources the amount of capital resources at stage C of the capital resources table (Innovation tier one capital). innovative tier one instrument a potential tier one instrument that is stated in GENPRU 2.2 (Capital resources) to be an innovative instrument. interest rate duration method the method of calculating the part of the interest rate PRR that relates to general market risk set out in BIPRU 7.2.63R (General market risk calculation: Duration method). interest rate maturity method the method of calculating the part of the interest rate PRR that relates to general market risk set out in BIPRU 7.2.59R (General market risk calculation: The maturity method). interest rate PRR the part of the market risk capital requirement calculated in accordance with BIPRU 7.2 (Interest rate PRR) or BIPRU 7.3.45R (Basic interest rate PRR for equity derivatives) or, in relation to a particular position, the portion of the overall interest rate PRR attributable to that position. interest rate simplified maturity method the method of calculating the part of the interest rate PRR that relates to general market risk set out in BIPRU 7.2.56R (General market risk calculation: Simplified maturity method). interest-rate contract interest-rate contracts listed in paragraph 1 of Annex II to the UK CRR. internal approaches one or more of the following, as referred to in the UK CRR: (a) the Internal Ratings Based Approach in article 143(1); (b) the Internal Models Approach in article 221; (c) the own estimates approach in article 225; (d) the Advanced Measurement Approaches in article 312(2); (e) the Internal Model Method and internal models in articles 283 and 363; and (f) the internal assessment approach in article 259(3). internal capital adequacy assessment process a firm’s assessment of the adequacy of its capital and financial resources, as required by the ICAAP rules. international organisation (for the purposes of GENPRU and BIPRU) an organisation referred to in BIPRU 3.4.30R (Exposures to international organisations).

FCA 2021/50 Page 51 of 184 intra-group liquidity modification a modification to the overall liquidity adequacy rule of the kind described in BIPRU 12.8.7G. investment firm consolidation waiver (in relation to a BIPRU firm) a waiver (described in BIPRU 8.4 (CAD Article 22 groups and investment firm consolidation waiver)) that disapplies certain requirements so far as they apply on a consolidated basis with respect to a CAD Article 22 group. IRB approach one of the following: (a) the adjusted method of calculating the credit risk capital component set out in BIPRU 4 (IRB approach) and BIPRU 9.12 (Calculation of risk weighted exposure amounts under the internal ratings based approach), including that approach as applied under BIPRU 14 (Capital requirements for settlement and counterparty risk); (b) (where the approach in (a) is being applied on a consolidated basis) the method in (a) as applied on a consolidated basis in accordance with BIPRU 8 (Group risk - consolidation); or (c) when the reference is to the rules of or administered by a regulatory body other than the appropriate regulator, whatever corresponds to the approach in (a) or (b), as the case may be, under those rules. IRB exposure class (in relation to the IRB approach) one of the classes of exposure set out in BIPRU 4.3.2R (exposure classes). IRB permission a requirement or a waiver that requires a BIPRU firm or a CAD investment firm to use the IRB approach. KIRB (for the purposes of BIPRU 9 (Securitisation), in relation to a securitisation (within the meaning of paragraph (2) of the definition of securitisation) 8% of the risk weighted exposure amounts that would be calculated under the IRB approach in respect of the securitised exposures, had they not been securitised, plus the amount of expected losses associated with those exposures calculated under the IRB approach. [Note: Part 1 of Annex IX of the Banking Consolidation Directive (Securitisation definitions)] lending firm (for the purposes of rules in BIPRU about credit risk mitigation) a firm that has an exposure, whether or not deriving from a loan. [Note: article 90 of the Banking Consolidation Directive (Credit risk mitigation)]

FCA 2021/50 Page 52 of 184 LGD loss given default. liquidity facility (for the purposes of BIPRU 9 (Securitisation), in relation to a securitisation (within the meaning of paragraph (2) of the definition of securitisation) the securitisation position arising from a contractual agreement to provide funding to ensure timeliness of cash-flows to investors. [Note: Part 1 of Annex IX of the Banking Consolidation Directive (Securitisation definitions)] loss for the purposes of the IRB approach, the standardised approach to credit risk and BIPRU 5 (Credit risk mitigation)) economic loss, including material discount effects, and material direct and indirect costs associated with collecting on the instrument. [Note: article 4(26) of the Banking Consolidation Directive (Definitions)] (1) (in BIPRU and for the purposes of the IRB approach, the standardised approach to credit risk and BIPRU 5 (Credit risk mitigation)) economic loss, including material discount effects, and material direct and indirect costs associated with collecting on the instrument. [Note: article 4(26) of the Banking Consolidation Directive (Definitions)] (2) (except in (2)) has the meaning in article 5(1) of the UK CRR. loss given default in relation to the IRB approach) the ratio of the loss on an exposure due to the default of a counterparty to the amount outstanding at default. [Note: article 4(27) of the Banking Consolidation Directive (Definitions)] low frequency liquidity reporting firm any of the following: (a) a simplified ILAS BIPRU firm; or (b) a standard ILAS BIPRU firm whose most recent annual report and accounts show balance sheet assets of less than £541 billion (or its equivalent in foreign currency translated into sterling at the balance sheet date); or (c) a standard ILAS BIPRU firm that meets the following conditions: (i) it does not have any annual report and accounts and it has been too recently established to be required to have limited activity firm has the meaning in article 96(1) of the UK CRR. limited licence firm has the meaning in article 95(1) of the UK CRR.

FCA 2021/50 Page 53 of 184 produced any; (ii) it has submitted a projected balance sheet to the FCA or PRA (as the case may be) as part of an application for a Part 4A permission or a variation of one; and (iii) the most recent such balance sheet shows that the firm will meet the size condition set out in (b) in all periods covered by those projections. In respect of a third country BIPRU firm that is also a standard ILAS BIPRU firm and which reports on the basis of its branch operation in the United Kingdom, if the balance sheet assets attributable to the UK branch can be determined from the firm’s most recent annual report and accounts (or, if applicable, the projected balance sheet) or any data item submitted by the firm, then paragraphs (b) and (c) apply at the level of the branch rather than of the firm. lower stage of capital (with respect to a particular item of capital in the capital resources table) a stage in the capital resources table below that in which that item of capital appears. lower tier three capital an item of capital that is specified in stage P of the capital resources table (Lower tier three). lower tier three capital resources the sum calculated at stage P of the capital resources table (Lower tier three). lower tier two capital (1) [deleted] (2) (in BIPRU, GENPRU and INSPRU) an item of capital that is specified in stage H of the capital resources table (Lower tier two capital) lower tier two capital resources the sum calculated at stage H of the calculation in the capital resources table (Lower tier two capital) lower tier two instrument an item of capital that meets the conditions in GENPRU 2.2.194R (Lower tier two capital) and is eligible to form part of a firm’s lower tier two capital resources. LTICR long-term insurance capital requirement main BIPRU firm Pillar 1 rules GENPRU 2.1.40R (Variable capital requirement for BIPRU firms), GENPRU 2.1.41R (Base capital resources requirement for BIPRU firms), GENPRU 2.1.48R (Table: Base capital resources requirement for a BIPRU firm). margin agreement for the purpose of BIPRU 13 (The calculation of counterparty risk exposure values for financial derivatives, securities financing transactions

FCA 2021/50 Page 54 of 184 and long settlement transactions)) a contractual agreement or provisions to an agreement under which one counterparty must supply collateral to a second counterparty when an exposure of that second counterparty to the first counterparty exceeds a specified level. [Note: Part 1 of Annex III of the Banking Consolidation Directive (Definitions)] margin period of risk for the purpose of BIPRU 13 (The calculation of counterparty risk exposure values for financial derivatives, securities financing transactions and long settlement transactions)) the time period from the last exchange of collateral covering a netting set of transactions with a defaulting counterpart until that counterpart is closed out and the resulting market risk is re-hedged. [Note: Part 1 of Annex III of the Banking Consolidation Directive (Definitions)] margin threshold for the purpose of BIPRU 13 (The calculation of counterparty risk exposure values for financial derivatives, securities financing transactions and long settlement transactions)) the largest amount of an exposure that remains outstanding until one party has the right to call for collateral. [Note: Part 1 of Annex III of the Banking Consolidation Directive (Definitions)] market liquidity stress (in relation to a firm and any reporting obligations under SUP 16 (Reporting requirements)): (a) (in the case of reporting obligations on a solo basis) any market that is of material significance to the firm being materially adversely affected by crystallised liquidity risk or a substantial number of participants in any such market being materially adversely affected by crystallised liquidity risk, whether or not the firm itself is so affected; (b) (in the case of reporting obligations with respect to the firm and a group of other persons) has the same meaning as in (a) except that references to the firm are to the firm and that group considered together; (c) (in the case of reporting obligations with respect to a firm’s UK branch) has the same meaning as in (a) except that references to the firm are to that branch. market risk capital requirement the part of the capital resources requirement of a BIPRU firm in respect of market risk, calculated in accordance with GENPRU 2.1.52R (Calculation of the market risk capital requirement). master netting agreement internal (a) the method of calculating the effect of credit risk mitigation described in BIPRU 5.6.16R to BIPRU 5.6.28G;

FCA 2021/50 Page 55 of 184 models approach (b) (where the approach in (a) is being applied on a consolidated basis) the method in (a) as applied on a consolidated basis in accordance with BIPRU 8 (Group risk - consolidation); or (c) when the reference is to the rules of or administered by a regulatory body other than the appropriate regulator, whatever corresponds to the approach in (a) or (b), as the case may be, under those rules. master netting agreement internal models approach permission requirement or a waiver that requires a BIPRU firm to use the master netting agreement internal models approach on a solo basis or, if the context requires, a consolidated basis. material currency (a) Material currencies, in respect of a firm at any time, are currencies determined in accordance with the following. (b) First, the amount of its assets and the amount of its liabilities in each currency (ignoring the sign) are separately calculated. The figures are as shown in the most recent data item FSA054 submitted to the appropriate regulator. (c) Then, each such amount is converted into the reporting currency for the data item referred to in (b). (d) Each currency (which may include the reporting currency) that represents 20% or more of the total asset figure or 20% or more of the total liabilities figure is a material currency. (e) A currency is also a material currency if it is identified by the firm’s current: (i) Individual Liquidity Adequacy Assessment; or (ii) Individual Liquidity Systems Assessment; or (iii) ILG that has been accepted by the firm; as being significant in the context of cross-currency liquidity risk (as referred to in BIPRU 12.5 (Individual Liquidity Adequacy Standards)). (f) The conversion rate for a currency into the reporting currency is the exchange rate on the date as of which the calculation is being made.

FCA 2021/50 Page 56 of 184 (g) The reporting currency means the currency in which the most recent data item FSA054 (as referred to in (b)) is reported. (h) A currency is a material currency in relation to a firm’s branch or a defined liquidity group of which it is a group liquidity reporting firm if it is identified as such in accordance with the procedures in the previous paragraphs of this definition except that the identification is carried out by reference to that branch or defined liquidity group. For these purposes, data item FSA054 for the reporting level concerned is used. (i) If the firm has not delivered data item FSA054 to the appropriate regulator at the reporting level concerned or is currently not required to do so at the reporting level concerned, the calculation is carried out using the methods for drawing up data item FSA054. material holding (1) [deleted] (2) (for the purposes of GENPRU and BIPRU) has the meaning in GENPRU 2.2.209R (Deductions from tiers one and two: Material holdings (BIPRU firm only)). material insurance holding has the meaning in GENPRU 2.2.212R (Material holdings) or, for an exempt CAD firm which is an investment management firm, in IPRU(INV) Table 5.8. Material Risk Takers Regulation the UK version of Commission Delegated Regulation (EU) No 604/2014 of 4 March 2014 supplementing Directive 2013/36/EU of the European Parliament and of the Council with regard to regulatory technical standards with respect to qualitative and appropriate quantitative criteria to identify categories of staff whose professional activities have a material impact on an institution’s risk profile, which is part of UK law by virtue of the EUWA. MCR minimum capital requirement. MDA the maximum distributable amount calculated in line with IFPRU 10.4.3R. member contribution any paid up contribution by a member of a mutual where the members’ accounts meet the following criteria: (a) the memorandum and articles of association or other constitutional documents must stipulate that payments may be made from these accounts to members only in so far as this does not cause the firm’s capital resources to fall below the required level, or, if after dissolution of the firm, all the firm’s other debts have been settled;

FCA 2021/50 Page 57 of 184 (b) the memorandum and articles of association or other constitutional documents must stipulate, with respect to the payments referred to in (a) made for reasons other than the individual termination of membership, that the appropriate regulator must be notified at least one month in advance of the intended date of such payments; and (c) the appropriate regulator must be notified of any amendment to the relevant provisions of the memorandum and articles of association or other constitutional documents. mezzanine securitisation positions for the purposes of BIPRU 9.3.7R, BIPRU 9.4.11R and BIPRU 9.5.1R(6), securitisation positions to which a risk weight lower than 1250% applies and which are more junior than the most senior position in the relevant securitisation and more junior than any securitisation position in the relevant securitisation to which: (a) in the case of a securitisation position subject to the standardised approach to securitisation set out in BIPRU 9.11.1R and BIPRU 9.11.2R, a credit quality step 1 is assigned; or (b) in the case of a securitisation position subject to the IRB approach to securitisation set out in BIPRU 9.12.10R and BIPRU 9.12.11R, a credit quality step 1 or 2 is assigned under BIPRU 9.7.2R, BIPRU 9.8.2R to BIPRU 9.8.7R and regulation 23 of the Capital Requirements Regulations 2006. [Note: BCD, Annex IX, Part 2, Point 1, paragraph 1b] minimum capital requirement an amount of capital resources that a firm must hold as set out in GENPRU 2.1.24R and GENPRU 2.1.25R. minimum IRB standards (in relation to the IRB approach) BIPRU 4.3.9R, BIPRU 4.3.11R-BIPRU 4.3.29R, BIPRU 4.3.33R-BIPRU 4.3.40R, BIPRU 4.3.43R-BIPRU 4.3.44R, BIPRU 4.3.46R-BIPRU 4.3.48R, BIPRU 4.3.50R-BIPRU 4.3.51R, BIPRU 4.3.54R, BIPRU 4.3.56R-BIPRU 4.3.57R, BIPRU 4.3.63R, BIPRU 4.3.70R-BIPRU 4.3.71R, BIPRU 4.3.73R-BIPRU 4.3.74R, BIPRU 4.3.83R-BIPRU 4.3.85R, BIPRU 4.3.88R, BIPRU 4.3.90R-BIPRU 4.3.92R, BIPRU 4.3.94R, BIPRU 4.3.99R, BIPRU 4.3.103R, BIPRU 4.3.116R-BIPRU 4.3.123R, BIPRU 4.3.125R-BIPRU 4.3.131R BIPRU 4.4.6R-BIPRU 4.4.9R, BIPRU 4.4.11R-BIPRU 4.4.13R, BIPRU 4.4.15R-BIPRU 4.4.18R, BIPRU 4.4.21R-BIPRU 4.4.22R, BIPRU 4.4.24R-BIPRU 4.4.25R, BIPRU 4.4.27R-BIPRU 4.4.28R, BIPRU 4.4.30R-BIPRU 4.4.31R, BIPRU 4.4.48R-BIPRU 4.4.51R, BIPRU 4.4.53R, BIPRU 4.4.54R, BIPRU 4.5.5R, BIPRU 4.6.6R-BIPRU 4.6.9R, BIPRU 4.6.11R-BIPRU 4.6.12R, BIPRU 4.6.14R, BIPRU 4.6.18R, BIPRU 4.6.20R-BIPRU 4.6.21R, BIPRU 4.6.24R-BIPRU 4.6.34R, BIPRU 4.6.37R-BIPRU 4.6.39R, BIPRU 4.7.19R, BIPRU

FCA 2021/50 Page 58 of 184 4.7.27R-BIPRU 4.7.35R, BIPRU 4.8.5R-BIPRU 4.8.9R, BIPRU 4.8.11R￾BIPRU 4.8.15R, BIPRU 4.10.40R-BIPRU 4.10.48R. minimum multiplication factor (in BIPRU 7.10 (Use of a value at risk model)) has the meaning in BIPRU 7.10.119R (Capital calculations: Multiplication factors), which is in summary the number three or any higher amount the VaR model permission defines it as. model PRR the part of the market risk capital requirement calculated under a VaR model permission as more fully defined in BIPRU 7.10 (Use of a Value at Risk Model). model risk the potential loss an institution may incur, as a consequence of decisions that could be principally based on the output of internal models used under any of the internal approaches, due to errors in the development, implementation or use of such models. modified CIU look through method the method for calculating PRR for a CIU set out in BIPRU 7.7.4R, BIPRU 7.7.7R to BIPRU 7.7.8R and BIPRU 7.7.11R to BIPRU 7.7.12R multilateral development bank (a) any of the following: (i) African Development Bank; (ii) Asian Development Bank; (iia) Asian Infrastructure Investment Bank; (iii) Caribbean Development Bank; (iv) Council of Europe Development Bank; (v) European Bank for Reconstruction & Development; (vi) European Investment Bank; (vii) European Investment Fund; (viii) Inter-American Development Bank; (ix) International Bank for Reconstruction and Development; (ixa) International Development Association; (x) International Finance Corporation; (xa) International Finance Facility for Immunisation; (xb) Islamic Development Bank; (xi) Multilateral Investment Guarantee Agency; and

FCA 2021/50 Page 59 of 184 (xii) Nordic Investment Bank; (b) (in BIPRU) for the purposes of the standardised approach to credit risk the following are also considered to be a multilateral development bank: (i) the Inter-American Investment Corporation; (ii) the Black Sea Trade and Development Bank; (iii) the Central American Bank for Economic Integration; and (iv) the CAF-Development Bank of Latin America. multiplication factor (in BIPRU 7.10 (Use of a value at risk model)) a multiplication factor applied to a VaR measure for the purpose of calculating the model PRR made up of the minimum multiplication factor as increased by the plus factor, all as more fully defined in BIPRU 7.10.118R (Capital calculations: Multiplication factors). net leverage the ratio of total assets, less those bought under reverse repo arrangements, to total equity. net underwriting exposure has the meaning in BIPRU 7.8.34R (Large exposure risk from underwriting securities: Calculating the net underwriting exposure) which is in summary the amount calculated by applying the reduction factors in the table in BIPRU 7.8.35R to the net underwriting position. net underwriting position the net underwriting position calculated under BIPRU 7.8.17R (Calculating the net underwriting position). non-core concentration risk group counterparty has the meaning in BIPRU 10.9A.4R (Definition of non-core concentration risk group counterparty), which is in summary (in relation to a firm) each counterparty which is its parent undertaking, its subsidiary undertaking or a subsidiary undertaking of its parent undertaking, provided that (in each case) both the counterparty and the firm satisfy the conditions in BIPRU 10.9A.4R (Definition of non-core concentration risk group counterparty). [Note: article 113(4)(c) of the Banking Consolidation Directive] non-core large exposures group (in relation to a firm) all counterparties which: (1) are listed in the firm’s non-core large exposures group permission; (2) satisfy the conditions in IFPRU 8.2.6R (Intra-group exposures: non-core large exposures group); and (3) for which exposures are exempted, under article 400(2)(c) of the UK CRR (Exemptions), from the application of article 395(1) of the UK CRR (Limits to large exposures).

FCA 2021/50 Page 60 of 184 non credit￾obligation asset (in relation to the IRB approach) an exposure in the form of a non credit￾obligation asset or falling under BIPRU 4.9.5R (Non credit-obligation assets). non-core large exposures group exemption the exemption in IFPRU 8.2.6R (Intra-group exposures: non-core large exposures group). non-core large exposures group permission a permission referred to in IFPRU 8.2.6R given by the FCA for the purpose of article 400(2)(c) of the UK CRR (Large exposures: exemptions). non-ILAS BIPRU firm a firm falling into BIPRU 12.1.1R which is not an ILAS BIPRU firm. non-trading book positions, exposures, assets and liabilities that are not in the trading book. non-UK DLG by modification either of the following: (a) a non-UK DLG by modification (firm level); or (b) a non-UK DLG by modification (DLG level). non-UK DLG by modification (DLG level) (in relation to any reporting period under SUP 16 (Reporting requirements) and in relation to a firm that meets the following conditions (a group liquidity reporting firm): (a) it is a UK ILAS BIPRU firm with an intra-group liquidity modification; (b) it is a group liquidity reporting firm in a UK DLG by modification created by that intra-group liquidity modification; (c) the overall liquidity adequacy rule applies under that intra-group liquidity modification to that UK DLG by modification; and (d) that UK DLG by modification can rely, under that intra-group liquidity modification, for any part of that period, on a group of other persons for the purpose of the overall liquidity adequacy rule as applied to that UK DLG by modification); means the group made up of the following: (e) that ILAS BIPRU firm; (f) the other members of that UK DLG by modification; and (g) the group of other persons mentioned in (d).

FCA 2021/50 Page 61 of 184 A firm has a ‘non-UK DLG by modification (DLG level)’ for a period even if it only has one during part of that period. (Guidance about this definition, and its inter-relation with other new definitions, is set out in SUP 16 Annex 26 (Guidance on designated liquidity groups in SUP 16.12).) non-UK DLG by modification (firm level) (in relation to a group liquidity reporting firm) a DLG by modification (firm level) that is not a UK DLG by modification. A firm with a non-UK DLG by modification (firm level) cannot also have a UK DLG by modification. (Guidance about this definition, and its inter-relation with other related definitions, is set out in SUP 16 Annex 26 (Guidance on designated liquidity groups in SUP 16.12).) non UK lead regulated firm a firm that is not a UK lead regulated firm. This definition is not related to the defined term lead regulated firm. non-UK sub￾group (1) (in GENPRU (except GENPRU 3) and BIPRU (except BIPRU 12)) a group of undertakings identified as a non-UK sub-group in BIPRU 8.3.1R (Main consolidation rule for non-UK sub-groups). (2) (except in (1)) a group of undertakings identified in article 22 of the EU CRR (Sub-consolidation in cases of entities in third countries). obligor grade (in relation to the IRB approach and the sovereign, institutional and corporate IRB exposure class and in accordance with BIPRU 4.4.8R) a risk category within a rating system’s obligor rating scale, to which obligors are assigned on the basis of a specified and distinct set of rating criteria, from which estimates of PD are derived. one-day VaR measure (in BIPRU 7.10 (Use of a value at risk model)) has the meaning in BIPRU 7.10.98R (Backtesting: One day VaR measure), which is in summary and in relation to a particular business day, the VaR number for that business day calibrated to a one business day holding period and a 99% one-tailed confidence level. one-sided credit valuation adjustment (for the purposes of BIPRU) a credit valuation adjustment that reflects the market value of the credit risk of the counterparty to a firm, but does not reflect the market value of the credit risk of the firm to the counterparty. [Note: Part 1 of Annex III of the Banking Consolidation Directive (Definitions)] ongoing basis in BIPRU 9.15, maintaining on an ongoing basis means that the retained positions, interest or exposures are not hedged or sold. [Note: BCD, Article 122a, paragraph 1] open currency position the amount calculated under BIPRU 7.5.19R (Open currency position) as part of the calculation of the foreign currency PRR.

FCA 2021/50 Page 62 of 184 option hedging method the method of calculating the option PRR in BIPRU 7.6.24R (The hedging method). option PRR the part of the market risk capital requirement calculated in accordance with BIPRU 7.6 (Option PRR) or, in relation to a particular position, the portion of the overall option PRR attributable to that position. option standard method the method of calculating the option PRR in BIPRU 7.6.20R to BIPRU 7.6.22R (The standard method). original financing costing amount (in relation to a share, debenture or other investment in, or external contribution to the capital of, a firm that is subject to a step-up) the financing cost amount for the instrument for a period beginning on or near the date of issue of the instrument and ending on or near the date of the first step-up. OTC derivative transaction a derivative financial instrument of a type listed on Annex II to the UK CRR that is traded over the counter. out of the money (for the purposes of BIPRU 7 (Market risk) and in relation to an option or warrant) that option or warrant being neither at the money nor in the money. overall liquidity adequacy rule BIPRU 12.2.1R. overall Pillar 2 rule (1) (in GENPRU, BIPRU and INSPRU) GENPRU 1.2.30R (Systems, strategies, processes and reviews for certain firms). (2) (in IFPRU) IFPRU 2.2.7R (Strategy processes and systems). own estimates of volatility adjustments approach the approach to calculating volatility adjustments under the financial collateral comprehensive method under which the firm uses its own estimates of such adjustments, as more fully described in BIPRU 5.4 (Financial collateral) and including that approach as applied to master netting agreements as described in BIPRU 5.6 (Master netting agreements) parent financial holding company in the UK (1) (in GENPRU (except GENPRU 3 and BIPRU (except BIPRU 12)) a financial holding company which is not itself a subsidiary undertaking of an institution authorised in the UK, or of a financial holding company or mixed financial holding company established in the UK. (2) [deleted] (1) (in GENPRU (except GENPRU 3 and BIPRU (except BIPRU 12)) an institution which has an institution or a financial institution as a

FCA 2021/50 Page 63 of 184 parent institution in the UK subsidiary undertaking or which holds a participation in such an institution, and which is not itself a subsidiary undertaking of another institution authorised in the UK, or of a financial holding company or mixed financial holding company established in the UK. (2) [deleted] parent mixed financial holding company in the UK (1) (in GENPRU (except GENPRU 3 and BIPRU (except BIPRU 12)) a mixed financial holding company which is not itself a subsidiary undertaking of an institution authorised in the UK, or of a financial holding company or mixed financial holding company established in the UK. (2) [deleted] payment leg (for the purposes of the CCR standardised method and as more fully defined in BIPRU 13.5.2R (Derivation of risk position: payment legs) the contractually agreed gross payments under a financial derivative instrument, including the notional amount of the transaction. PD/LGD approach the method for treating equity exposures under the IRB approach set out in BIPRU 4.7.14R-BIPRU 4.7.22R. peak exposure for the purpose of BIPRU 13 (The calculation of counterparty risk exposure values for financial derivatives, securities financing transactions and long settlement transactions)) a high percentile of the distribution of exposures at any particular future date before the maturity date of the longest transaction in the netting set. [Note: Part 1 of Annex III of the Banking Consolidation Directive (Definitions)] permanent interest bearing shares any shares of a class defined as deferred shares for the purposes of section 119 of the Building Societies Act 1986 which are issued as permanent interest-bearing shares and on terms which qualify them as own funds for the purposes of the UK CRR. permanent share capital an item of capital that is stated in GENPRU 2.2.83R (Core tier one capital: permanent share capital) to be permanent share capital. physical commodities a physical holding of a commodity, or documents evidencing title to a commodity. PIBS permanent interest bearing shares. plus factor (in BIPRU 7.10 (Use of a value at risk model)) an increase to the minimum multiplication factor based on backtesting exceptions as more fully defined in BIPRU 7.10.124R (Capital calculations: Multiplication factors).

FCA 2021/50 Page 64 of 184 position (1) (in accordance BIPRU 1.2.4R (Definition of the trading book: Positions)) includes proprietary positions and positions arising from client servicing and market making. (2) (in IFPRU) has the meaning which it has, or is used, in the UK CRR. position risk adjustment a percentage applied to a position as part of the process of calculating the PRR in relation to that position as set out in the tables in BIPRU 7.2.44R (Specific risk position risk adjustments), BIPRU 7.2.57R (General market risk position risk adjustments), BIPRU 7.3.30R (Simplified equity method position risk adjustments), BIPRU 7.3.34R (Position risk adjustments for specific risk under the standard equity method) and BIPRU 7.6.8R (The appropriate position risk adjustment) and also as set out in BIPRU 7.2.48AR to BIPRU 7.2.48LR. position risk requirement a capital requirement applied to a position treated under BIPRU 7 (Market risk) as part of the calculation of the market risk capital requirement or, if the relevant provision of the Handbook distinguishes between general market risk and specific risk, the portion of that capital requirement with respect to whichever of general market risk or specific risk is specified by that provision. potential tier one instrument an item of capital that falls into GENPRU 2.2.62R (Tier one capital: General). probability of default (for the purpose of BIPRU) the probability of default of a counterparty over a one year period; for the purposes of the IRB approach, default has the meaning in the definition of default. [Note: article 4(25) of the Banking Consolidation Directive (Definitions)] profit and loss figure (in BIPRU 7.10 (Use of a value at risk model) and in relation to a business day) a firm’s actual profit or loss for that day in respect of the trading activities within the scope of the firm’s VaR model permission, adjusted by stripping out specified items, as more fully defined in BIPRU 7.10.100R (Backtesting: Calculating the profit and loss). protection buyer (in BIPRU) (in relation to a credit derivative) the person who transfers credit risk. [Note: paragraph 8 of Annex I of the Capital Adequacy Directive (Calculating capital requirements for position risk)] protection seller (in BIPRU) (in relation to a credit derivative) the person who assumes the credit risk. [Note: paragraph 8 of Annex I of the Capital Adequacy Directive (Calculating capital requirements for position risk)]

FCA 2021/50 Page 65 of 184 proxy capital resources requirement the minimum capital requirement to which an undertaking would have been subject if it had permission for each activity it carries on anywhere in the world, so far as that activity is a regulated activity. PRR charge one of the following: (a) the interest rate PRR; (b) the equity PRR; (c) the commodity PRR; (d) the foreign currency PRR; (e) the option PRR; (f) the collective investment undertaking PRR; and (g) (if the context requires) the model PRR. PRR identical product netting rules the following: (a) BIPRU 7.2.37R (Deriving the net position in each debt security: Netting positions in the same debt security); (b) BIPRU 7.2.40R (Deriving the net position in each debt security: Netting zero-specific-risk securities with different maturities); (c) BIPRU 7.3.23R (Deriving the net position in each equity); (d) (d) BIPRU 7.4.20R and BIPRU 7.4.22R (Calculating the PRR for each commodity: General); (e) BIPRU 7.5.19R(1) (Open currency position); and (f) the obligation under BIPRU 7.5.20R (Net gold position) to calculate a separate foreign exchange PRR charge for gold). PSE a public sector entity. public sector entity (for the purposes of BIPRU) any of the following: (a) non-commercial administrative bodies responsible to central governments, regional governments or local authorities; or (b) authorities that exercise the same responsibilities as regional and local authorities; or (c) non commercial undertakings owned by central governments that have explicit guarantee arrangements; or

FCA 2021/50 Page 66 of 184 (d) self administered bodies governed by law that are under public supervision. [Note: article 4(18) of the Banking Consolidation Directive (Definitions)] qualifying debt security (1) [deleted] (2) (for the purposes of BIPRU) a debt security that satisfies the conditions in BIPRU 7.2.49R (Definition of a qualifying debt security). qualifying equity index (in BIPRU) an equity index falling within BIPRU 7.3.38R (Definition of a qualifying equity index). qualifying parent undertaking has the meaning in section 192B (meaning of “qualifying parent undertaking”) of the Act which, in summary, is a parent undertaking of: (a) an authorised person that is a body corporate incorporated in the UK that is: (i) a PRA-authorised person; or (ii) an investment firm; or (b) a recognised investment exchange that is not an overseas investment exchange; where the parent undertaking is: (c) a body corporate which: (i) is incorporated in the UK; or (ii) has a place of business in the UK; (d) not an authorised person, a recognised investment exchange or a recognised clearing house; and (e) any of the following: (i) an insurance holding company; (ii) a financial holding company; (iii) a mixed financial holding company; (iv) for certain purposes, a mixed-activity holding company. qualifying revolving retail exposure (in relation to the IRB approach) retail exposures falling into BIPRU 4.6.44R(2) (Qualifying revolving retail exposures).

FCA 2021/50 Page 67 of 184 rating system (in relation to the IRB approach and in accordance with BIPRU 4.3.25R) comprises all of the methods, processes, controls, data collection and IT systems that support the assessment of credit risk, the assignment of exposures to grades or pools (rating), and the quantification of default and loss estimates for a certain type of exposure. ratings based method (for the purposes of BIPRU 9 (Securitisation)) the method of calculating risk weighted exposure amounts for securitisation positions set out in BIPRU 9.12.10R-BIPRU 9.12.19R and BIPRU 9.14.2R. [Note: Part 1 of Annex IX of the Banking Consolidation Directive (Securitisation definitions)] reciprocal cross-holding has the meaning in GENPRU 2.2.219R (Deductions from tiers one and two: Reciprocal cross holdings) which is in summary a holding of a firm of shares, any other interest in the capital, and subordinated debt, whether in the trading book or non-trading book, in: (a) a credit institution; or (b) a financial institution; that satisfies the conditions in GENPRU 2.2.219R. recovery capacity the capability of an RRD institution to restore its financial position following a significant deterioration. [Note: article 2(1)(103) of RRD] recovery plan a document which provides for measures to be taken by an RRD institution which is not subject to supervision on a consolidated basis to restore its financial position following a significant deterioration of its financial situation. [Note: articles 2(1)(32) and 5 of RRD] reduced net underwriting position the net underwriting position as adjusted under BIPRU 7.8.27R (Calculating the reduced net underwriting position). regulatory high risk category (for the purposes of the standardised approach to credit risk) an item that falls into BIPRU 3.4.104R (Items belonging to regulatory high risk categories under the standardised approach to credit risk). regulatory surplus value has the meaning set out in GENPRU 1.3.48R. Regulatory technical standards 1152/2014 the UK version of Regulation (EU) No 1152/2014 of 4 June 2014 supplementing Directive 2013/36/EU of the European Parliament and of the Council with regard to regulatory technical standards on the identification of the geographical location of the relevant credit exposures

FCA 2021/50 Page 68 of 184 for calculating institution-specific countercyclical capital buffer rates which is part of UK law as a result of section 3 of the EUWA. relevant credit exposures exposures, other than those referred to in article 112(a) to (f) of the UK CRR (Exposure classes), that are subject to: (a) the own funds requirements for credit risk under Part Three, Title II of the UK CRR; (b) where the exposure is held in the trading book, own funds requirements for specific risk under Part Three, Title IV, Chapter 2 of the UK CRR or incremental default and migration risk under Part Three, Title IV, Chapter 5 of the UK CRR; or (c) where the exposure is a securitisation, the own funds requirements under Part Three, Title II, Chapter 5 of the UK CRR. [Note: article 140(4) of CRD] Remuneration Code SYSC 19A (IFPRU Remuneration Code)for IFPRU investment firms and overseas firms in SYSC 19A.1.1R(1)(d) that would have been an IFPRU investment firm if it had been a UK domestic firm. Remuneration Code staff (for an IFPRU investment firm and an overseas firm in SYSC 19A1.1.1R(1)(d) that would have been an IFPRU investment firm if it had been a UK domestic firm) has the meaning given in SYSC 19A.3.4R which is, in summary, an employee whose professional activities have a material impact on the firm’s risk profile, including any employee who is deemed to have a material impact on the firm’s risk profile in accordance with the Material Risk Takers Regulation. remuneration principles proportionality rule (in SYSC 19A) has the meaning given in SYSC 19A.3.3R. reporting level (in SUP 16 (Reporting requirements) and in relation to a data item) refers to whether that data item is prepared on a solo basis or on the basis of a group such as a UK DLG by modification and, if it is prepared on the basis of a group, refers to the type of group (such as a UK DLG by modification or a non-UK DLG by modification (firm level)). repurchase agreement see repurchase transaction. resecuritisatio n in BIPRU 7 and 9, a securitisation where the risk associated with an underlying pool of exposures is tranched and at least one of the underlying exposures is a securitisation position. [Note: BCD, Article 4(40a)]

FCA 2021/50 Page 69 of 184 resecuritisatio n position in BIPRU 7 and 9, an exposure to a resecuritisation. [Note: BCD, Article 4(40b)] retail exposure (1) (in relation to the IRB approach and with respect to an exposure) an exposure falling into the IRB exposure class listed in BIPRU 4.3.2R(4) (Retail exposures). (2) (in relation to the standardised approach to credit risk and with respect to an exposure) an exposure falling into the standardised credit risk exposure class listed in BIPRU 3.2.9R(8) (Retail exposures). retail SME (1) (in relation to the IRB approach) a small or medium sized entity, an exposure to which may be treated as a retail exposure under BIPRU 4.6.2R (Definition of retail exposures). (2) (in relation to the standardised approach to credit risk) a small or medium sized entity, an exposure to which may be treated as a retail exposure under BIPRU 3.2.10R (Definition of retail exposures). retail SME exposure (in relation to the IRB approach or the standardised approach to credit risk) an exposure to a retail SME. reverse repurchase agreement see repurchase transaction. revolving exposure (for the purpose of BIPRU 9.13 (Securitisations of revolving exposures with early amortisation provisions)) an exposure whereby customers’ outstanding balances are permitted to fluctuate based on their decisions to borrow and repay, up to an agreed limit. [Note: article 100 of the Banking Consolidation Directive (Securitisations of revolving exposures)] risk capital requirement (1) (in relation to the FCA’s rules) one of the following: (a) the credit risk capital requirement; (b) the fixed overheads requirement; (c) the market risk capital requirement; or (2) (in relation to the rules of another regulatory body) whatever corresponds to the items in (1) under the rules of that regulatory body. risk control rules IFPRU 2.2.58R to IFPRU 2.2.60R.

FCA 2021/50 Page 70 of 184 risk of excessive leverage has the meaning in article 4(1)(94) of the UK CRR. risk position (for the purpose of BIPRU 13 (The calculation of counterparty risk exposure values for financial derivatives, securities financing transactions and long settlement transactions)) a risk number that is assigned to a transaction under the CCR standardised method following a predetermined algorithm. [Note: Part 1 of Annex III of the Banking Consolidation Directive (Definitions)] rollover risk (for the purpose of BIPRU 13 (The calculation of counterparty risk exposure values for financial derivatives, securities financing transactions and long settlement transactions)) the amount by which expected positive exposure is understated when future transactions with a counterpart are expected to be conducted on an ongoing basis; the additional exposure generated by those future transactions is not included in calculation of expected positive exposure. [Note: Part 1 of Annex III of the Banking Consolidation Directive (Definitions)] RRD early intervention condition the requirements of: (a) the UK CRR; or (b) the laws, regulations and administrative provisions necessary to comply with the UK provisions which implemented the CRD; or (c) the laws, regulations and administrative provisions necessary to comply with the UK provisions which implemented title II of MiFID; or (d) articles 3 to 7, 14 to 17, 24, 25 and 26 of MiFIR. RRD group a group that: (a) includes an RRD institution; and (b) is headed by a UK parent undertaking. RRD group financial support agreement an agreement to give financial support to an RRD institution which, at any time after the agreement has been concluded, has infringed an RRD early intervention condition or is likely to infringe one of those conditions in the near future. RRD group member a member of an RRD group that is: (a) an RRD institution; or (b) a financial institution; or

FCA 2021/50 Page 71 of 184 (c) a financial holding company; or (d) a mixed financial holding company. RRD institution (a) a credit institution; or (b) an IFPRU 730K firm. [Note: article 2(1)(23) of RRD] RRD Regulation the UK version of Commission Delegated Regulation (EU) 2016/1075 of 23 March 2016 supplementing Directive 2014/59/EU of the European Parliament and of the Council with regard to regulatory technical standards specifying the content of recovery plans, resolution plans and group resolution plans, the minimum criteria that the competent authority is to assess as regards recovery plans and group recovery plans, the conditions for group financial support, the requirements for independent valuers, the contractual recognition of write-down and conversion powers, the procedures and contents of notification requirements and of notice of suspension and the operational functioning of the resolution colleges, which is part of UK law by virtue of the EUWA. same stage of capital (with respect to a particular item of capital in the capital resources table) the stage in the capital resources table in which that item of capital appears. secured lending transaction (for the purposes of BIPRU) any transaction giving rise to an exposure secured by collateral which does not include a provision conferring upon the person with the exposure the right to receive margin frequently. [Note: point 2 of Part 1 of Annex VIII of the Banking Consolidation Directive (Eligibility of credit risk mitigation)] securities or commodities borrowing see securities or commodities lending or borrowing transaction. securities or commodities lending see securities or commodities lending or borrowing transaction. securities PRR the interest rate PRR, the equity PRR, the option PRR (but only in relation to positions which under BIPRU 7.6.5R (Table: Appropriate calculation for an option or warrant) may be subject to one of the other PRR charges listed in this definition or which would be subject to such a PRR charge if BIPRU 7.6.5R did not require an option PRR to be calculated), the CIU PRR and the PRR calculated under BIPRU 7.11 (Credit derivatives in the trading book) and so that: (a) the securities PRR includes any PRR charge calculated under a CAD 1 permission; and

FCA 2021/50 Page 72 of 184 (b) the securities PRR does not include any PRR charge calculated under a VaR model permission unless the provision in question provides otherwise. significant IFPRU firm has the meaning in IFPRU 1.2 (Significant IFPRU firm). simple capital issuer a BIPRU firm that meets the following conditions: (a) it does not raise capital through a special purpose vehicle; (b) it only includes non-convertible and non-exchangeable capital instruments in its capital resources; (c) (if it includes capital instruments in its capital resources on which coupons are payable) such coupons are not subject to a step-up; (d) it only includes capital instruments in its tier one capital resources consisting of ordinary shares, perpetual non-cumulative preference shares or partnership or limited liability partnership capital accounts; (e) it only includes non-redeemable capital instruments in its tier one capital resources; and (f) (if it includes capital instruments in its tier one capital resources on which coupons are payable) such coupons are non-cumulative, non￾mandatory and in cash. simplified buffer requirement BIPRU 12.6.9R. simplified equity method the method of calculating the equity PRR set out in BIPRU 7.3.29R (Simplified equity method). simplified ILAS the approach to the calculation of the liquid assets buffer of a simplified ILAS BIPRU firm described in BIPRU 12.6. simplified ILAS BIPRU firm an ILAS BIPRU firm that, in accordance with the procedures in BIPRU 12 (Liquidity), is using the simplified ILAS. simplified ILAS waiver a waiver permitting an ILAS BIPRU firm to operate simplified ILAS. SLRP the Supervisory Liquidity Review Process.

FCA 2021/50 Page 73 of 184 solo consolidatio n waiver a waiver of the type described in BIPRU 2.1 (Solo consolidation). sovereign, institution and corporate IRB exposure class (in relation to the IRB approach) an exposure falling into the IRB exposure classes referred to in BIPRU 4.3.2R(1)-(3) (Sovereigns, institutions and corporates). specialised lending exposure (in relation to the IRB approach) an exposure falling into BIPRU 4.5.3R (Definition of specialised lending). specific risk backtesting exception (in BIPRU 7.10 (Use of a value at risk model) and in relation to a firm) an exception arising out of backtesting a VaR model with respect to specific risk as more fully defined in that firm’s VaR model permission. specific risk position risk adjustment (in BIPRU) a position risk adjustment for specific risk including any such position risk adjustment as applied under BIPRU 7.6.8R (Table: Appropriate position risk adjustment). specific wrong-way risk (for the purpose of BIPRU 13 (The calculation of counterparty risk exposure values for financial derivatives, securities financing transactions and long settlement transactions)) the risk that arises when the exposure to a particular counterparty is positively correlated with the probability of default of the counterparty due to the nature of the transactions with the counterparty; a firm is exposed to specific wrong-way risk if the future exposure to a specific counterparty is expected to be high when the counterparty’s probability of default is also high. [Note: Part 1 of Annex III of the Banking Consolidation Directive (Definitions)] spread risk the risk that a spread (that is, the difference in price or yield) between two variables will change. SPV (1) (in GENPRU 2.2 (Capital resources)) has the meaning in GENPRU 2.2.126R (Other tier one capital: innovative tier one capital: indirectly issued tier one capital). (2) (in BIPRU 8 (Group risk - consolidation)) has the meaning in BIPRU 8.6.15R (Indirectly issued capital and group capital resources). standard CIU look through method the method for calculating the PRR for a position in a CIU set out in BIPRU 7.7.4R and BIPRU 7.7.7R to BIPRU 7.7.10R.

FCA 2021/50 Page 74 of 184 standard equity method the method of calculating the equity PRR set out in BIPRU 7.3.32R (Standard equity method). standard frequency liquidity reporting firm a standard ILAS BIPRU firm that is not a low frequency liquidity reporting firm. standard ILAS BIPRU firm an ILAS BIPRU firm that is not a simplified ILAS BIPRU firm. standard market risk PRR rules (in BIPRU) the rules relating to the calculation of the market risk capital requirement excluding the VaR model approach and any rules modified so as to provide for the CAD 1 model approach. standardised approach (for the purposes of BIPRU) one of the following: (a) (where expressed to relate to credit risk) the method for calculating capital requirements for credit risk in BIPRU 3 (Credit risk) and BIPRU 9.2.1R(1) and BIPRU 9.11 (Standardised approach); (b) [deleted] (c) (where not expressed to relate to any risk and used in BIPRU 3, BIPRU 4 (IRB approach), BIPRU 5 (Credit risk mitigation), BIPRU 9 (Securitisation)) it has the meaning in (a); (d) [deleted] (e) (where the one of the approaches in (a) to (c) is being applied on a consolidated basis) that approach as applied on a consolidated basis in accordance with BIPRU 8 (Group risk - consolidation). (f) [deleted] standardised credit risk exposure class (in relation to the standardised approach to credit risk) one of the classes of exposure set out in BIPRU 3.2.9R (Exposure classes). step-up (in relation to any item of capital) any change in the coupon rate on that item that results in an increase in the amount payable at any time, including a change already provided in the original terms governing those payments. A step-up: (a) includes (in the case of a fixed rate) an increase in that coupon rate;

FCA 2021/50 Page 75 of 184 (b) includes (in the case of a floating rate calculated by adding a fixed amount to a fluctuating amount) an increase in that fixed amount; (c) includes (in the case of a floating rate) a change in the benchmark by reference to which the fluctuating element of the coupon is calculated that results in an increase in the absolute amount of the coupon; and (d) does not include (in the case of a floating rate) an increase in the absolute amount of the coupon caused by fluctuations in the fluctuating figure by reference to which the absolute amount of the coupon floats. stock financing a transaction where a physical commodity is sold forward and the cost of funding is locked in until the date of the forward sale. stressed VaR (in BIPRU) the stressed VaR measure in respect of positions coming within the scope of the VaR model permission, calculated in accordance with the VaR model, BIPRU 7.10 (Use of a Value at Risk Model) and any methodology set out in the VaR model permission based on a stressed historical period. sub￾consolidated basis has the meaning in article 4(1)(49) of the UK CRR. supervisory formula method (for the purposes of BIPRU 9 (Securitisation), in relation to a securitisation within the meaning of paragraph (2) of the definition of securitisation180) the method of calculating risk weighted exposure amounts for securitisation positions set out in BIPRU 9.12.21R-BIPRU 9.12.23R and BIPRU 9.14.3R. [Note: Part 1 of Annex IX of the Banking Consolidation Directive (Securitisation definitions)] Supervisory Liquidity Review Process the appropriate regulator’s assessment of the adequacy of certain firms’ liquidity resources as described in BIPRU 12.2 and BIPRU 12.5. supervisory volatility adjustments approach the approach to calculating volatility adjustments under the financial collateral comprehensive method under which the firm uses the adjustments specified in BIPRU 5.4 (Financial collateral) rather than in its own estimates, as more fully described in BIPRU 5.4 and including that approach as applied to master netting agreements as described in BIPRU 5.6 (Master netting agreements). synthetic future (a) a synthetic bought future, that is, a bought call option coupled with a written put option; or (b) a synthetic sold future, that is, a bought put option coupled with a written call option; provided that in either case the two options:

FCA 2021/50 Page 76 of 184 (i) are bought and written, whether simultaneously or not, on a single eligible derivatives market; (ii) relate to the same underlying security or other asset; (iii ) give the purchasers of the options the same rights of exercise (whether at the same price or not); and (iv) will expire together, if not exercised. synthetic securitisation (for the purpose of BIPRU) a securitisation (within the meaning of paragraph (2) of the definition of securitisation) where the tranching is achieved by the use of credit derivatives or guarantees, and the pool of exposures is not removed from the balance sheet of the originator. [Note: article 4(38) of the Banking Consolidation Directive (Definitions] systemically important institution (in IFPRU) has the meaning in article 4(1)(128D) of the UK CRR. [Note: article 3(30) of CRD] third country BIPRU firm (1) (in BIPRU (except in BIPRU 12) and SYSC 19C) an overseas firm that: (a) [deleted] (b) [deleted] (c) would be a BIPRU firm if it had been a UK domestic firm, it had carried on all its business in the United Kingdom and had obtained whatever authorisations for doing so are required under the Act. (2) [deleted] third country IFPRU 730k firm an overseas firm that would be an IFPRU 730k firm if it had been a UK domestic firm, had carried on all of its business in the United Kingdom and had obtained whatever authorisations for doing so as are required under the Act. third country investment services undertaking (in BIPRU) a CAD investment firm, a financial institution or an asset management company in a country other than the UK. third-country countercyclic al buffer authority (1) the authority of a third country empowered by law or regulation with responsibility for setting the countercyclical buffer rate for that third country; or (2) the European Central Bank when it carries out the task of setting a countercyclical buffer rate for an EEA State conferred on it by

FCA 2021/50 Page 77 of 184 article 5(2) of Council Regulation (EU) No 1024/2013, conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions tier one capital (1) [deleted] (2) (in BIPRU and GENPRU) an item of capital that is specified in stages A(Core tier one capital), B (Perpetual non-cumulative preference shares) or C (Innovative tier one capital) of the capital resources table. tier one capital resources the sum calculated at stage F of the calculation in the capital resources table (Total tier one capital after deductions). tier one instrument an item of capital that falls into GENPRU 2.2.62R (Tier one capital: General) and is eligible to form part of a firm’s tier one capital resources. tier three capital an item of capital that is upper tier three capital or lower tier three capital. tier three capital resources the sum calculated at stage Q of the capital resources table (Total tier three capital). tier three instrument an item of capital that falls into GENPRU 2.2.242R (Tier three capital: upper tier three capital resources) and is eligible to form part of a firm’s upper tier three capital resources. tier two capital (1) [deleted] (2) (in BIPRU, GENPRU and INSPRU) an item of capital that is specified in stages G (Upper tier two capital) or H (Lower tier two capital) of the capital resources table. tier two capital resources the sum calculated at stage I (Total tier two capital) of the calculation in the capital resources table. tier two instrument a capital instrument that meets the conditions in GENPRU 2.2.159R (General conditions for eligibility as tier two capital instruments) or GENPRU 2.2.177R (Upper tier two capital: General) and is eligible to form part of a firm’s tier two capital resources. total risk exposure amount the total risk exposure amount of a firm calculated in accordance with article 92(3) of the UK CRR (Own funds requirements).

FCA 2021/50 Page 78 of 184 trading book policy statement (1) (in BIPRU) has the meaning in BIPRU 1.2.29R (Trading book policy statements) which is in summary a single document of a person recording the policies and procedures referred to in BIPRU 1.2.26R and BIPRU 1.2.27R. (2) (in IFPRU) the statement of policies and procedures relating to the trading book. trading book systems and controls rules GENPRU 1.3.13R(2) to (3) (General requirements: Methods of valuation and systems and controls), GENPRU 1.3.14R to GENPRU 1.3.16R (Marking to market), GENPRU 1.3.17R to GENPRU 1.3.25R (Marking to model), GENPRU 1.3.26R to GENPRU 1.3.28R (Independent price verification), GENPRU 1.3.30R to GENPRU 1.3.33R (Valuation adjustments or reserves), GENPRU 2.2.86R (Core tier one capital: profit and loss account and other reserves: Losses arising from valuation adjustments) and GENPRU 2.2.248R to GENPRU 2.2.249R (Tier three capital: lower tier three capital resources). UK countercyclic al buffer authority (for the purposes of IFPRU 10.3 (Countercyclical capital buffer) and in accordance with article 7 of The Capital Requirements (Capital Buffers and Macro-prudential Measures) Regulations 2014) the Bank of England. UK DLG by modification a DLG by modification (firm level) in which each member is a UK ILAS BIPRU firm. A firm with a UK DLG by modification cannot also have a non-UK DLG by modification (firm level). UK financial sector company a company that is a: (a) UK bank; or (b) UK insurer; or (c) UK incorporated parent undertaking of a company referred to in (a) or (b) where the main business of the group to which the parent undertaking and the company belong is financial services. UK ILAS BIPRU firm an ILAS BIPRU firm which has its registered office (or, if it does not have a registered office, its head office) in the United Kingdom. UK lead regulated firm a UK firm that: (a) is not part of a group that is subject to consolidated supervision by the FCA or the PRA or any other regulatory body; or (b) is part of a group that is subject to consolidated supervision by the FCA or the PRA and that group is not part of a wider group that is subject to consolidated supervision by a regulatory body other than the FCA or the PRA. For the purposes of this definition:

FCA 2021/50 Page 79 of 184 (c) Consolidated supervision of a group of persons means supervision of the adequacy of financial and other resources of that group on a consolidated basis. (d) It is not relevant whether or not any supervision by another regulatory body has been assessed as equivalent under the CRD and UK CRR or the Financial Groups Directive. (e) If the group is a consolidation group or financial conglomerate of which the FCA or the PRA is lead regulator that is headed by an undertaking that is not itself the subsidiary undertaking of another undertaking the firm is a ‘UK lead regulated firm’. This definition is not related to the defined term lead regulated firm. UK parent financial holding company in a Member State a parent financial holding company in a Member State where the EEA State in question is the United Kingdom. UK parent undertaking (a) a UK parent institution; (b) a UK parent financial holding company; or (c) a UK parent mixed financial holding company. underwrite (for the purposes of BIPRU 7 (Market risk)) to undertake a firm commitment to buy a specified quantity of new securities on a given date and at a given price if no other has purchased or acquired them; and so that: (a) new is defined in BIPRU 7.8.12R (New securities); (b) a firm still underwrites securities at a time before the exact quantity of securities being underwritten or their price has been determined if it is committed at that time to underwrite them when the quantity and price is fixed; (c) (in the case of provisions of the Handbook that distinguish between underwriting and sub-underwriting) underwriting does not include sub-underwriting; and (d) (in any other case) underwriting includes sub-underwriting. unpaid initial fund part of the initial fund of a mutual which the mutual is prevented from including in its tier one capital resources as permanent share capital by reason of GENPRU 2.2.64R because it is not fully paid.

FCA 2021/50 Page 80 of 184 unrated position (for the purposes of BIPRU 9 (Securitisation) and in relation to a securitisation position) describes a securitisation position which does not have an eligible credit assessment by an eligible ECAI. [Note: Part 1 of Annex IX of the Banking Consolidation Directive (Securitisation definitions)] upper tier three capital an item of capital that is specified in stage O of the capital resources table (Upper tier three). upper tier three capital resources the sum calculated at stage O of the capital resources table (Upper tier three). upper tier three instrument an item of capital that meets the conditions in GENPRU 2.2.242R (Tier three capital: upper tier three capital resources) and is eligible to form part of a firm’s upper tier three capital resources. upper tier two capital (1) [deleted] (2) (in BIPRU, GENPRU and INSPRU) an item of capital that is specified in stage G of the capital resources table (Upper tier two capital). upper tier two capital resources the sum calculated at stage G of the calculation in the capital resources table (Upper tier two capital). upper tier two instrument a capital instrument that meets the conditions in GENPRU 2.2.177R (Upper tier two capital: General) and is eligible to form part of a firm’s upper tier two capital resources. value at risk (in relation to risk modelling or estimation for the purposes of BIPRU) the measure of risk described in BIPRU 7.10.146R (Requirement to use value at risk methodology). VaR value at risk VaR measure (in BIPRU) an estimate by a VaR model of the worst expected loss on a portfolio resulting from market movements over a period of time with a given confidence level. VaR model a value at risk model as described in BIPRU 7.10 (Use of a Value at Risk Model). VaR model approach one of the following: (a) the approach to calculating part of the market risk capital requirement set out in BIPRU 7.10 (Use of a value at risk model);

FCA 2021/50 Page 81 of 184 (b) (where the approach in (a) is being applied on a consolidated basis) the method in (a) as applied on a consolidated basis in accordance with BIPRU 8 (Group risk - consolidation); or (c) when the reference is to the rules of or administered by a regulatory body other than the appropriate regulator, whatever corresponds to the approach in (a) or (b), as the case may be, under those rules. VaR model permission a requirement or a waiver that requires a BIPRU firm or a CAD investment firm to use the VaR model approach on a solo basis or, if the context requires, a consolidated basis. VaR number has the meaning in BIPRU 7.10.115R (Capital calculations: General) which in summary is (in relation to a business day and a VaR model) the VaR measure, in respect of the previous business day’s close-of-business positions in products coming within the scope of the VaR model permission, calculated by the VaR model and in accordance with BIPRU 7.10 (Use of a Value at Risk Model) and any methodology set out in the VaR model permission. VaR specific risk minimum requirements BIPRU 7.10.46R to BIPRU 7.10.52R (Model standards: Risk factors: Specific risk) and BIPRU 7.10.107R (Backtesting: Specific risk backtesting). Volatility risk the potential loss due to fluctuations in implied option volatilities. whole-firm liquidity modification a modification to the overall liquidity adequacy rule of the kind described in BIPRU 12.8.22G. write-down and conversion powers the powers referred to in article 59(2) and in points (e) to (i) of article 63(1) of RRD. [Note: articles 2(1)(66) of RRD] working day 0 has the meaning in BIPRU 7.8.23R (Working day 0), which is in summary (in relation to an underwriter) the business day on which a firm that is underwriting or sub-underwriting becomes unconditionally committed to accepting a known quantity of securities at a specified price. zero-specific￾risk security a notional debt security used, for the purpose of calculating PRR, to represent the interest rate general market risk arising from certain derivative and forward transactions as specified in BIPRU 7.2 (Interest rate PRR).

FCA 2021/50 Page 82 of 184 Annex B Amendments to the Senior Management Arrangements, Systems and Controls sourcebook (SYSC) In this Annex, underlining indicates new text and striking through indicates deleted text, unless otherwise stated. 1 Application and purpose 1.1A Application 1.1A.1 G The application of this sourcebook is summarised at a high level in the following table. The detailed application is cut back in SYSC 1 Annex 1 and in the text of each chapter. Type of firm Applicable chapters … Any other SMCR firm Chapters 4 to 12, 18, 19D, 19F.2 19F, 19G, 21, 22, 23, 24, 25, 26, 27, 28 Every other firm Chapters 4 to 12, 18, 19D, 19F.2 19F, 19G, 21, 22, 28 … 1.1A.1A G The application of this sourcebook to specific firms that are not PRA￾authorised persons is summarised at a high level in the following table. The detailed application is cut back in SYSC 1 Annex 1 and in the text of each chapter. Type of firm Applicable chapters … BIPRU firm (including a third￾country BIPRU firm) Chapters 4 to 10, 12, 18, 19C, 19F.2, 20, 21, 22, 23, 24, 25, 26, 27, 28 IFPRU investment firm MIFIDPRU investment firm (including an overseas firm that would have been an IFPRU investment firm a MIFIDPRU investment firm if it had been a UK domestic firm, except that SYSC 19G does not apply to such a firm) Chapters 4 to 10, 12, 18, 19A, 19F.2 19F, 19G, 20, 21, 22, 23, 24, 25, 26, 27, 28

FCA 2021/50 Page 83 of 184 Insert the following new section, SYSC 1.5, after SYSC 1.4 (Application of SYSC 11 to 28). The text is not underlined. 1.5 Significant SYSC firm Purpose 1.5.1 G (1) The purpose of SYSC 1.5 is to set out the definition of a significant SYSC firm. (2) The following governance requirements in SYSC apply by reference to the term significant SYSC firm: (a) SYSC 4.3A.6R on the limitations in the number of directorships; (b) SYSC 4.3A.8R on the nomination committee; and (c) SYSC 7.1.18R and SYSC 7.1.18AAR on the risk committee. (3) MIFIDPRU investment firms are not subject to SYSC 4.3A.8R or SYSC 7.1.18R, and should refer instead to MIFIDPRU 7.3. (4) The definition of significant SYSC firm is also relevant in determining whether a firm is an enhanced scope SMCR firm for the purposes of the senior managers and certification regime. … 1.4 Application of SYSC 11 to 28 What? … 1.4.1A R SYSC 12, SYSC 19A, SYSC 19D, SYSC 20 and SYSC 21 do not apply to a firm in relation to its carrying on of auction regulation bidding. 1.4.1B G Apart from SYSC 12, SYSC 19A, SYSC 19D, SYSC 20 and SYSC 21 which are disapplied by SYSC 1.4.1AR, the other chapters of SYSC 11 to SYSC 14 do not apply in relation to a firm’s carrying on of auction regulation bidding because they only apply to an insurer. SYSC 18 provides guidance on the Public Interest Disclosure Act. Other chapters of SYSC may not apply to auction regulation bidding, for example because an exempt MiFID commodities firm will not be a MIFIDPRU investment firm. Definition of a significant SYSC firm

FCA 2021/50 Page 84 of 184 1.5.2 R A firm is a significant SYSC firm if it meets one or more of the following conditions: (1) its total assets exceed £530 million; (2) its total liabilities exceed £380 million; (3) the annual fees and commission income it receives in relation to the regulated activities carried on by the firm exceeds £160 million in the 12-month period immediately preceding the date the firm carries out the assessment under this rule; (4) the client money that it receives or holds exceeds £425 million; and (5) the assets belonging to its clients that it holds in the course of, or in connection with, its regulated activities exceeds £7.8 billion. 1.5.3 R (1) This rule defines some of the terms used in SYSC 1.5.2R. (2) “Total assets” means the firm’s total assets: (a) as set out in the most recent relevant report submitted to the FCA under SUP 16.12 (Integrated Regulatory Reporting); or (b) (where the firm carries out the assessment under SYSC 1.5.4R at any time after the date of its most recent report in (a)) as the firm would report to the FCA in accordance with the relevant report, as if the reporting period for that report ended on the date of the assessment. (3) “Total liabilities” means the firm’s total liabilities: (a) as set out in the most recent relevant report submitted to the FCA under SUP 16.12 (Integrated Regulatory Reporting); or (b) (where the firm carries out the assessment under SYSC 1.5.4R at any time after the date of its most recent report in (a)) as the firm would report to the FCA in accordance with the relevant report, as if the reporting period for that report ended on the date of the assessment. (4) “client money” means client money that a firm receives or holds in the course of, or in connection with, all of the regulated activities that it carries on: (a) as set out in the most recent client money and client asset report submitted to the FCA under SUP 16.12 (Integrated Regulatory Reporting); or

FCA 2021/50 Page 85 of 184 (b) (where the firm carries out the assessment under SYSC 1.5.4R at any time after the date of its most recent report in (a)) as the firm would report to the FCA in accordance with the relevant report, as if the reporting period for that report ended on the date of the assessment. (5) “Assets belonging to its clients” means the assets to which the custody rules apply: (a) as set out in the most recent client money and client asset report submitted to the FCA under SUP 16.12 (Integrated Regulatory Reporting); or (b) (if the firm carries out the assessment under SYSC 1.5.4R at any time after the date of its most recent report in (a)) as the firm would report to the FCA in accordance with the relevant report, as if the reporting period for that report ends on the date the assessment is carried out. 1.5.4 R A firm must assess regularly whether it becomes a significant SYSC firm. 1.5.5 R (1) If a firm, at any time, becomes aware that it is likely to become a significant SYSC firm, it must forthwith make arrangements to establish and have in place sound, effective and comprehensive strategies, processes and systems to achieve compliance with the requirements that apply to a significant SYSC firm. (2) The firm in (1) must comply with the requirements that apply to a significant SYSC firm on the expiry of a period of 3 months from the date it meets any one of the conditions in SYSC 1.5.2R. 1.5.6 R If a firm that is a significant SYSC firm ceases to meet any of the conditions in SYSC 1.5.2R, it must continue to comply with the rules and requirements applicable to a significant SYSC firm until the first anniversary of the date on which the firm ceased to be a significant SYSC firm. 1.5.7 G The FCA may, on a case-by-case basis, require a firm which does not meet any of the conditions in SYSC 1.5.2R to comply with the rules and requirements that apply to a significant SYSC firm if the FCA considers it appropriate to do so to meet its strategic objective or to advance one or more of its operational objectives under the Act. 1.5.8 G (1) A firm may apply to the FCA under section 138A of the Act to waive any one or more of the conditions in SYSC 1.5.2R if it believes that one or more of the governance requirements in (2) that apply to a significant SYSC firm may be disproportionate. In its application for a waiver, the FCA expects the firm to demonstrate that it should not be considered as significant, taking into account the size, nature, scope and complexity of its

FCA 2021/50 Page 86 of 184 Amend the following as shown. activities, any membership of a group and the internal organisation of that group. (2) The governance requirements referred to in (1) are: (a) SYSC 4.3A.6R on the limitations in the number of directorships; (b) SYSC 4.3A.8R on the nomination committee; or (c) SYSC 7.1.18 R on the risk committee. (3) The effect of such waiver is that the firm would not be a significant SYSC firm only for the purpose of the particular governance requirement in (2) that the waiver is expressed to apply to. For the avoidance of doubt, such a firm would still be a significant SYSC firm for the purpose of the other rules in the FCA Handbook that apply to a significant SYSC firm, except where expressly otherwise provided for. 1 Annex 1 Detailed Application of SYSC … Part 3 Tables summarising the application of the common platform requirements to different types of firm … Common platform firm 3.2 G … 3.2-ZA G A common platform firm that is a MIFIDPRU investment firm should read SYSC 4 to SYSC 10 together with MIFIDPRU 7. While MIFIDPRU investment firms are not in scope of the requirements in SYSC 4.3A.8R and SYSC 7.1.18R regarding nomination and risk committees, certain MIFIDPRU investment firms are required by MIFIDPRU 7.3.1R and MIFIDPRU 7.3.5R to establish nomination and risk committees. … MiFID optional exemption firm and a third country firm …

FCA 2021/50 Page 87 of 184 3.2D R … (2) In (1), ‘significant’ means a MiFID optional exemption firm that meets one of more of the conditions in paragraphs (1) to (5) of IFPRU 1.2.3R and related rules and guidance is a significant SYSC firm. … Table A: Application of the common platform requirements in SYSC 4 to SYSC 10 Provision SYSC 4 COLUMN A Application to a common platform firm other than to a UCITS investment firm COLUMN A+ Application to a UCITS management company COLUMN A++ Application to a full-scope UK AIFM of an authorised AIF COLUMN B Application to all other firms apart from insurers, UK ISPVs, managing agents, the Society, full￾scope UK AIFMs of unauthorised AIFs, MiFID optional exemption firms and third country firms … SYSC 4.1.1CR Rule for a BIPRU firm [deleted] Rule for a BIPRU firm that is a UCITS investment firm [deleted] Not applicable [deleted] Third country BIPRU firms: Rule Other firms: Not applicable [deleted] … SYSC 4.1.2AAR Rule for a BIPRU firm [deleted] Rule for a BIPRU firm that is a UCITS investment firm [deleted] Not applicable [deleted] Not applicable [deleted] … SYSC 4.3A.-1R Rule (except for an AIFM investment firm that is not a Rule for a CRR firm that is a UCITS investment firm [deleted] Not applicable [deleted] Not applicable [deleted]

FCA 2021/50 Page 88 of 184 CRR firm) [deleted] SYSC 4.3A.1R Rule (except for an AIFM investment firm that is not a CRR firm) Rule for a CRR firm that is a UCITS investment firm Not applicable Not applicable SYSC 4.3A.1AR Rule (except for an AIFM investment firm that is not a CRR firm) Rule for a CRR firm that is a UCITS investment firm Not applicable Not applicable SYSC 4.3A.2R Rule (except for an AIFM investment firm that is not a CRR firm) Rule for a CRR firm that is a UCITS investment firm Not applicable Not applicable SYSC 4.3A.2AG Guidance (except for an AIFM investment firm that is not a CRR firm) Guidance for a CRR firm that is a UCITS investment firm Not applicable Not applicable SYSC 4.3A.3R Rule (except for an AIFM investment firm that is not a CRR firm) Rule for a CRR firm that is a UCITS investment firm Not applicable Not applicable SYSC 4.3A.3AG Guidance Guidance for a CRR firm that is a UCITS investment firm Not applicable Not applicable SYSC 4.3A.4R Rule (except for an AIFM investment firm that is not a CRR firm) Rule for a CRR firm that is a UCITS investment firm Not applicable Not applicable SYSC 4.3A.5R Rule (except for an AIFM investment firm that is not a CRR firm) Rule for a CRR firm that is a UCITS investment firm Not applicable Not applicable

FCA 2021/50 Page 89 of 184 SYSC 4.3A.6R Rule (except for an AIFM investment firm that is not a CRR firm) Rule for a CRR firm that is a UCITS investment firm Not applicable Not applicable SYSC 4.3A.7R Rule (except for an AIFM investment firm that is not a CRR firm) Rule for a CRR firm that is a UCITS investment firm Not applicable Not applicable SYSC 4.3A.7AR Rule (except for a MIFIDPRU investment firm) Not applicable Not applicable Not applicable SYSC 4.3A.7BG Guidance for a MIFIDPRU investment firm Guidance for a UCITS investment firm Not applicable Not applicable SYSC 4.3A.8R Rule (except for an AIFM investment firm that is not a CRR firm) (except for a MIFIDPRU investment firm) Rule for a CRR firm that is a UCITS investment firm Not applicable Not applicable Not applicable SYSC 4.3A.9R Rule (except for an AIFM investment firm that is not a CRR firm) Rule for a CRR firm that is a UCITS investment firm Not applicable Not applicable SYSC 4.3A.10R Rule (except for an AIFM investment firm that is not a CRR firm) Rule for a CRR firm that is a UCITS investment firm Not applicable Not applicable SYSC 4.3A.11R Rule applicable to CRR firms Rule for a CRR firm that is a UCITS investment firm Not applicable Not applicable Not applicable

FCA 2021/50 Page 90 of 184 … Provision SYSC 7 COLUMN A Application to a common platform firm other than to a UCITS investment firm COLUMN A+ Application to a UCITS management company COLUMN A++ Application to a full-scope UK AIFM of an authorised AIF COLUMN B Application to all other firms apart from insurers, UK ISPVs, managing agents, the Society, full￾scope UK AIFMs of unauthorised AIFs, MiFID optional exemption firms and third country firms … SYSC 7.1.4AG Guidance for a MIFIDPRU investment firm Rule for a UCITS investment firm; otherwise guidance Guidance for a UCITS investment firm Not applicable Guidance … SYSC 7.1.7BG Guidance applies only to a BIPRU firm Guidance applicable to a CRR firm Rule for a UCITS investment firm, otherwise guidance Not applicable Guidance Not applicable Guidance Not applicable … SYSC 7.1.7BBG Guidance applies only to a BIPRU firm [deleted] Guidance applies only to a BIPRU firm that is a UCITS investment firm [deleted] Not applicable [deleted] Not applicable [deleted]

FCA 2021/50 Page 91 of 184 SYSC 7.1.7BDG Guidance applies only to a MIFIDPRU investment firm Guidance applies only to a UCITS investment firm Not applicable Not applicable … SYSC 7.1.9R Rule applies to a BIPRU firm [deleted] Rule for a UCITS investment firm; otherwise not applicable [deleted] Not applicable [deleted] Not applicable [deleted] SYSC 7.1.10R Rule applies to a BIPRU firm [deleted] Rule for a UCITS investment firm; otherwise not applicable [deleted] Not applicable [deleted] Not applicable [deleted] SYSC 7.1.11R Rule applies to a BIPRU firm [deleted] Rule for a UCITS investment firm; otherwise not applicable [deleted] Not applicable [deleted] Not applicable [deleted] SYSC 7.1.12G Guidance applies to a BIPRU firm [deleted] Rule for a UCITS investment firm; otherwise not applicable [deleted] Not applicable [deleted] Not applicable [deleted] SYSC 7.1.13R - 7.1.16R Rule applies to a BIPRU firm [deleted] Rule for a UCITS investment firm; otherwise not applicable [deleted] Not applicable [deleted] Not applicable [deleted] … SYSC 7.1.16CR Rule applies to a CRR firm [deleted] Not applicable [deleted] Not applicable [deleted] Not applicable [deleted]

FCA 2021/50 Page 92 of 184 SYSC 7.1.17R Rule applies to a CRR firm Rule for a UCITS investment firm that is a CRR firm, otherwise not applicable Not applicable Not applicable Not applicable SYSC 7.1.18R Rule applies to a CRR firm Rule for a UCITS investment firm that is a CRR firm, otherwise not applicable Not applicable Not applicable Not applicable SYSC 7.1.18AAG Guidance applies to a CRR firm Guidance for a UCITS investment firm that is a CRR firm, otherwise not applicable Not applicable Not applicable Not applicable SYSC 7.1.18BR Rule applies to a CRR firm Rule for a UCITS investment firm that is a CRR firm, otherwise not applicable Not applicable Not applicable Not applicable SYSC 7.1.19R Rule applies to a CRR firm Rule for a UCITS investment firm that is a CRR firm, otherwise not applicable Not applicable Not applicable Not applicable SYSC 7.1.20R Rule applies to a CRR firm Rule for a UCITS investment firm that is a CRR firm, otherwise not applicable Not applicable Not applicable Not applicable SYSC 7.1.21R Rule applies to a CRR firm Rule for a UCITS Not applicable Not applicable

FCA 2021/50 Page 93 of 184 … investment firm that is a CRR firm, otherwise not applicable Not applicable SYSC 7.1.22R Rule applies to a CRR firm Rule for a UCITS investment firm that is a CRR firm, otherwise not applicable Not applicable Not applicable Not applicable … Table B: Application of the common platform requirements in SYSC 4 to SYSC 10 to MiFID optional exemption firms and third country firms Provision COLUMN A MiFID optional exemption firms COLUMN B Third country firms SYSC 4 … SYSC 4.1.1CR Not applicable Rule … SYSC 4.1.2AAR Not applicable Not applicable … SYSC 4.3A.-1R Rule Not applicable … SYSC 7 …

FCA 2021/50 Page 94 of 184 SYSC 7.1.7BBG Not applicable Not applicable … SYSC 7.1.9R Not applicable Not applicable SYSC 7.1.10R Not applicable Not applicable SYSC 7.1.11R Not applicable Not applicable SYSC 7.1.12G Not applicable Not applicable SYSC 7.1.13R – 7.1.16R Not applicable Not applicable … SYSC 7.1.16CR Not applicable Not applicable … … 4 General organisational requirements 4.1 General requirements … 4.1.1C R A BIPRU firm and a third country BIPRU firm must comply with the BIPRU Remuneration Code. [deleted] … 4.1.2 R For a common platform firm, the arrangements, processes and mechanisms referred to in SYSC 4.1.1R must be comprehensive and proportionate to the nature, scale and complexity of the risks inherent in the business model and of the common platform firm’s activities and must take into account the specific technical criteria described in article 21(3) of the MiFID Org Regulation, SYSC 5.1.7R, SYSC 7 and whichever of the following as is applicable: (1) (for a firm to which SYSC 19A applies) SYSC 19A (IFPRU Remuneration Code) [deleted]; (2) (for a full-scope UK AIFM) SYSC 19B (AIFM Remuneration Code); (3) (for a firm to which SYSC 19C applies) SYSC 19C (BIPRU Remuneration Code) [deleted];

FCA 2021/50 Page 95 of 184 (4) (for a firm to which SYSC 19D applies) SYSC 19D (Dual￾regulated firms Remuneration Code); or (5) (for a firm to which the remuneration part of the PRA Rulebook applies) the remuneration part of the PRA Rulebook.; or (6) (for a firm to which SYSC 19G applies) SYSC 19G (MIFIDPRU Remuneration Code). [Note: article 74 (2) of CRD] … 4.1.2AA R Where SYSC 4.1.2R applies to a BIPRU firm, it must take into account the specific technical criteria described in SYSC 19C. [deleted] … 4.3A Management body and nomination committee Management body 4.3A.-1 R In SYSC 4.3A.6R and SYSC 4.3A.8R a common platform firm that is significant means a significant IFPRU firm. [deleted] … 4.3A.6 R (1) A common platform firm that is significant a significant SYSC firm must ensure that the members of the management body of the firm do not hold more than one of the following combinations of directorship in any organisation at the same time: (a) one executive directorship with two non-executive directorships; and (b) four non-executive directorships. (2) Paragraph (1) does not apply to members of the management body that represent the United Kingdom. [Note: article 91(3) of CRD and article 9(1) of MiFID] … Nomination Committee 4.3A.7A R SYSC 4.3A.8R does not apply to a common platform firm that is a MIFIDPRU investment firm. 4.3A.7B G The regulatory requirement for certain MIFIDPRU investment firms to establish nomination committees is contained in MIFIDPRU 7.3.5R.

FCA 2021/50 Page 96 of 184 5 Employees, agents and other relevant persons 5.1 Skills, knowledge and expertise … Application to a common platform firm 5.1.-2 G For a common platform firm: … (2) the rules and guidance apply as set out in the table below: Subject Applicable rule or guidance … Certification regime [deleted] SYSC 5.2 [deleted] … 6 Compliance, internal audit and financial crime 6.1 Compliance … Compliance function However, all MIFIDPRU investment firms are still subject to SYSC 4.3A.9R and SYSC 4.3A.10R. 4.3A.8 R A common platform firm that is significant a significant SYSC firm must: (1) establish a nomination committee composed of members of the management body who do not perform any executive function in the firm; (2) ensure that the nomination committee is able to use any forms of resources the nomination committee deems appropriate, including external advice; and (3) ensure that the nomination committee receives appropriate funding. [Note: article 88(2) of CRD and article 9(1) of MiFID] …

FCA 2021/50 Page 97 of 184 … 6.1.4-A R In setting the method of determining the remuneration of relevant persons involved in the compliance function: (1) firms that SYSC 19A applies to will also need to comply with the Remuneration Code; [deleted] (2) firms that SYSC 19C applies to will also need to comply with the BIPRU Remuneration Code; [deleted] (3) firms that SYSC 19D applies to will also need to comply with the dual-regulated firms Remuneration Code; and (4) firms that the remuneration part of the PRA Rulebook applies to will also need to comply with it.; and (5) firms that SYSC 19G applies to will also need to comply with the MIFIDPRU Remuneration Code. … 7 Risk control 7.1 Risk control … Risk management … 7.1.4A G For a common platform firm included within the scope of SYSC 20 (Reverse stress testing), the strategies, policies and procedures for identifying, taking up, managing, monitoring and mitigating the risks to which the firm is or might be exposed include conducting reverse stress testing in accordance with SYSC 20. A common platform firm which falls outside the scope of SYSC 20 should consider conducting reverse stress tests on its business plan as well. This would further senior personnel’s understanding of the firm’s vulnerabilities and would help them design measures to prevent or mitigate the risk of business failure. MIFIDPRU investment firms should refer to MIFIDPRU 7 for more specific details on risk management expectations. … 7.1.7BB G In setting the method of determining the remuneration of employees involved in the risk management function, BIPRU firms will also need to comply with the BIPRU Remuneration Code. [deleted]

FCA 2021/50 Page 98 of 184 7.1.7BC G In setting the method of determining the remuneration of employees involved in the risk management function, firms that SYSC 19A applies to will also need to comply with the Remuneration Code. [deleted] 7.1.7BD G In setting the method of determining the remuneration of employees involved in the risk management function, firms that SYSC 19G applies to will also need to comply with the MIFIDPRU Remuneration Code. … Risk control additional provisions … 7.1.9 R A firm must base credit-granting on sound and well-defined criteria and clearly establish the process for approving, amending, renewing, and re￾financing credits. [deleted] 7.1.10 R A BIPRU firm must operate through effective systems the ongoing administration and monitoring of its various credit risk-bearing portfolios and exposures, including for identifying and managing problem credits and for making adequate value adjustments and provisions. [deleted] 7.1.11 R A BIPRU firm must adequately diversify credit portfolios given its target market and overall credit strategy. [deleted] 7.1.12 G The documentation maintained by a BIPRU firm under SYSC 4.1.3R should include its policy for credit risk, including its risk appetite and provisioning policy and should describe how it measures, monitors and controls that risk. This should include descriptions of the systems used to ensure that the policy is correctly implemented. [deleted] Residual risk 7.1.13 R A BIPRU firm must address and control by means of written policies and procedures the risk that recognised credit risk mitigation techniques used by it prove less effective than expected. [deleted] Market risk 7.1.14 R A BIPRU firm must implement policies and processes for the measurement and management of all material sources and effects of market risks. [deleted] Interest rate risk 7.1.15 R A BIPRU firm must implement systems to evaluate and manage the risk arising from potential changes in interest rates as they affect a BIPRU firm’s non-trading activities. [deleted] Operational risk

FCA 2021/50 Page 99 of 184 7.1.16 R A BIPRU firm must implement policies and processes to evaluate and manage the exposure to operational risk, including to low-frequency high severity events. Without prejudice to the definition of operational risk, BIPRU firms must articulate what constitutes operational risk for the purposes of those policies and procedures. [deleted] … Additional rules for CRR firms 7.1.16C R In SYSC 7.1.18R a ‘CRR firm’ that is significant’ means a significant IFPRU firm. [deleted] … 7.1.18AA G A CRR firm which is not a significant IFPRU firm significant SYSC firm may combine the risk committee with the audit committee. [Note: article 76(3)of CRD] … 12 Group risk systems and controls requirements 12.1 Application 12.1.1 R Subject to SYSC 12.1.2R to SYSC 12.1.4R, this section applies to each of the following which is a member of a group: (1) a firm that falls into any one or more of the following categories: (a) a regulated entity that is: an investment firm that is not a designated investment firm; (i) an investment firm, except a designated investment firm unless (ii) applies; or (ii) a credit institution or designated investment firm that is a subsidiary undertaking of a UK parent institution that is an IFPRU investment firm; (b) [deleted] (c) an insurer; (ca) a UK ISPV; (d) a BIPRU firm [deleted]; (e) a parent financial holding company in the UK or a UK parent financial holding company that is a member of one of the following: a UK parent entity of an investment

FCA 2021/50 Page 100 of 184 firm group that is subject to prudential consolidation under MIFIDPRU 2.5 or to the group capital test under MIFIDPRU 2.6; and (i) a UK consolidation group; or (ii) an FCA consolidation group; and (f) a firm subject to the rules in IPRU(INV) Chapter 14. … … General rules … 12.1.9 G For the purposes of SYSC 12.1.8R, the question of whether the risk management processes and internal control mechanisms are adequate, sound and appropriate should be judged in the light of the nature, scale and complexity of the group’s business and of the risks that the group bears. Risk management processes must include the stress testing and scenario analysis required by the PRA Rulebook. … CRR firms and non-CRR firms that are parent financial holding companies in the United Kingdom or UK parent financial holding companies 12.1.13 R If this rule applies under SYSC 12.1.14R to a firm, the firm must: (1) comply with SYSC 12.1.8R(2) in relation to any UK consolidation group or, if applicable, non-UK sub-group of which it is a member, as well as in relation to its group; and (2) ensure that the risk management processes and internal control mechanisms at the level of any consolidation group or, if applicable, non-UK sub-group of which it is a member comply with the obligations set out in the following provisions on a consolidated (or sub-consolidated) basis: (a) SYSC 4.1.1R and SYSC 4.1.2R; (b) SYSC 4.1.7R; (bA) SYSC 4.3A; (c) SYSC 5.1.7R; (d) SYSC 7;

FCA 2021/50 Page 101 of 184 (dA) the Remuneration Code; or the dual-regulated firms Remuneration Code, whichever is if applicable; (e) BIPRU 12.3.4R, BIPRU 12.3.5R, BIPRU 12.3.7AR, BIPRU 12.3.8R, BIPRU 12.3.22AR, BIPRU 12.3.22BR, BIPRU 12.3.27R, BIPRU 12.4.-2R, BIPRU 12.4.-1R, BIPRU 12.4.5AR, BIPRU 12.4.10R, BIPRU 12.4.11R and BIPRU 12.4.11AR; [deleted] [Note: article 109(2) of CRD] (3) ensure that compliance with the obligations in (2) enables the consolidation group or, if applicable, the non-UK sub-group to have arrangements, processes and mechanisms that are consistent and well integrated and that any data relevant to the purpose of supervision can be produced. [Note: article 109(2) of CRD] … 12.1.15A R SYSC 12.1.13R applies to a BIPRU firm as if it were a CRR firm but the reference to Remuneration Code is to the BIPRU Remuneration Code. [deleted] … 18 Whistleblowing … 18.6 Whistleblowing obligations under the MiFID regime and other sectoral legislation … Whistleblowing obligations under other sectoral legislation 18.6.4 G In addition to obligations under the MiFID regime, similar whistleblowing obligations apply to miscellaneous persons subject to regulation by the FCA under the following non-exhaustive list of legislation: … (2) the UK provisions which implemented article 71(3) of the CRD (see IFPRU 2.4.1R in respect of IFPRU investment firms); [deleted] …

FCA 2021/50 Page 102 of 184 … 19D Dual-regulated firms Remuneration Code … 19D.2 General requirement Remuneration policies must promote effective risk management … 19D.2.2 G … (3) The FCA may also ask remuneration committees to provide it with evidence of how well the firm’s remuneration policies meet the dual-regulated firms Remuneration Code’s principles, together with plans for improvement where there is a shortfall. The FCA also expects relevant firms to use the principles in assessing their exposure to risks arising from their remuneration policies as part of the internal capital adequacy assessment process (ICAAP). … … 19D.3 Remuneration principles Application: groups 19D.3.1 R (1) A firm must apply the requirements of this section at group, parent undertaking and subsidiary undertaking levels, including those subsidiaries established in a country or territory which is outside the United Kingdom. (2) Paragraph (1) does not limit SYSC 12.1.13R(2)(dA) (which relates to the application of the dual-regulated firms Remuneration Code within UK consolidation groups and non￾UK sub-groups). … Remuneration Principle 11: Non-compliance with the dual-regulated firms Remuneration Code 19D.3.34 R A firm must ensure that variable remuneration is not paid through vehicles or methods that facilitate non-compliance with obligations arising from the Remuneration Code Dual-regulated Remuneration Code, the UK CRR or the UK legislation that implemented the CRD.

FCA 2021/50 Page 103 of 184 SYSC 20 (Reverse stress testing) is deleted in its entirety. The deleted text is not shown but the chapter is marked [deleted] as shown below. Amend the following as shown. [Note: article 94(1)(q) of the CRD] … Remuneration Principle 12(d): Remuneration structures - ratios between fixed and variable components of total remuneration … 19D.3.50 R A firm must ensure that any approval by its shareholders or owners or members, for the purposes of SYSC 19D.3.49R, is carried out in accordance with the following procedure: … (3) the firm must: (a) without delay, inform the FCA of the recommendation to its shareholders or owners or members, including the proposed higher ratio and the reasons therefor; and (b) demonstrate to the FCA that the proposed higher ratio does not conflict with its obligations under the UK legislation that implemented the CRD and the UK CRR, having particular regard to the firm’s own funds own funds obligations; … … 20 Reverse stress testing [deleted] 21 Risk control: additional guidance 21.1 Risk control: guidance on governance arrangements … Chief Risk Officer 21.1.2 G (1) A Chief Risk Officer should: …

FCA 2021/50 Page 104 of 184 (j) provide risk-focused advice and information into the setting and individual application of the firm’s remuneration policy (Where the Remuneration Code applies, see in particular SYSC 19A.3.15E. Where the BIPRU Remuneration Code applies, see in particular SYSC 19C.3.15E. Where the MIFIDPRU Remuneration Code applies, see in particular SYSC 19G.3.2G (2). Where the dual-regulated firms Remuneration Code applies, see in particular SYSC 19D.3.16E. Where the remuneration part of the PRA Rulebook applies, see the PRA’s Supervisory Statement on Remuneration). … … … 23 Senior managers and certification regime: Introduction and classification … 23 Annex 1 Definition of SMCR firm and different types of SMCR firms … Part Nine: Other qualification conditions for being an enhanced scope SMCR firm 9.1 R A firm meets a qualification condition for the purposes of identifying an enhanced scope SMCR firm under the flow diagram in Part One of this Annex if it meets one of the following criteria: (1) the firm is a significant IFPRU firm significant SYSC firm; … … Part Ten: When a firm becomes an enhanced scope SMCR firm … 10.4 G SYSC 23 Annex 1 10.1R and SYSC 23 Annex 1 10.3R mean that a firm becomes an enhanced scope SMCR firm under Part 9 of this Annex on the date in column (2) of the table in SYSC 23 Annex 1 10.5G. 10.5 G Table: Date firm becomes an enhanced scope firm

FCA 2021/50 Page 105 of 184 Qualification condition Date firm becomes an enhanced scope SMCR firm The firm is a significant IFPRU firm significant SYSC firm It becomes an enhanced scope SMCR firm one year and three months after the date in IFPRU 1.2.3R SYSC 1.5.2R (the three-month period in IFPRU 1.2.6R(2) SYSC 1.5.5R(2) plus the one year in this Part). … … 27 Senior managers and certification regime: Certification regime … 27.8 Definitions of the FCA certification functions … Material risk takers … 27.8.15 R Table: Definition of material risk taker Type of SMCR firm Employees included (1) An SMCR banking firm, including an EEA SMCR banking firm Each member of the dual￾regulated firms Remuneration Code staff of the firm in column (1) of this row (1). This includes any person who meets any of the criteria set out in articles 3 to 5 of the Material Risk Takers Regulation articles 6 to 8 of the Material Risk Takers Regulation 2020 (criteria to identify categories of staff whose professional activities have a material impact on an institution’s risk profile). … (4) A firm falling within SYSC 19A.1 (application provisions for Each member of the Remuneration Code staff of the

FCA 2021/50 Page 106 of 184 … the remuneration code for IFPRU investment firms), including an EEA SMCR firm subject to SYSC 19G.5 (application of remuneration requirements to material risk takers) including an overseas SMCR firm firm in column (1). Each staff member identified as a material risk taker of the firm in column (1). … (8) A firm falling within SYSC 19C.1 (application provisions for remuneration code for BIPRU firms)) including an EEA SMCR firm [deleted] Each member of the BIPRU Remuneration Code staff of the firm in column (1). … Note: The definition of the persons included in column (2) applies in relation to an EEA SMCR firm in one of the rows of column (1) in the same way as it does to other overseas SMCR firms in that row. The definitions of dual-regulated firms Remuneration Code staff, Remuneration Code staff, and AIFM Remuneration Code staff and BIPRU Remuneration Code staff apply accordingly. Where an overseas SMCR firm would be subject to SYSC 19G.5 if it were a UK SMCR firm, row (4) applies in the same way as it applies to UK SMCR firms, and the definition of material risk taker in column (2) applies accordingly. TP 3 Remuneration codes Part A IFPRU Remuneration Code [deleted] 1 R [deleted] 2 R [deleted] 3 R [deleted] 4 G [deleted] 5 G [deleted] 6[FCA] [PRA] R [expired]

FCA 2021/50 Page 107 of 184 … 6A[FCA] [PRA] R (1) Paragraph (2) applies in relation to a firm that was not subject to the version of the Remuneration Code that applied before 1 January 2011 but satisfies at least one of the conditions set out in SYSC 19A.3.54R(1B) to SYSC 19A.3.54R(1D). (2) Where this paragraph applies, a contravening provision that is contained in an agreement made before 3 November 2011 is not rendered void by SYSC 19A Annex 1.1R unless it is subsequently amended so as to contravene a rule to which SYSC 19A Annex 1.1R applies. 6B[FCA] [PRA] G The effect of 6R is to limit the provisions on voiding and recovery to firms which were subject to the version of the Remuneration Code which applied before 1 January 2011. That transitional provision comes to an end on 1 January 2012. A new limit providing for voiding to apply only in relation to certain types of firm is provided in SYSC 19A.3.54R(1B) to SYSC 19A.3.54R(1D). Paragraph 6AR applies to firms which become subject to the provisions on voiding after the transitional provision in 6R comes to an end. It prevents certain contravening provisions which predate the making of the new rules limiting the application of voiding from becoming void. 7 G [expired] Sch 2 Notification requirements 2.1 G … (3) Table Handbook reference Matter to be notified Content of the notification Trigger event SYSC 19A.3.4R(3) [deleted] Where an overseas firm deems an employee not to be Remuneration Code staff Matter described in SYSC 19A.3.4R(3) Matter described in SYSC 19A.3.4R(3) SYSC 19A.3.44CR [deleted] The decision by the shareholders, members or owners of the firm to approve a higher maximum ratio between the fixed and variable components of total remuneration Matter as described in SYSC 19A.3.44CR Matter as described in SYSC 19A.3.44CR …

FCA 2021/50 Page 108 of 184 Chapter/ Appendix Section/ Annex Paragraph Right of action under section 138D For private person? Removed? For other person? … SYSC 11 to SYSC 19A, and SYSC 19D SYSC 21 No Yes SYSC 1.4.2R No … … Sch 5 Rights of action for damages … 5.4 G

FCA 2021/50 Page 109 of 184 Annex C Amendments to the Code of Conduct sourcebook (COCON) In this Annex, underlining indicates new text and striking through indicates deleted text. 4 Specific guidance on individual conduct rules … 4.2 Specific guidance on senior manager conduct rules … SC2: You must take reasonable steps to ensure that the business of the firm for which you are responsible complies with the relevant requirements and standards of the regulatory system. … 4.2.16 G The following is a non-exhaustive list of examples of conduct that would be in breach of rule SC2. … (8) … … (e) the method of determining the remuneration complies, where applicable, with the Remuneration Code remuneration codes set out in SYSC 19B, SYSC 19D, SYSC 19E and SYSC 19G or, for a Solvency II firm or a small non-directive insurer, other relevant requirements in relation to remuneration, as well as those remuneration codes applicable to firms as set out in SYSC 19B – 19E. …

FCA 2021/50 Page 110 of 184 Annex D Amendments to the General Provisions (GEN) In this Annex, underlining indicates new text and striking through indicates deleted text. 2 Interpreting the Handbook … 2.2 Interpreting the Handbook … Rules and guidance applying while a firm has temporary permission – capital adequacy requirements 2.2.30 R (1) Nothing in GENPRU, BIPRU, IFPRU, MIFIDPRU, INSPRU, MIPRU, IPRU(FSOC), IPRU(INS) or IPRU(INV) applies to a TP firm, except for the provisions in (2). (2) To the extent a TP firm carries on the relevant regulated activity, the following apply by virtue of GEN 2.2.26R: (a) INSPRU 1.5.33R; (b) MIPRU; (c) IPRU(FSOC); (d) IPRU(INV) 5, 6, 9, 12 and 13, except that rules relating to capital adequacy in these chapters, which would apply to a TP firm through the operation of GEN 2.2.26R(2), do not apply to that TP firm. Specifically, the financial resources requirements for depositaries of UCITS schemes and depositaries of certain AIFs in IPRU(INV) 5, and requirements involving the holding of professional indemnity insurance which relate to capital adequacy in IPRU(INV) 9 and 13. 2.2.31 G … (6) For the purpose of this guidance, rules relating to capital adequacy comprise rules relating to the adequacy of a firm’s financial resources, including both capital resources and liquidity resources. However, rules relating to capital adequacy do not include rules involving the holding of professional indemnity insurance, except where such rules are tied to capital adequacy requirements by a form of optionality (for examples of such rules, see IPRU(INV) 9.2.4R and IPRU(INV)

FCA 2021/50 Page 111 of 184 13.1A.3R). Therefore, rules involving the holding of professional indemnity insurance may apply to a TP firm by virtue of GEN 2.2.26R, but if such rules are tied to capital adequacy requirements, they cannot apply by virtue of GEN 2.2.26R(2). …

FCA 2021/50 Page 112 of 184 Annex E Amendments to the Fees manual (FEES) In this Annex, underlining indicates new text and striking through indicates deleted text, unless otherwise stated. Part 1: Application, notification and vetting fees (1) Fee payer (2) Fee payable (£) Due date … … … 1 Fees Manual 1.1 Application and purpose 1.1.1 G (1) FEES applies to all persons required to pay a fee or levy under a provision of the Handbook. The purpose of this chapter is to set out to whom the rules and guidance in FEES apply. … (3) FEES 3 (Application, Notification and Vetting Fees) covers one-off fees payable on a particular event for example: (a) various application fees (including those in relation to authorisation, variation of Part 4A permission, registration as a CBTL firm, authorisation of a data reporting services provider, and listing and the Basel Capital Accord); and … … … 3 Application, Notification and Vetting Fees … 3.2 Obligation to pay fees … 3.2.7 R Table of application, notification, vetting and other fees payable to the FCA

FCA 2021/50 Page 113 of 184 … (o) In relation to a BIPRU firm, a firm applying to the FCA for permission to use one of the advanced prudential calculation approaches listed in FEES 3 Annex 6R (or guidance on its availability), including any future proposed amendments to those approaches. [deleted] (1) Unless (2) applies, FEES 3 Annex 6. (2) (a) Unless (b) applies a firm submitting a second application for the permission or guidance described in column (1) within 12 months of the first application (where the fee was paid in accordance with (1)) must pay 50% of the fee applicable to it under FEES 3 Annex 6, but only in respect of that second application (b) No fee is payable by a firm in relation to a successful application for a permission based on a minded to grant decision in respect of the same matter following a complete application for guidance in accordance with prescribed submission requirements. [deleted] Where the firm has made an application directly to the FCA, on or before the date the application is made, otherwise within 30 days after the FCA notifies the firm that its EEA parent’s Home State regulator has requested assistance. [deleted] (oa) Either: (i) a firm applying to the FCA for permission to use one of the internal approaches listed in FEES 3 Annex 6A (or guidance on its availability), including any future proposed amendments to those approaches or (in the case of any application (1) Unless (2) applies, FEES 3 Annex 6A. (2) (a) Unless (b) applies a firm submitting a second application for the permission or guidance described in column (1) within 12 months of the first application (where the fee was paid in accordance with (1)) must pay 50% of the fee applicable to it under FEES 3 Annex 6A, but Where the firm has made an application directly to the FCA, on or before the date the application is made, otherwise within 30 days after the FCA notifies the firm that its EEA parent’s consolidating supervisor has requested assistance. [deleted]

FCA 2021/50 Page 114 of 184 being made for such permission to the FCA as consolidating supervisor under the UK CRR) any firm making such an application; or (ii) in the case of an application to the consolidating supervisor other than the FCA for the use of the IRB approach and the consolidating supervisor requesting the FCA’s assistance in accordance with the UK CRR, any firm to which the FCA would have to apply any decision to permit the use of that approach. [deleted] only in respect of that second application. (b) No fee is payable by a firm in relation to a successful application for a permission based on a minded to grant decision in respect of the same matter following a complete application for guidance in accordance with prescribed submission requirements. (c) No fee is payable where the consolidating supervisor has requested the assistance described in paragraph (oa)(ii) of column 1. [deleted] … FEES 3 Annex 6 (Fees payable by a BIPRU firm for a permission or guidance on its availability in connection with the BCD and/or CAD) and FEES 3 Annex 6A (Fees payable for a permission or guidance on its availability in connection with the UK CRR) are deleted in their entirety. The deleted text is not shown but the chapters are marked [deleted] as shown below. Amend the following as shown. Part 1 This table shows how the FCA links the regulated activities for which a firm has permission to activity groups (fee-blocks). A firm can use the table to identify which fee-blocks it falls into based on its permission. 3 Annex 6 Fees payable by a BIPRU firm for a permission or guidance on its availability in connection with the BCD and/or CAD [deleted] 3 Annex 6A Fees payable for a permission or guidance on its availability in connection with the UK CRR [deleted] 4 Annex 1AR FCA activity groups, tariff bases and valuation dates

FCA 2021/50 Page 115 of 184 … A.10 Firms dealing as principal its permission includes (a) dealing in investments as principal; and/or (b) bidding in emissions auctions; BUT NOT if one or more of the following apply: … the firm is an oil market participant, energy market participant or a local (except where the firm is bidding in emissions auctions); the firm would be an oil market participant or energy market participant if it were not a MiFID investment firm (except where the firm is bidding in emissions auctions); … A.13 Advisors, arrangers, dealers or brokers (1) … OR (2) its permission; (a) includes one or more of the following: (i) in relation to one or more designated investments: … dealing as principal in investments where the activity is carried on as a matched principal broker, oil market participant, energy market participant or local; dealing as principal in investments where the activity is carried on by a firm that would be an oil market participant or energy market participant if it were not a MiFID investment firm; …

FCA 2021/50 Page 116 of 184 Annex F Amendments to the General Prudential sourcebook (GENPRU) In this Annex, underlining indicates new text and striking through indicates deleted text, unless otherwise stated. GENPRU 1 (Application) is deleted in its entirety. The deleted text is not shown but the chapter is marked [deleted] as shown below. 1 Application [deleted] Amend the following as shown. 3 Cross sector groups 3.1 Application … Purpose 3.1.2 G GENPRU 3.1 implements implemented requirements that correspond to in the Financial Groups Directive. However, material on the following topics is to be found elsewhere in the Handbook as follows: (1) further material on third-country financial conglomerates can be found in GENPRU 3.2; (2) SUP 15.9 contains notification rules for members of financial conglomerates; (3) material on reporting obligations can be found in SUP 16.12.32R and SUP 16.12.33R; and (4) material on systems and controls in financial conglomerates can be found in SYSC 12. 3.1.2A G GENPRU 3.1 has been amended to reflect the introduction of a new prudential regime for MiFID investment firms (MIFIDPRU). This new regime streamlines and simplifies the prudential requirements for MIFIDPRU investment firms. It refocuses prudential requirements and expectations away from the risks a firm faces to also consider, and look to mitigate, the potential for harm these firms can pose to consumers and markets. If a financial conglomerate for which the FCA is the coordinator considers the amendments to GENPRU 3.1 do not appropriately reflect the risks and potential harms to which its activities give rise, it should contact the FCA to discuss how the rules could be modified to do so.

FCA 2021/50 Page 117 of 184 … Definition of financial conglomerate: the financial sectors: general … 3.1.8 R … (1A) In determining the investment services sector for the purpose of identifying a financial conglomerate in the boxes entitled Threshold Test 1, Threshold Test 2 and Threshold Test 3 in the financial conglomerate definition decision tree, any investment firm that does not fall within the definition of article 4(1)(2) of the UK CRR is excluded. [Deleted] … … Capital adequacy requirements: introduction 3.1.14 G The capital adequacy provisions of GENPRU 3.1 are designed to be applied to EEA-based financial conglomerates. … 3.1.17 G Annex I of the Financial Groups Directive laid down three methods for calculating capital adequacy at the level of a financial conglomerate. Those three methods are implemented as follows: (1) Method 1 calculates capital adequacy using accounting consolidation. It is implemented by set out in GENPRU 3.1.29R to GENPRU 3.1.31R and Part 1 of GENPRU 3 Annex 1. (2) Method 2 calculates capital adequacy using a deduction and aggregation approach. It is implemented by set out in GENPRU 3.1.29R to GENPRU 3.1.31R and Part 2 of GENPRU 3 Annex 1. (3) [deleted] (4) Method 3 consists of a combination of Methods 1 and 2 and would be implemented by means of a requirement. … Risk concentration and intra group transactions: the main rule 3.1.35 R A Subject to GENPRU 3.1.35AR, a firm must ensure that the sectoral rules regarding risk concentration and intra-group transactions of the most important financial sector in the financial conglomerate referred to in GENPRU 3.1.34R are complied with with respect to that financial sector as

FCA 2021/50 Page 118 of 184 a whole, including the mixed financial holding company. The sectoral rules for these purposes are those identified in the table in GENPRU 3.1.36R. 3.1.35A R A mixed financial holding company must comply with the sectoral rules in the table in GENPRU 3.1.36R for the investment services sector where: (1) the FCA is the coordinator of the financial conglomerate; and (2) the banking and investment services sector is the most important financial sector. Risk concentration and intra-group transactions: Table of applicable sectoral rules 3.1.36 R Table: application of sectoral rules This table belongs to GENPRU 3.1.35R The financial sectors: asset management companies and alternative investment fund managers The most important financial sector Applicable sectoral rules Risk concentration Intra-group transactions Banking and investment services sector For the Banking sector the UK CRR Part Four of the UK CRR Part Four of the UK CRR The UK CRR and the PRA Rulebook For the investment services sector MIFIDPRU 5 SYSC 12.1.12R Insurance sector PRA Rulebook: Solvency II Firms Group Supervision 16.1 PRA Rulebook: Solvency II Firms: Groups: 16.2 Note Any waiver, approval or permission granted to a member of the financial conglomerate, on a solo (or individual for the purposes of the UK CRR an individual or consolidated basis, shall not apply in respect of the financial conglomerate for the purposes of GENPRU 3.1.36R. For this purpose, “permission” refers to a consent, approval or agreement conferred on the appropriate regulator as competent authority under the UK CRR.

FCA 2021/50 Page 119 of 184 3.1.39 R (1) This rule deals with the inclusion of an asset management company or an alternative investment fund manager that is a member of a financial conglomerate in the scope of regulation of financial conglomerates. [Note: Articles 30 and 30a of the Financial Groups Directive] (2) An asset management company or an alternative investment fund manager is in the overall financial sector and is a regulated entity for the purpose of: (a) GENPRU 3.1.29R to GENPRU 3.1.36R; (b) GENPRU 3 Annex 1 (Capital adequacy calculations for financial conglomerates) and GENPRU 3 Annex 2 (Prudential rules for third country groups); and (c) any other provision of the Handbook relating to the supervision of financial conglomerates. (3) In Save in the circumstances in (5), in the case of a financial conglomerate for which the FCA is the coordinator, all asset management companies and all alternative investment fund managers must, for the purposes in (2), be allocated to one financial sector to which they belong for the purposes in (2), being either the MIFIDPRU investment services sector or the insurance sector. But if that choice has not been made in accordance with (4) and notified to the FCA in accordance with (4)(d), an asset management company or an alternative investment fund manager must be allocated to the smallest financial sector MIFIDPRU investment services sector. (4) The choice in (3): (a) must be made by the undertaking in the financial conglomerate that is: (i) the parent undertaking at the head of the group or, (ii) in the absence of a parent undertaking, the regulated entity with the largest balance sheet total in the most important financial sector undertaking that is deemed to be the parent undertaking in accordance with the rules in MIFIDPRU 2.4; (b) applies to all asset management companies and all alternative investment fund managers that are members of the financial conglomerate from time to time; (c) cannot be changed; and

FCA 2021/50 Page 120 of 184 (d) must be notified to the FCA as soon as reasonably practicable after the notification in (4)(a). [Note: Article 4(2) of the Financial Groups Directive] (5) This rule applies even if: Where a UCITS management company or an asset management company is an investment firm it must be allocated to the MIFIDPRU investment services sector. (a) a UCITS management company is an IFPRU investment firm; or [deleted] (b) an asset management company or alternative investment fund manager is an investment firm. [deleted] 3.2 Third-country groups Application … 3.2.1A R GENPRU 3.2.9R (Supervision by analogy: rules for third-country banking and investment groups) applies in relation to the following: an investment firm that falls within the definition of “investment firm” in article 4(1)(2) of the UK CRR. (1) CAD investment firm; and [deleted] (2) an investment firm that falls within the definition of “investment firm” in article 4(1)(2) of the UK CRR. [deleted] Purpose 3.2.2 G GENPRU 3.2 implements implemented requirements that correspond corresponded in part to article 18 of the Financial Groups Directive, article 127 of the CRD and (in relation to BIPRU firms) article 143 of the BCD. Equivalence 3.2.3 G The first question that must be asked about a third-country group is whether the UK regulated entities in that third-country group are subject to supervision by a third-country competent authority, which is equivalent to that provided for in GENPRU 3 (in the case of a financial conglomerate) or the UK prudential sectoral legislation for the banking sector, the CRR investment services sector or the MIFIDPRU investment services sector (in the case of a banking and investment group). Other methods: General 3.2.4 G If the supervision of a third-country group by a third-country competent authority does not meet the equivalence test referred to in GENPRU 3.2.3G, the methods set out in MIFIDPRU or the UK provisions which implemented

FCA 2021/50 Page 121 of 184 the CRD and UK CRR will apply. Alternatively, or the FCA may apply other methods that ensure appropriate supervision of the UK regulated entities in that third-country group in accordance with the aims of supplementary supervision in GENPRU 3 or consolidated supervision under the applicable UK prudential sectoral legislation. Supervision by analogy: introduction 3.2.5 G If the supervision of a third-country group by a third-country competent authority does not meet the equivalence test referred to in GENPRU 3.2.3G, the FCA may, rather than take the measures described in GENPRU 3.2.4G, apply, by analogy, the provisions concerning supplementary supervision in GENPRU 3 or, as applicable, consolidated supervision under the applicable UK prudential sectoral legislation, to the UK regulated entities in the banking sector, CRR investment services sector, MIFIDPRU investment services sector and (in the case of a financial conglomerate) insurance sector. … 3.2.7 G GENPRU 3.2.8R and GENPRU 3.2.9R and GENPRU 3 Annex 2 set out rules to deal with the situation covered in GENPRU 3.2.5G. Those rules do not apply automatically. Instead, they can only be applied with respect to a particular third-country group through the Part 4A permission of a firm in that third-country group. … Insert the following new section after GENPRU 3.2 (Third country groups). The text is not underlined. 3.3 Actions for damages 3.3.1 R A contravention of the rules in GENPRU does not give rise to a right of action by a private person under section 138D of the Act (and each of those rules is specified under section 138D(3) of the Act as a provision giving rise to no such right of action). Amend the following as shown. 3 Annex 1 Capital adequacy calculations for financial conglomerates (GENPRU 3.1.29R) … 7 Table A mixed financial 4.4 A mixed financial holding company must be treated in the same way as:

FCA 2021/50 Page 122 of 184 holding company (1) a financial holding company (if Part One, Title II, Chapter 2 of the UK CRR and the PRA Rulebook: Groups Part) are applied; or (2) an insurance holding company (if the rules in PRA Rulebook: Solvency II Firms: Group Supervision are applied).; or (3) an investment holding company (if the rules in MIFIDPRU are applied). 8 Table: PART 5: Principles applicable to all methods … Cross sectoral capital 5.3 (1) The solvency requirements for each different financial sector represented in a financial conglomerate required by GENPRU 3.1.29R must be covered by own funds elements in accordance with the corresponding applicable sectoral rules. (2) If there is a deficit of own funds at the financial conglomerate level, only cross sectoral capital (as referred to in that sub-paragraph) shall qualify for verification of compliance with the additional solvency requirement required by GENPRU 3.1.29R. [Note: second sub-paragraph of paragraph 2(ii) of Section I of Annex I of the Financial Groups Directive] … Applicati on of sectoral rules: Banking sector and investme nt services sector 5.6 In relation to a BIPRU firm that is a member of a financial conglomerate where there are no credit institutions or investment firms, the following adjustments apply to the applicable sectoral rules for the banking sector and the investment services sector as they are applied by the rules in this annex. (1) References in those rules to non-UK sub-groups –if applicable – do not apply. [deleted] (3) Any investment firm consolidation waivers granted to members of the financial conglomerate do not apply. (4) (For the purposes of Parts 1 and 2 ), without prejudice to the application of requirements in BIPRU 8 preventing the use of an advanced prudential calculation approach on a consolidated basis, any advanced prudential calculation approach permission that applies for the purpose of BIPRU 8 does not apply.

FCA 2021/50 Page 123 of 184 (5) (For the purposes of Parts 1 and 2 ), BIPRU 8.5.9R and BIPRU 8.5.10R do not apply. (6) (For the purposes of Part 3), where the financial conglomerate does not include a credit institution, the method in GENPRU 2 Annex 4 must be used for calculating the capital resources and BIPRU 8.6.8R does not apply. (Other than as above) the UK CRR and the provisions which implemented the CRD apply for the banking sector and the investment services sector. [deleted] … 9 Table: PART 6: Definitions used in this Annex … … …. Solo capital resources requirem ent: Banking sector and investme nt service sector 6.2 (1) Save in the circumstances in paragraphs 6.6 to 6.7A, The the solo capital resources requirement of an undertaking in the banking sector or the investment services sector must be calculated in accordance with this rule, subject to paragraph 6.6 the UK prudential requirements that apply to that undertaking on a solo basis. (2) The solo capital resources requirement of a building society is its own funds requirements. [deleted] (3) The solo capital resources requirement of an electronic money institution is the capital resources requirement that applies to it under the Electronic Money Regulations. [deleted] (4) If there is a credit institution in the financial conglomerate, the solo capital resources requirement for any undertaking in the banking sector or the investment services sector is, subject to (2) and (3), calculated in accordance with the UK CRR for calculating the own funds requirements of a bank. [deleted] (5) If: (a) the financial conglomerate does not include a credit institution; (b) there is at least one investment firm in the financial conglomerate; and (c) all the investment firms in the financial conglomerate are limited licence firms or limited activity firms; the solo capital resources requirement for any undertaking in the banking sector or the investment services sector is calculated in accordance with the UK CRR for calculating the own funds requirements of:

FCA 2021/50 Page 124 of 184 (i) (if there is a limited activity firm in the financial conglomerate), an IFPRU limited activity firm; or (ii) (in any other case),an IFPRU limited licence firm. [deleted] (6) If: (a) the financial conglomerate does not include a credit institution; and (b) (5) does not apply; the solo capital resources requirement for any undertaking in the banking sector or the investment services sector is calculated in accordance with the UK CRR for calculating the own funds requirements of a full-scope IFPRU investment firm. [deleted] (7) In relation to a BIPRU firm that is a member of a financial conglomerate where there are no credit institutions or investment firms, any capital resources requirements calculated under a BIPRU TP may be used for the purposes of the solo capital resources requirement in this rule in the same way that the capital resources requirements can be used under BIPRU 8. [deleted] … Solo capital resources requirem ent: non￾UK firms subject to equivalen t regimes in the banking sector or investme nt services sector sectors 6.6 The solo capital resources requirement for a recognised third country credit institution or a recognised third country investment firm is the amount of capital resources that it is obliged to hold under the sectoral rules for its financial sector that apply to it in the state or territory in which it has its head office provided that: (1) there is no reason for the firm applying the rules in this annex to believe that the use of those sectoral rules would produce a lower figure than would be produced under paragraph 6.2; and (2) paragraph 6.3 applies to the entity and those sectoral rules. Solo capital resources requirem ent: mixed financial 6.7 (1) The solo capital resources requirement of a mixed financial holding company is a notional capital requirement. It Subject to (2), it is the capital adequacy requirement that applies to regulated entities in the most important financial sector under the table in paragraph 6.10.

FCA 2021/50 Page 125 of 184 holding company (2) Where the banking and investment services sector is the most important financial sector, the capital adequacy requirement will be: (a) where there is a UK credit institution in the financial conglomerate, the requirements in the table in paragraph 6.10 for the banking sector; or (b) in all other cases, the requirements in the table in paragraph 6.10 for the investment services sector. Solo capital resources requirem ent: other non￾regulated financial sector entities 6.7 A The solo capital resources requirement of a non-regulated financial sector entity other than a mixed financial holding company is a notional capital requirement calculated in accordance with Article 12 of Part 1 (FCA) of Regulation (EU) 342/2014. Referenc e to “rules” 6.7 A 6.7 B A reference to “rules” in this annex includes any onshored regulations that are relevant to the purpose of for which “rules” as used refers to. … 11 Table: Paragraph 6.10: Application of sectoral consolidation rules Financial sector Sectoral rules Banking sector Part One, Title II, Chapter 2 of the UK CRR and IFPRU 8.1 the PRA Rulebook. Insurance sector PRA Rulebook: Solvency II Firms: Group Supervision.

FCA 2021/50 Page 126 of 184 Investment services sector (in relation to an IFPRU investment firm which is a member of a financial conglomerate for which the PRA is the coordinator) Part One, Title II, Chapter 2 of the UK CRR and the PRA Rulebook; MIFIDPRU 2.4 and 2.5. (in relation to a designated investment firm or an IFPRU investment firm which is a member of a financial conglomerate for which the FCA is the coordinator) Part One, Title II, Chapter 2 of the UK CRR and IFPRU 8.1; (in relation to a BIPRU firm that is a member of a financial conglomerate where there are no credit institutions or investment firms for which the FCA is the coordinator) BIPRU 8 and BIPRU TP. … 3 Annex 2 Prudential rules for third country groups (GENPRU 3.2.8R to GENPRU 3.2.9R) … 2 Table: PART 2: Third-country banking and investment groups … 2.5 The sectoral rules applied by Part 2 of this annex cover all prudential rules applying on a consolidated basis including those relating to large exposures and concentration risk (as applicable). … … 4 Table: PART 4: Definition used in this Annex 4.1 This Part sets out the definition which a firm must apply for the purposes of this annex as it applies in relation to GENPRU 3.2. 4.2 A reference to “rules” in this annex includes any onshored regulations that are relevant to the purpose of for which “rules” as used refers to. 3 Annex 3G Guidance Notes for Classification of Groups Classification of Groups (GENPRU 3.1.3G) - This annex consists only of one or more forms. Forms are to be found through the following address. genpru_ch3_annex3G.pdf [Editor’s note: The form can be found at this address: https://fca.org.uk/publication/forms/[xxx]]

FCA 2021/50 Page 127 of 184 Purpose and scope The form is designed to identify groups and sub-groups that are likely to be financial conglomerates under the Financial Groups Directive GENPRU 3. A group may be a financial conglomerate if it contains both insurance and banking/investment businesses and meets certain threshold tests. The FCA needs to identify conglomerates with their head offices in the EEA UK and those with their head offices outside the EEA UK, although this does not necessarily mean that the latter will be subject to EEA UK conglomerate supervision. This form’s purpose is to enable the FCA to obtain sufficient information so as to be able to determine how likely a group/sub-group is to be a financial conglomerate. In certain cases this can only be determined after consultation with the other EU relevant competent authorities PRA. A second purpose of the form is therefore to identify any groups and sub-groups that may need such consultation so that this can be made as soon as possible. This should allow firms time to prepare to comply. The third purpose of the form is to gain information from firms on the most efficient way to implement the threshold calculations in detail (consistently with the directive). We have, therefore, asked for some additional information in part 4 of the form. A copy of this form can be found on the FCA’s Financial Groups Website with current contact details. Please include workings showing the method employed to determine the percentages in part 2 (for the threshold conditions) and giving details of all important assumptions / approximations made in doing the calculations. The definition of financial conglomerate includes not only conventional groups made up of parent-subsidiary relationships but groups linked by control and “consolidation Article 12(1) relationships”. If this is the case for your group, please submit along with this form a statement that this is the case. Please include in that statement an explanation of how you have included group members not linked by capital ties in the questionnaire calculations. A consolidation Article 12(1) relationship arises between undertakings in the circumstances set out in Article 12(1) of the Seventh Company Law Directive. These are set out in the Handbook Glossary (in the definition of consolidation Article 12(1) relationship). Broadly speaking, undertakings come within this definition if they do not form a conventional group but: • are managed on a unified basis; or • have common management. General guidance We would like this to be completed based on the most senior parent in the group, and, if applicable, for the company heading the most senior conglomerate group in the EEA UK. If appropriate, please also attach a list of all other likely conglomerate sub-groups. Please use the most recent accounts for the top level company in the group together with the corresponding accounts for all subsidiaries and participations

FCA 2021/50 Page 128 of 184 that are included in the consolidated accounts. Please indicate the names of any significant subsidiaries with a different year-end from the group’s year-end. Please note the following: (a) Branches should be included as part of the parent entity. (b) Include in the calculations overseas entities owned by the relevant group or sub-group. (c) There are only two sectors for this purpose: banking/investment and insurance. (d) You will need to assign non-regulated financial entities to one of these sectors: • banking/investment activities are listed in – Annex 1 to the Capital Requirements Directive 2013/36/EU • insurance activities are listed in - schedule 1 to, and contracts of insurance defined in article 3(1) of, the Regulated Activities Order. • Any operator of a UCITS scheme, insurance intermediary, mortgage broker and mixed financial holding company does not fall into the directive definitions of either financial sector or insurance sector and should be treated for these purposes as being outside the financial sector. They should therefore be ignored for the purposes of these calculations. Threshold tests For the purpose of completing section 2 of the form relating to the threshold tests, the following guidance should be used. However, if you consider that for your group there is a more appropriate calculation then you may use this calculation so long as the method of computation is submitted with the form. Calculating balance sheet totals Generally, use total (gross) assets for the balance sheet total of a group/entity. However, investments in other entities that are part of the group will need to be deducted from the sector that has made the investment and the balance sheet total of the entity is added to the sector in which it operates. Our expectation of how this may be achieved efficiently is as follows: • Off-balance-sheet items should be excluded. • Where off-balance sheet treatment of funds under management and on￾balance sheet treatment of policy holders’ funds may distort the threshold calculation, groups should consult the FCA on the appropriateness of using other measures under article 3.5 of the Financial Groups Directive regulation 19 of the Financial Conglomerates and Other Financial Groups Regulations 2004. • If consolidated accounts exist for a sub-group consisting of financial entities from only one of the two sectors, these consolidated accounts should be used to measure the balance-sheet total of the sub-group (i.e. total assets less investments in entities in the other sector). If consolidated accounts do not exist, intra-group balances should be netted out when calculating the balance

FCA 2021/50 Page 129 of 184 sheet total of a single sector (but cross-sector intra-group balances should not be netted out). • Where consolidated accounts are used, minority interests should be excluded and goodwill should be included. • Where accounting standards differ between entities, groups should consult the FCA if they believe this is likely materially to affect the threshold calculation. • Where there is a subsidiary or participation in the opposite sector from its parent (i.e. insurance sector for a banking/investment firm parent and vice versa), the balance sheet amount of the subsidiary or participation should be allocated to its sector using its individual accounts. • The balance-sheet total of the parent entity/sub-group is measured as total assets of the parent/sub-group less the book value of its subsidiaries or participations in the other sector (i.e. the value of the subsidiary or participation in the parent’s consolidated accounts is deducted from the parent’s consolidated assets). • The cross-sector subsidiaries or participations referred to above, valued according to their own accounts, are allocated pro-rata, according to the aggregated share owned by the parent/sub-group, to their own sector. • If the cross-sector entities above themselves own group entities in the first sector (i.e. that of the top parent/sub-group) these should (in accordance with the methods above) be excluded from the second sector and added to the first sector using individual accounts. Solvency (capital adequacy) requirements Generally, the solvency requirements should be according to sectoral rules of the FCA that would apply to the type of entity. However, you can use EEA rules or local rules in the circumstances set out in Part 6 of GENPRU 3 Annex 1. But if this choice makes a significant difference, either with respect to whether the group is a financial conglomerate or with respect to which sector is the biggest, you should consult with the FCA. Non-regulated financial entities should have proxy requirements calculated on the basis of the most appropriate sector. If sub￾groups submit single sector consolidated returns then the solvency requirement may be taken from those returns. Our expectation of how this may be achieved efficiently is as follows: • If you complete a solvency return for a sub-group consisting of financial entities from only one of the two financial sectors, the total solvency requirement for the sub-group should be used. • Solvency requirements taken must include any deductions from available capital so as to allow the appropriate aggregation of requirements. • Where there is a regulated subsidiary or participation in the opposite another sector from its parent/sub-group, the solvency requirement of the subsidiary or participation should be from its individual regulatory return. If there is an identifiable contribution to the parent’s solvency requirement in respect of the cross-sector subsidiary or participation, the parent’s solvency requirement may be adjusted to exclude this.

FCA 2021/50 Page 130 of 184 • Where there is an unregulated financial undertaking in the opposite another sector from its parent/sub-group, the solvency requirement of the subsidiary or participation should be one of the following: • as if the entity were regulated by the FCA under the appropriate sectoral rules; or • using EU minimum requirements for the appropriate sector; or • using non-EU local requirements* for the appropriate sector (where permissible). • Please note on the form which of these options you have used, according to the country and sector, and whether this is the same treatment as in your latest overall group solvency calculation. • For banking/investment requirements, use the total amount of capital required. • For insurance requirements, use the total amount of capital required. Market share measures These are not defined by the directive. The aim is to identify any standard industry approaches to measuring market share in individual EU countries by sector, or any data sources which are commonly used as a proxy. Article I. Article II. Threshold tests Test F2 B/S of banking/investment + insurance sector = result % B/S total Test F3/F4/F5 B/S of insurance sector B/S of banking/investment sector + insurance sector = A% B/S of banking/investment sector B/S of banking/investment sector + insurance sector = B% Solvency requirement of insurance sector Solvency requirement of banking/investment sector +insurance sector = C% Solvency requirement of banking/investment sector Solvency requirement of banking/investment sector +insurance sector = D% The relevant percentage for the insurance sector is: (A% + C%)/2 = I % The relevant percentage for the banking/investment sector is: (B% + D%)/2 = BI % The smallest sector is the sector with the smallest relevant percentage.

FCA 2021/50 Page 131 of 184 Article III. If I% < BI% then F3 is insurance, F4 = A%, and F5 = C% Article IV. If BI% < I% then F3 is banking/investment, F4 = B% and F5 = D% The existing diagram in GENPRU 3 Annex 4 is deleted in its entirety. The deleted text is not shown. The following diagram is inserted to replace the deleted text. 3 Annex 4 (see GENPRU 3.1.5R)

FCA 2021/50 Page 132 of 184 Annex G Amendments to the Prudential sourcebook for MiFID Investment Firms (MIFIDPRU) In this Annex, underlining indicates new text and striking through indicates deleted text, unless otherwise stated. 1 Application … 1.2 SNI MIFIDPRU investment firms Basic conditions for classification as an SNI MIFIDPRU investment firm 1.2.1 R A MIFIDPRU investment firm is an SNI MIFIDPRU investment firm if it satisfies the following conditions: … (8) it has not been classified as a non-SNI MIFIDPRU investment firm due to the effect of MIFIDPRU 10.2 (Categorisation of clearing firms as non-SNI MIFIDPRU investment firms); and (9) its average DTF, as calculated in accordance with MIFIDPRU 4.15.4R, is zero.; and (10) it is not appointed to act as a depositary in accordance with FUND 3.11.10R(2) or COLL 6.6A.8R(3)(b)(i). … Additional provisions relating to the calculation of conditions to be classified as an SNI MIFIDPRU investment firm … 1.2.9 R A MIFIDPRU investment firm must assess the following conditions on the basis of the firm’s individual situation: (1) average ASA under MIFIDPRU 1.2.1R(3); (2) average CMH under MIFIDPRU 1.2.1R(4); (3) average DTF under MIFIDPRU 1.2.1R(9); (4) whether the firm has permission to deal on own account; and (5) whether the firm is a clearing member or an indirect clearing firm.; and

FCA 2021/50 Page 133 of 184 Measure Measurement of relevant values Threshold to be classified as an SNI MIFIDPRU investment firm Application of threshold on an individual basis or combined basis of investment firms within a group (see MIFIDPRU 1.2.9R and 1.2.10R) … Whether firm is a clearing member or indirect clearing firm under MIFIDPRU 10.2 Firm must not be a clearing member or indirect clearing firm Individual Whether the firm has been appointed to act as a depositary in accordance with FUND 3.11.10R(2) or COLL 6.6A.8R(3)(b)(i) Firm must not be appointed as a depositary under the relevant FUND and COLL provisions Individual … (6) whether the firm is appointed to act as a depositary in accordance with FUND 3.11.10R(2) or COLL 6.6A.8R(3)(b)(i). … Summary of conditions for classification as an SNI MIFIDPRU investment firm and associated calculation requirements 1.2.12 G The following table summarises the effect of MIFIDPRU 1.2.1R to 1.2.10R.

FCA 2021/50 Page 134 of 184 MIFIDPRU 1 Annex 4R (Notification under MIFIDPRU 1.2.16R that a firm no longer qualifies to be classified as an SNI investment firm) is replaced with the form below. The new text is not underlined. MIFIDPRU 1 Annex 4R Notification under MIFIDPRU 1.2.16R that a firm/group no longer qualifies to be classified as an SNI investment firm/group You must use this form to notify the FCA that the firm/group has ceased to meet one or more of the conditions set out in MIFIDPRU 1.2.1R for being a small and non-interconnected investment firm/group (SNI). If the reclassification results from a change in regulated activities that the MIFIDPRU investment firm undertakes, and the firm notifies us of that fact as part of a variation of permission application, a separate notification using this form is not required.

1. Please confirm to which of the following this notification is being made (select one): a. the SNI status of a MIFIDPRU investment firm ☐ b. the consolidated SNI status of an investment firm group ☐ The questions in this section relate to notifications under 1.a. only.
2. Please provide the following information: a. Condition(s) no longer met (please select all that apply) Average AUM ☐ Average COH (cash trades) ☐ Average COH (derivatives trades) ☐ On- and off-balance sheet total ☐ Total annual gross revenue ☐ Average CMH ☐ Average ASA ☐ Average DTF ☐ Clearing member/indirect clearing firm status ☐ b. Date from which conditions ceased to be met DD/MM/YYYY
3. Where a firm has ceased to meet one or more of the average AUM, average COH, balance sheet or revenue thresholds specified in MIFIDPRU 1.2.15R(2), but continues to meet all other conditions in MIFIDPRU 1.2.1R, it will cease to be classified as an SNI investment firm 3 months after the date on which the relevant threshold was first exceeded.

FCA 2021/50 Page 135 of 184 Please confirm whether the firm continues to meet all conditions in MIFIDPRU 1.2.1R other than those listed in MIFIDPRU 1.2.15R(2). Yes/No 4. Please confirm your understanding that the firm: a. will be subject to additional obligations and reporting requirements as a non-SNI investment firm, and b. will need to comply with the obligations in MIFIDPRU 1.2.18R(1) within 12 months of the date it first ceased to meet the SNI conditions in MIFIDPRU 1.2.R. Yes The questions in this section relate to notifications under 1.b. only. 5. Please provide the following information: a. Condition(s) no longer met on a consolidated basis (please select all that apply) Average AUM ☐ Average COH (cash trades) ☐ Average COH (derivatives trades) ☐ On- and off-balance sheet total ☐ Total annual gross revenue ☐ Average CMH ☐ Average ASA ☐ Average DTF ☐ Entity within group deals on own account ☐ Non-SNI investment firms within the group ☐ b. Date from which conditions ceased to be met on a consolidated basis DD/MM/YYYY 6. Where a group has ceased to meet one or more of the average AUM, average COH, balance sheet or revenue thresholds specified in MIFIDPRU 1.2.15R(2), but continues to meet all other conditions in MIFIDPRU 1.2.1R on a consolidated basis, it will cease to be treated as an SNI investment firm on a consolidated basis 3 months after the date on which the relevant threshold was first exceeded. Please confirm whether the group continues to meet all conditions in MIFIDPRU 1.2.1R on a consolidated basis other than those listed in MIFIDPRU 1.2.15R(2). Yes/No 7. Please confirm your understanding that the group:

FCA 2021/50 Page 136 of 184 a. will be subject to additional obligations and reporting requirements by being treated as a non-SNI investment firm on a consolidated basis, and b. will need to comply with the obligations in SYSC 19G (the MIFIDPRU Remuneration Code), to the extent that they apply on a consolidated basis, within 12 months of the date it first ceased to meet the SNI conditions in MIFIDPRU 1.2.R. Yes

FCA 2021/50 Page 137 of 184 MIFIDPRU 2 Annex 1R (Application under MIFIDPRU 2.3.3R for an exemption from application of specific requirements on an individual basis) is replaced with the form below. The new text is not underlined. Part A – Permission under MIFIDPRU 2.3.1R to be exempt from disclosure requirements in MIFIDPRU 8 (Disclosure by investment firms) for SNI firms in consolidated insurance groups Details of Senior Manager responsible for this application: If the application is being made in respect of a MIFIDPRU investment firm or another SMCR firm, we would expect the individual responsible for it to hold a senior management function (SMF). Title First names Surname Job title / position Individual reference number (if applicable)

1. Please confirm that the applicant firm is a small and non-interconnected investment firm (SNI) by providing the following information. Please refer to MIFIDPRU 1.2.1R, which sets out the basic conditions to be classified as an SNI firm and explains how the numerical metrics should be calculated. Average AUM number Average COH (cash) number Average COH (derivatives) number On- and off-balance sheet total number Annual gross revenue from MiFID services and activities number Please tick to confirm that the following statements are true about the applicant firm: ☐ It does not have permission to deal on own account ☐ It does not act as a clearing member or an indirect clearing firm ☐ It does not hold client money and/or safeguard client assets in the course of its MIFID business ☐ Its average DTF is zero ☐ It is not appointed to act as a depositary in accordance with FUND 3.11.10R(2) or COLL 6.6A.8R(3)(b)(i)
2. Please provide the FRN and name of the parent insurance/reinsurance undertaking.

FCA 2021/50 Page 138 of 184 FRN Name 3. Please confirm that the PRA has been notified about the firm’s application to be exempt from disclosure requirements in MIFIDPRU 8. Please note that the FCA will consult the PRA before making a determination. ☐ Yes Name of PRA contact for this application: PRA supervisor / contact name Phone number Email address 4. Please attach a group structure chart clearly demonstrating that the applicant firm is a subsidiary of a parent insurance/reinsurance undertaking within a PRA consolidation group. ☐ Attached 5. With regards to the own funds held by the parent undertaking and the applicant firm: a. Please explain how you are satisfied that own funds are distributed adequately between the two firms: b. Please attach a breakdown of the own funds held by each firm. ☐ Attached 6. Please confirm that the following statements are true with respect to the arrangements between the parent undertaking and the applicant firm. Separately, in the text boxes provided please explain how these arrangements satisfy each of the below points and provide supporting evidence wherever possible. a. There is no current or foreseen material practical or legal impediment to the prompt transfer of capital or repayment of liabilities by the parent undertaking. ☐ Yes ☐ Supporting evidence/information attached

FCA 2021/50 Page 139 of 184 b. Either the parent undertaking will guarantee the commitments entered into by the firm, or the risks of the firm are of negligible interest. ☐ Yes ☐ Supporting evidence/information attached c. The risk evaluation, measurement and control procedures of the parent undertaking include the firm. ☐ Yes ☐ Supporting evidence/information attached d. The parent undertaking holds more than 50% of the voting rights attached to shares in the capital of the firm or has the right to appoint or remove a majority of the members of the firm’s management body. ☐ Yes ☐ Supporting evidence/information attached Part B – Individual exemption from liquidity requirements under MIFIDPRU 2.3.2R for MIFIDPRU investment firms in consolidated CRR or MIFIDPRU groups Details of Senior Manager responsible for this application: If the application is being made in respect of a MIFIDPRU investment firm or another SMCR firm, we would expect the individual responsible for it to hold a senior management function (SMF). Title First names Surname Job title / position Individual reference number (if applicable)

FCA 2021/50 Page 140 of 184

1. Please confirm that the UK parent entity of the investment firm group the applicant firm is part of has not applied for an exemption from consolidated liquidity requirements under MIFIDPRU 2.5.19R. ☐ Yes
2. Please confirm which of the following applies to the applicant firm: a. The firm is part of a CRR prudential consolidation group and supervised on a consolidated basis; or ☐ Yes b. The firm is part of an IFPR prudential consolidation group, supervised on a consolidated basis, and the parent undertaking complies with MIFIDPRU 6 on a consolidated basis. ☐ Yes
3. Where 2.a. applies, please confirm that the PRA has been notified about the firm’s application to be exempt from liquidity requirements on an individual basis. The FCA will consult the PRA before making a determination. ☐ Yes Name of PRA contact for this application: PRA supervisor / contact name Phone number Email address
4. Please attach a group structure chart which clearly identifies the prudential consolidation group that the applicant firm is part of. Please include FRNs of the group entities. ☐ Attached
5. Please explain how the parent undertaking: a. monitors and oversees the liquidity positions of the applicant firm as well as of all other institutions and MIFIDPRU investment firms within the group that will be exempt from liquidity requirements on an individual basis; and b. ensures a sufficient level of liquidity for all these entities.

FCA 2021/50 Page 141 of 184 6. The applicant firm is required to have entered into contracts that provide for the free movement of funds between the parent undertaking and the firm to enable each of them to meet their individual obligations and joint obligations as they become due. a. Please explain how the arrangements between the applicant firm and its parent undertaking satisfy this requirement. b. To the best of your knowledge, do you foresee any material, practical or legal impediments to these contracts being fulfilled? ☐ Yes Give details below ☐ No c. Please attach copies of the relevant contracts. ☐ Attached

FCA 2021/50 Page 142 of 184 … 4 Own funds requirements … 4.4 Permanent minimum capital requirement 4.4.1 R (1) Where a MIFIDPRU investment firm has permission to carry on any of the investment services and/or activities in (2), its permanent minimum capital requirement is £750,000, unless MIFIDPRU 4.4.6R applies. (2) The relevant investment services and/or activities are: (a) dealing on own account; (b) underwriting of financial instruments and/or placing of financial instruments on a firm commitment basis; or (c) operating an organised trading facility, if the firm is not subject to a limitation that prevents it from carrying on the activities otherwise permitted by MAR 5A.3.5R. (3) Where a MIFIDPRU investment firm is appointed to act as a depositary of an unauthorised AIF in accordance with FUND 3.11.10R(2), its permanent minimum capital requirement is £750,000, unless MIFIDPRU 4.4.6R applies. … 4.4.3 R (1) Where a MIFIDPRU investment firm satisfies the conditions in (2), its permanent minimum capital requirement is £150,000. (2) The relevant conditions are: (a) the firm has permission for any of the following: … (iii) holding client money or client assets in the course of MiFID business; and (b) the firm does not have permission for any of the following: … (iii) operating an organised trading facility, if the firm is not subject to a limitation that prevents it from carrying on the activities otherwise permitted by MAR 5A.3.5R.; and

FCA 2021/50 Page 143 of 184 (c) the firm is not appointed to act as a depositary in accordance with FUND 3.11.10R(2) or COLL 6.6A.8R(3)(b)(i). 4.4.4 R (1) Where a MIFIDPRU investment firm satisfies the conditions in (2), its permanent minimum capital requirement is £75,000. (2) The relevant conditions are: … (b) the firm is not permitted to hold client money or client assets in the course of MiFID business.; and (c) the firm is not appointed to act as a depositary in accordance with FUND 3.11.10R(2) or COLL 6.6A.8R(3)(b)(i). … 4.4.6 R Where a MIFIDPRU investment firm is appointed to act as the depositary of a UK UCITS or an authorised AIF, its permanent minimum capital requirement is £4 million. … 7 Governance and risk management … 7.6 ICARA process: assessing and monitoring the adequacy of own funds … 7.6.8 G (1) Some harms may not fit within the own funds requirement framework in MIFIDPRU 4 or 5 because they cannot reasonably be attributed to the activities or risks that the rules in those chapters are designed to address. Where those harms are potentially material in nature, a non-SNI MIFIDPRU investment firm will need to assess their potential financial impact separately and cannot treat those harms as covered (either wholly or partly) by a requirement under MIFIDPRU 4 or 5. This includes the potential material harms resulting from any regulated activities that do not constitute MiFID business and from any unregulated activities. … (6) Example 4: A non-SNI MIFIDPRU investment firm is appointed as a depositary. The K-CMH requirement and the K-ASA requirement apply only in relation to MiFID business, and therefore do not apply to its activities as a depositary. If the firm

FCA 2021/50 Page 144 of 184 Guidance notes for MIFIDPRU 9 Annex 2G MIF001 – Adequate financial resources (Own funds) … 8A – Permanent minimum requirement (PMR) If completed on an individual basis, FCA investment firms should enter one of the following numbers: • 75 if the firm has a PMR of £75,000 • 150 if the firm has a PMR of £150,000 • 750 if the firm has a PMR of £750,000 • 4000 if the firm has a PMR of £4,000,000 Where a transitional provision allows an FCA investment firm to substitute an alternative PMR, this figure should reflect its standard requirement (and not the alternative lower figure under the transitional provision). If completed on a consolidated basis, FCA investment firms should enter the consolidated PMR, calculated in accordance with MIFIDPRU 2.5.27R. … identifies a potential material harm that results from its activities as a depositary, it will need to assess the potential financial impact of that harm and hold additional own funds to cover that impact. A firm may have regard to the general methodology for calculating the K-CMH requirement and the K-ASA requirement when carrying out the assessment in MIFIDPRU 7.6.3R for its activities as a depositary. … 9 Reporting … 9 Annex 2G Guidance notes on data items in MIFIDPRU 9 Annex 1R This annex consists of guidance which can be found through the following link: …

FCA 2021/50 Page 145 of 184 TP 6 Application of criteria to be classified as an SNI MIFIDPRU investment firm: transitional … Missing historical data for application of SNI classification criteria: transitional for individual MIFIDPRU investment firms … 6.9 G (1) It is unnecessary to provide transitional arrangements for the following conditions: … (d) the condition relating to the balance sheet total of the firm in MIFIDPRU 1.2.1R(6); and (e) the average DTF condition in MIFIDPRU 1.2.1R(9).; and (f) the condition relating to acting as a depositary in MIFIDPRU 1.2.1R(10). … (3) The conditions in (1)(c), and (1)(d) and (1)(f) do not rely on historical information and therefore can be assessed by the firm at the point at which MIFIDPRU first begins to apply without any need for transitional arrangements. … …

FCA 2021/50 Page 146 of 184 Annex H Amendments to the Market Conduct sourcebook (MAR) In this Annex, striking through indicates deleted text. 5A Organised trading facilities (OTFs) … 5A.3 Specific requirements for OTFs … Proprietary trading … 5A.3.8 G Matched principal trading does not exclude the possibility of settlement risk, and, accordingly, firms should take appropriate steps to minimise this risk. For guidance relating to the treatment of matched principal trading for the purposes of IFPRU prudential categorisation, see PERG 13 Q61 and Q64. …

FCA 2021/50 Page 147 of 184 Annex I Amendments to the Supervision manual (SUP) In this Annex, underlining indicates new text and striking through indicates deleted text, unless otherwise stated. (1) Category of firm (2) Sections applicable to the firm (3) Sections applicable to its auditor … … … … (7) Investment management firm, (other than an exempt CAD firm), personal investment firm (other than a small personal investment firm or exempt CAD firm), securities and futures firm (other than an exempt CAD firm or an exempt BIPRU commodities firm) or collective portfolio management firm that is an external AIFM which, in each case, has an auditor appointed under or as a result of a statutory provision other than in the Act (Notes 3 and 6) SUP 3.1 - SUP 3.7, SUP 3.11 SUP 3.1, SUP 3.2, SUP 3.8, SUP 3.10 (7A) Investment management firm (other than an exempt CAD firm), personal investment firm (other than a small personal investment firm or exempt CAD firm), securities and futures firm (other SUP 3.1 - SUP 3.7, SUP 3.11 SUP 3.1, SUP 3.2, SUP 3.8, SUP 3.10 3 Auditors 3.1 Application … 3.1.2 R Applicable sections (see SUP 3.1.1R) This table and the provisions in SUP 3 should be read in conjunction with GEN 2.2.23R to GEN 2.2.25G. In particular, the PRA does not apply any of the provisions in SUP 3 in respect of FCA-authorised persons. SUP 3.10 and SUP 3.11 are applied by the FCA only.

FCA 2021/50 Page 148 of 184 than an exempt CAD firm or an exempt BIPRU commodities firm) or collective portfolio management firm that is an external AIFM not within (7) to which the custody chapter or client money chapter applies … … … … (7C) MiFID investment firm, which has an auditor appointed under or as a result of a statutory provision other than in the Act (Notes 3B and 6) SUP 3.1 - 3.7, SUP 3.11 SUP 3.1, SUP 3.2, SUP 3.8, SUP 3.10 (7D) Sole trader or partnership that is a MiFID investment firm (other than an exempt CAD firm) (Notes 3C and 6) SUP 3.1 - SUP 3.7, SUP 3.11 SUP 3.1, SUP 3.2, SUP 3.8, SUP 3.10 … … … … Note 3A [deleted] Note 3B = MiFID investment firms include exempt CAD firms. An exempt CAD firm that has opted into MiFID can benefit from the audit exemption for small companies in the Companies Act legislation if itis an exempt investment firm as defined by article 8 of the MiFI Regulations. If a firm does so benefit then SUP 3 will not apply to it. For further details about exempt CAD firms, see PERG 13, Q58. firms that are eligible to be MiFID optional exemption firms but have chosen not to exercise the article 3 exemption. However, such firms may still benefit from the audit exemption for small companies in the Companies Act legislation. … Friendly society IPRU(FSOC) Insurer (other than a Solvency II firm or a friendly society) IPRU(INS) Investment management firm, personal investment firm, securities and futures firm and collective portfolio management firm (other than IFPRU investment firms and BIPRU firms MIFIDPRU investment firms) IPRU(INV) … 3.1.10 G Other relevant sections of the Handbook (see SUP 3.1.9G)

FCA 2021/50 Page 149 of 184 Society of Lloyd’s and Lloyd’s managing agents IPRU(INS) Whether in the auditor’s opinion … … (3) in the case of an investment management firm, personal investment firm, a UCITS firm, securities and futures firm, firm acting as trustee or depositary of an AIF, firm acting as trustee or depositary of a UK UCITS or IFPRU investment firm or BIPRU firm a MIFIDPRU investment firm, when a subsidiary of the firm is during the period a nominee company in whose name custody assets of the firm are registered during the period, that nominee company has maintained throughout the period systems for the custody, identification and control of custody assets which: (a) were adequate; and (b) included reconciliations at appropriate intervals between the records maintained (whether by the firm or the nominee company) and statements or confirmations from custodians or from the person who maintained the record of legal entitlement; and … … 3.10 Duties of auditors: notification and report on client assets … 3.10.5 R Client assets report … 9 Individual guidance … 9.3 Giving individual guidance to a firm on the FCA’s own initiative … 9.3.2 G The FCA may give individual guidance to a firm on its own initiative if it considers it appropriate to do so. For example:

FCA 2021/50 Page 150 of 184 … (5) in relation to the maintenance of adequate financial resources, the FCA may give a firm individual guidance on the amount or type of financial resources the FCA considers appropriate., for example individual capital guidance for IFPRU investment firms or BIPRU firms; further Further guidance on how and when the FCA may give individual capital guidance individual guidance on financial resources is contained in the Prudential Standards part of the Handbook: (a) for a BIPRU firm: GENPRU 1.2 and BIPRU 2.2; MIFIDPRU investment firm, MIFIDPRU 7.10; and … (c) for a securities and futures firm (or other firm required to comply with IPRU(INV) 3): IPRU(INV) 3-79R; and. (e) for an IFPRU investment firm: IFPRU 2.2. and 2.3. [deleted] … 10C FCA senior managers regime for approved persons in SMCR firms … 10C.5A FCA governing functions: Oversight … Chair of the remuneration committee function (SMF12) 10C.5A.10 R The chair of the remuneration committee function is the function of having responsibility for chairing, and overseeing the performance of, any committee responsible for the oversight of the design and the implementation of the remuneration policies of a firm, including, where applicable to the firm, a committee established in accordance with: (1) SYSC 19A.3.12R (Remuneration Principle 4: Governance); [deleted] (2) SYSC 19B.1.9R (AIFM Remuneration Principle 3: Governance); (3) SYSC 19C.3.12R (Remuneration Principle 4: Governance); [deleted]

FCA 2021/50 Page 151 of 184 (4) SYSC 19D.3.12R (Remuneration Principle 4: Governance); and (5) SYSC 19E.2.9R (UCITS Remuneration Principle 3: Governance).; and (6) MIFIDPRU 7.3.3R (Remuneration committee). … 15 Notifications to the FCA … 15.3 General notification requirements … Breaches of rules and other requirements in or under the Act or the CCA 15.3.11 R (1) A firm must notify the FCA of: … (f) it exceeding (or becoming aware that it will exceed) the limit in BIPRU 10.5.6R; or [deleted] … … … 15.8 Notification in respect of particular products and services … CTF providers … 15.8.9 R A BIPRU firm must report to the FCA immediately any case in which its counterparty in a repurchase agreement or reverse repurchase agreement or securities or commodities lending or borrowing transaction defaults on its obligations. [deleted] … 16 Reporting requirements 16.1 Application

FCA 2021/50 Page 152 of 184 (1) Section(s) (2) Categories of firm to which section applies (3) Applicable rules and guidance … SUP 16.18 A full-scope UK AIFM and a small authorised UK AIFM SUP 16.8.3R SUP 16.20 [deleted] A firm to which MIFIDPRU 4.4.1R applies and a qualifying parent undertaking that is required to send a recovery plan, a group recovery plan or information for a resolution plan to the FCA Entire section … (1) (2) RAG Firm type 1 UK bank Dormant account operator 16.1.1 R This chapter applies to every firm and qualifying parent undertaking within a category listed in column (2) of the table in SUP 16.1.3R and in accordance with column (3) of that table. … 16.1.3 R Application of different sections of SUP 16 (excluding SUP 16.13, SUP 16.15, SUP 16.16, SUP 16.17, SUP 16.22 and SUP 16.26) … 16.7A Annual report and accounts … Requirement to submit annual report and accounts 16.7A.3 R A firm in the RAG in column (1) and which is a type of firm in column (2) must submit its annual report and accounts to the FCA annually on a single entity basis.

FCA 2021/50 Page 153 of 184 A non-UK bank 2.2 The Society 3 MIFIDPRU investment firms All other firms subject to the following chapters in IPRU(INV): (1) Chapter 3 (2) Chapter 5 (3) Chapter 9 [deleted] 4 MIFIDPRU investment firms Collective portfolio management firm All other firms subject to the following chapters in IPRU(INV): (1) Chapter 3 (2) Chapter 5 (3) Chapter 9 [deleted] (4) Chapter 12 … Description of data item Firms’ prudential category and applicable data items (note 1) MIFIDPRU investment firms Firms other than MIFIDPRU investment firms … 16.12 Integrated Regulatory Reporting … Regulated Activity Group 3 … 16.12.11 R The applicable data items referred to in SUP 16.12.4R are set out according to firm type in the table below:

FCA 2021/50 Page 154 of 184 IPRU(INV) Chapter 3 IPRU(INV) Chapter 5 IPRU(INV) Chapter 9 IPRU(INV) Chapter 13 Solvency statement No standard format (note 4) No standard format (note 6) No standard format (note 4) Balance sheet FSA029 (note 2) FSA029 (note 5) FSA029 FSA029 Section A RMAR Income statement FSA030 (note 2) FSA030 (note 5) FSA030 FSA030 Section B RMAR Capital adequacy MIF001 (notes 2 and 3) FSA033 (note 5) FSA034 or FSA035 or FIN071 (note 7) FSA031 Section D1 RMAR … Threshold conditions Section F RMAR Client money and client assets FSA039 Section C RMAR CFTC FSA040 (note 8) FSA040 (note 8) FSA040 (note 8) FSA040 (note 8) FSA040 (note 8) Liquidity MIF002 (notes 2, 3 and 10) Metrics reporting MIF003 (notes 2 and 3)

FCA 2021/50 Page 155 of 184 Concentration risk (non-K￾CON) MIF004 (notes 2, 3 and 11) Concentration risk (K-CON) MIF005 (notes 2, 3 and 11) Group capital test MIF006 (notes 3 and 12) Liquidity Questionnaire MLA-M (note 9) MLA-M (note 9) MLA-M (note 9) MLA-M (note 9) MLA-M (note 9) … …. Description of data item Firms’ prudential category and applicable data items (note 1) MIFID PRU investm ent firms Firms other than MIFIDPRU investment firms IPRU(I NV) Chapter 3 IPRU(I NV) Chapter 5 IPRU(I NV) Chapter 9 IPRU(I NV) Chapter 11 IPRU(I NV) Chapter 12 IPRU(I NV) Chapter 13 … Regulated Activity Group 4 … 16.12.15 R The applicable data items referred to in SUP 16.12.4R are set out according to firm type in the table below:

FCA 2021/50 Page 156 of 184 (collecti ve portfoli o manage ment firms only) Solvency statement (note 2) No standard format No standard format No standard format Balance sheet FSA029 (note 3) FSA029 Section A RMAR Income statement FSA030 (note 3) FSA030 Section B RMAR Capital adequacy MIF001 (note 3 and 4) FSA033 FSA034 or FSA035 or FIN071 (note 5) FSA031 FIN066 FIN069 Section D1 RMAR … Threshold conditions Section F RMAR Volumes and types of business FSA038

FCA 2021/50 Page 157 of 184 Client money and client assets FSA039 Section C RMAR Liquidity MIF002 (notes 3, 4 and 6) Metrics monitoring MIF003 (notes 3 and 4) Concentration risk (non-K￾CON) MIF004 (notes 3, 4 and 7) Concentration risk (K-CON) MIF005 (notes 3, 4 and 7) Group capital test MIF006 (notes 4 and 8) Information on P2P agreements FIN070 … … … Regulated Activity Group 6 …

FCA 2021/50 Page 158 of 184 Description of data item Firms’ prudential category and applicable data items (note 1) IPRU(INV) Chapter 3 IPRU(INV) Chapter 5 IPRU(INV) Chapter 9 IPRU(INV) Chapter 13 Solvency statement (note 6) No standard format Balance sheet FSA029 Section A RMAR Income statement FSA030 Section B RMAR Capital adequacy FSA033 FSA034 or FSA035 or FIN071 or FIN072 (note 4) FSA031 Section D1 RMAR Threshold conditions Section F RMAR Client money and assets FSA039 Section C RMAR Pillar 2 questionnaire FSA019 (note 8) … … 16.12.19A R The applicable data items referred to in SUP 16.12.4R are set out according to type of firm in the table below: … Regulated Activity Group 8 …

FCA 2021/50 Page 159 of 184 Description of data item Firms’ prudential category and applicable data items (note 1) MIFIDPRU investment firms Firms other than MIFIDPRU investment firms IPRU(INV) Chapter 3 IPRU(INV) Chapter 5 IPRU(INV) Chapter 9 IPRU(INV) Chapter 13 Solvency statement (note 2) No standard format Balance sheet FSA029 (note 3) FSA029 Section A RMAR Income statement FSA030 (note 3) FSA030 Section B RMAR Capital adequacy MIF001 (notes 3 and 5) FSA033 FSA034 or FSA035 or FIN071 (note 4) FSA031 Section D1 RMAR Liquidity MIF002 (notes 3 and 5) Metrics monitoring MIF003 (notes 3 and 5) Concentration risk (non-K￾CON) MIF004 (notes 3, 5 and 7) 16.12.25A R The applicable data items referred to in SUP 16.12.4R are set out according to type of firm in the table below:

FCA 2021/50 Page 160 of 184 Concentration risk (K-CON) MIF005 (notes 3, 5 and 7) Group capital test MIF006 (notes 5 and 6) Threshold conditions Section F RMAR (note 17) Client money and client assets FSA039 Section C RMAR (note 13) or FSA039 … … SUP 16.16 (Prudent valuation reporting) is deleted in its entirety. The deleted text is not shown but the chapter is marked [deleted] as shown below. Amend the following as shown. APF Authorised professional firm AR Appointed representative CAD The Capital Adequacy Directive … … 16.16 Prudent valuation reporting [deleted] 16 Annex 18B G Notes for completion of the Retail Mediation Activities Return (‘RMAR’) Introduction: General notes on the RMAR … 5. The following table summarises the key abbreviations that are used in these notes:

FCA 2021/50 Page 161 of 184 Is the firm exempt from these capital resources requirements in relation to any of its retail or distribution mediation activities? The firm should indicate here if any Handbook exemptions apply in relation to the capital resources requirements in MIPRU or IPRU-INV 13. Examples of firms that may be subject to exemptions include: • Lloyd’s managing agents (MIPRU 4.1.11R); • solo consolidated subsidiaries of banks or building societies; • small credit unions (as defined in MIPRU 4.1.8R); and • investment firms not subject to IPRU-INV 13 (unless they additionally carry on home finance mediation activity or insurance distribution activity relating to non-investment insurance contracts). Home finance mediation and non-investment insurance distribution … … … Section D Regulatory Capital … ‘Higher of’ requirements In this section there are separate calculations of regulatory capital and capital resources requirements for the different types of business covered by the data requirements. The calculations are the same, however, for both home finance mediation activity and insurance distribution activity relating to non￾investment insurance contracts. … (ii) For such a firm that is also subject to IFPRU or GENPRU and BIPRU MIFIDPRU, the requirement is the higher of the two capital resources requirements that apply (see MIPRU 4.2.5R) and is compared with the higher of the two capital resources calculations (see MIPRU 4.4.1R). … Guidance for completion of individual fields

FCA 2021/50 Page 162 of 184 Other FCA capital resources requirements (if applicable) The FCA may from time to time impose additional requirements on individual firms. If this is the case for your firm, you should enter the relevant amount here. This excludes capital resources requirements in relation to PII, which are recorded below. If the firm carries on designated investment business as well as home finance mediation activity, insurance distribution activity or both, requirements under IPRU(INV), IFPRU, GENPRU or BIPRU MIFIDPRU and MIPRU must be considered to determine the appropriate requirement (see general notes (i) to (iii) above). If the resulting requirement for a firm is higher than the base MIPRU requirement then you should include the difference here. … … Capital resources This should be the capital resources calculated in accordance with MIPRU 4 for incorporated or unincorporated firms as applicable. For firms that are additionally subject to IPRU(INV), IFPRU, GENPRU or CREDS MIFIDPRU, this should be the higher of the capital resources per MIPRU 4 and the financial resources determined by IPRU(INV), IFPRU, GENPRU or CREDS MIFIDPRU. See MIPRU 4.4.1R. … … SUP 16.20 (Submission of recovery plans and information for resolution plans) is deleted in its entirety. The deleted text is not shown but the chapter is marked [deleted] as shown below. SUP 16 Annex 33A (Remuneration Benchmarking Information Report), SUP 16 Annex 33B (Guidance notes for data items in SUP 16 Annex 33AR), SUP 16 Annex 34A (High Earners Report) and SUP 16 Annex 34B (Guidance notes for data items in SUP 16 Annex 34AR) are deleted in their entirety. The deleted text is not shown but the chapters are marked [deleted] as shown below. 16.20 Submission of recovery plans and information for resolution plans [deleted] 16 Annex 33A Remuneration Benchmarking Information Report [deleted]

FCA 2021/50 Page 163 of 184 SUP 16 Annex 40 (Data items related to recovery and information for resolution plans) is deleted in its entirety. The deleted text is not shown but the chapter is marked [deleted] as shown below. Amend the following as shown. 16 Annex 33B Guidance notes for data items in SUP 16 Annex 33AR [deleted] 16 Annex 34A High Earners Report [deleted] 16 Annex 34B Guidance notes for data items in SUP 16 Annex 34AR [deleted] 16 Annex 40 Data items related to recovery and information for resolution plans [deleted] App 2 Insurers: Regulatory intervention points and run-off plans App 2.2 Interpretation App 2.2.1 R For the purpose of SUP App 2.1 to 2.14: (1) “capital resources”: (a) in relation to a non-directive friendly society, has the meaning given to “margin of solvency” in rule 4.1(4) of IPRU(FSOC) rule 2.1 of the Friendly Society – Overall Resources and Guarantee Fund part of the PRA Rulebook; … (c) in relation to any other firm, , which is not a Solvency II firm, means the firm’s capital resources capital resources as calculated in accordance with GENPRU 2.2.17R; and: (i) in the case of a dormant account fund operator, the version of GENPRU 2.2.17R that applied as at 31 December 2015 (the effect of which has been preserved for the purposes of INSPRU 7); and (ii) in the case of a non-directive insurer (other than a non-directive friendly society), the PRA Rulebook: Non-Solvency II Firms: Insurance Company – Capital Resources; and

FCA 2021/50 Page 164 of 184 (1) (2) Material to which the transitional provision applies (3) (4) Transitional provision (5) Transitional provision: dates in force (6) Handbook provision: coming into force … … … … … … 12W [PRA] SUP 16.12.5R to SUP 16.12.7R [deleted] R If BIPRU TP 30.4R (Liquidity floor for certain banks) applies to a firm the regulatory intervention point mentioned in that rule is added to the list in paragraph (a) of the definition of firm-specific liquidity stress in the case of that firm for as long as BIPRU TP 30.4R applies to it. For as long as BIPRU TP 30.4R applies to the firm At the end of period set out in column (5) (d) in relation to a Solvency II firm means the firm’s “eligible own funds” as defined in the PRA Rulebook: Glossary; (2) “guarantee fund”: [deleted] (a) in relation to a non-directive friendly society, has the meaning given to that term in IPRU(FSOC); (c) in relation to a firm other than a Solvency II firm which is not covered by (a), carrying on general insurance business, means the amount of capital resources which that firm must hold to comply with GENPRU 2.2.34R; and (d) in relation to a firm other than a Solvency II firm which is not covered by (a), carrying on long-term insurance business, means the amount of capital resources which that firm must hold to comply with GENPRU 2.2.33R; … … TP1 Transitional provisions … TP 1.2

FCA 2021/50 Page 165 of 184 … … … … … …

FCA 2021/50 Page 166 of 184 Annex J Amendments to the Collective Investment Schemes sourcebook (COLL) In this Annex, underlining indicates new text and striking through indicates deleted text. Eligible depositaries for UCITS schemes 6.6A.8 R An authorised fund manager must ensure that the depositary it appoints under COLL 6.6A.7R is a firm established in the United Kingdom that has the Part 4A permission of acting as trustee or depositary of a UK UCITS and is one of the following: (1) a national central bank; or (2) a credit institution; or (3) a firm which: (a) has own funds of not less than the higher of: [deleted] (i) the requirement calculated in accordance with articles 315 or 317 of the UK CRR; or (ii) £4million; and (b) either: (i) is a full-scope IFPRU investment firm MiFID investment firm; or (ii) is an investment management firm to which IPRU(INV) 5 applies; and (c) satisfies the non-bank depositary organisational requirements in COLL 6.6B.11R. [Note: article 23(2)(a), (b) and (c) (first sentence) of the UCITS Directive] 6 Operating duties and responsibilities … 6.6A Duties of AFMs in relation to UCITS schemes and EEA UCITS schemes … … 6.6B UCITS depositaries

FCA 2021/50 Page 167 of 184 Depositaries appointed under COLL 6.6A.8R(3) (non-bank depositaries): Capital requirements 6.6B.7 G A depositary appointed in accordance with COLL 6.6A.8R(3) needs to satisfy the capital requirements in either: (1) IPRU(INV) 5; or (2) IFPRU and the UK CRR MIFIDPRU. 6.6B.8 R A full-scope IFPRU investment firm which is appointed as a depositary of a UCITS scheme must maintain own funds of at least £4million. [deleted] [Editor’s note: this requirement has been moved to MIFIDPRU 4.4.6R.] 6.6B.9 G (1) If the depositary is a full-scope IFPRU investment firm, it is subject to the capital requirements of IFPRU and the UK CRR. [deleted] (2) However, these requirements are not in addition to COLL 6.6B.8R and therefore that firm may use the own funds required under IFPRU and the UK CRR to meet the £4 million requirement. [deleted] …

FCA 2021/50 Page 168 of 184 Annex K Amendments to the Consumer Credit sourcebook (CONC) In this Annex, underlining indicates new text and striking through indicates deleted text. 2.11.2 R This section does not apply to a firm subject to: (1) any of the remuneration provisions in SYSC 19A (IFPRU Remuneration Code) to SYSC 19F (Remuneration and performance management of sales staff) SYSC 19B (AIFM Remuneration Code) to SYSC 19G (MIFIDPRU Remuneration Code); or (2) … 2 Conduct of business standards: general … 2.11 Remuneration and performance management policies, procedures and practices …

FCA 2021/50 Page 169 of 184 Annex L Amendments to the Investment Funds sourcebook (FUND) In this Annex, underlining indicates new text and striking through indicates deleted text. Eligible depositaries for UK AIFs 3.11.10 R Subject to FUND 3.11.12R, an AIFM must, for each UK AIF it manages, ensure the appointment of a depositary which is a firm established in the UK that has the Part 4A permission of acting as trustee or depositary of an AIF and which is one of the following: (1) a credit institution; or (2) a MiFID investment firm or an EEA MiFID investment firm which: (a) has own funds of not less than €730,000; and (b) provides the ancillary service of safe-keeping and administration of financial instruments for the account of clients; or (3) another category of institution that is subject to prudential regulation and ongoing supervision and which, on 21 July 2011, fell within the categories of institution eligible to be a trustee of an AUT or a depositary of an ICVC. [Note: article 21(3)(a) to (c) and (5)(a) of AIFMD] 3.11.10A G (1) The capital requirements for a MiFID investment firm appointed as a depositary in accordance with FUND 3.11.10R(2) are contained in MIFIDPRU. (2) An EEA MiFID investment firm appointed as a depositary in accordance with FUND 3.11.10R(2) should refer to MIFIDPRU 1.1.3G and 1.1.4G, which explain the FCA’s general approach to its prudential regulation. 3.11.11 G (1) For a depositary of a fund to be established in the UK, it must have: 3 Requirements for alternative investment fund managers … 3.11 Depositaries …

FCA 2021/50 Page 170 of 184 (a) its registered office in the UK, where the fund is an authorised fund; or (b) its registered office or branch in the UK, where the fund is an unauthorised fund. (2) A MiFID investment firm that has its registered office in the UK must be a full-scope IFPRU investment firm to meet the requirements of FUND 3.11.10R(2). An EEA MiFID investment firm that has a branch in the UK must meet the capital requirements under the EU CRR for a CRD full-scope firm as implemented in its Home State to meet the requirements of FUND 3.11.10R(2). [deleted] … 3.11.15 G For certain types of closed-ended AIFs (such as private equity, venture capital and real estate funds) a wider range of entities than those specified in FUND 3.11.10R may perform the relevant depositary functions. The FCA requires such entities to obtain authorisation as a depositary to demonstrate that they can meet the commitments inherent in those functions, but imposes a lower level of capital requirements in recognition of the different degree of risk implied by the characteristics of the AIF. The capital requirements of such firms are contained in IPRU-INV 5 (particularly IPRU-INV 5.4.3R (Own funds requirement)) but if the firm also undertakes MiFID business, its capital requirements will be contained in IFPRU, the UK CRR, and the EU CRR, or in GENPRU and BIPRU depending on the scope of that MiFID business MIFIDPRU. [Note: recital 34 of AIFMD] Additional requirements for depositaries of authorised AIFs 3.11.16 R A MiFID investment firm (other than a PRA-authorised person) which is appointed as a depositary for an authorised AIF in accordance with FUND 3.11.10R(2) must maintain own funds of at least £4 million. [deleted] [Editor’s note: this requirement has been moved to MIFIDPRU 4.4.6R.] 3.11.17 G Where the firm referred to in FUND 3.11.16R is a full-scope IFPRU investment firm which is a depositary for an authorised AIF appointed in line with FUND 3.11.10R(2), it is subject to the capital requirements of IFPRU and the UK CRR or EU CRR. However, these requirements are not in addition to FUND 3.11.16R and, therefore, a firm subject to this rule may use the own funds required under IFPRU and the UK CRR or EU CRR to meet the £4 million requirement. [deleted]

FCA 2021/50 Page 171 of 184 Annex M Amendments to the Regulated Covered Bonds sourcebook (RCB) In this Annex, underlining indicates new text and striking through indicates deleted text. Other relevant provisions … 1.1.6 G IFPRU investment firms which have exposures to covered bonds which meet the requirements set out in the provisions of article 129 of the UK CRR may benefit from reduced risk weights as set out in article 129 of the UK CRR. [deleted] … Liquid assets 2.3.20 G Assets which would be eligible for inclusion in a liquidity buffer under BIPRU 12.7 as it applied on 31 December 2021 can be liquid assets for the purposes of limb (a) of the definition of liquid assets in Regulation 1(2) of the RCB Regulations. The FCA will also expect that liquid assets which consist of deposits should be held in the same currency or currencies as the regulated covered bonds issued by the issuer. 1 Introduction 1.1 Introduction to sourcebook … 2 Applications for registration … 2.3 Determination of registration …

FCA 2021/50 Page 172 of 184 Annex N Amendments to the Energy Market Participants guide (EMPS) In this Annex, underlining indicates new text and striking through indicates deleted text. 1.1.3 G The reader should note that an energy market participant is defined to exclude a number of different categories of firm, including any MiFID investment firm. 1.2.1 R The parts of the Handbook and their applicability to energy market participants are listed in EMPS 1.2.3G. Energy market participants should read applicable parts of the Handbook to find out what the detailed regulatory requirements for energy market participants are. … Applicability of parts of Handbook to energy market participants 1.2.3 G This table belong to EMPS 1.2.1G Part of Handbook Applicability to energy market participants … Prudential standards Interim Prudential sourcebooks (IPRU) Chapter 1 (Application and General) of (Interim Prudential sourcebook: Investment Businesses) applies. Chapter 3 (Financial resources for Securities and Futures Firms which are not MiFID investment firms or which are exempt BIPRU commodities firms or exempt IFPRU commodities firms) of IPRU(INV)applies, with the following qualifications: (a) energy market participants whose main business consists of 1 Special guide for energy market participants 1.1 Application and purpose … 1.2 Parts of the Handbook applicable to oil market participants

FCA 2021/50 Page 173 of 184 the generation, production, storage, distribution and/or transmission of energy may be granted a waiver of Chapter 3 in the FCA’s discretion: see SUP 21.; and (b) the concentrated risk requirements do not apply to an energy market participant if it is an exempt IFPRU commodities firm that applies the large exposure requirements in Part Four (articles 387 to 403) of the UK CRR see IPRU(INV) 3-1BR, IPRU(INV) 3-1CG and IPRU(INV) 3-1DG; and [deleted] (c) the concentrated risk requirements apply to an energy market participant if it is an exempt BIPRU commodities firm that satisfies the conditions in BIPRU TP 16 in the version as at 31 December 2013. [deleted] The other parts of IPRU(INV) do not apply. The other sourcebooks do not apply. General Prudential sourcebook (GENPRU) [deleted] Except for provisions on capital requirements and the ICAAP rules, this applies to an energy market participant if it is an exempt BIPRU commodities firm: see BIPRU TP 15.9G-BIPRU TP 15.10G. [deleted] Prudential sourcebook for Banks, Building Societies and Investment Firms (BIPRU) [deleted] Except for provisions on capital requirements and the ICAAP rules, this applies to an energy market participant if it is an exempt BIPRU commodities firm: see BIPRU TP 15.9G-BIPRU TP 15.10G. [deleted] Prudential sourcebook for Investment Except for provisions on combined buffer, own funds, own funds requirements and the ICAAP rules, this applies to an

FCA 2021/50 Page 174 of 184 Firms (IFPRU) [deleted] energy market participant if it is an exempt IFPRU commodities firm: see IFPRU 1.1.1G. [deleted] Regulatory processes … Supervision manual (SUP) This applies, with the following qualifications: (a) in SUP 3 (Auditors), only some provisions apply if IPRU(INV) 3 (Financial Resources for Securities and Futures Firms which are not MiFID investment firms or which are exempt BIPRU commodities firms or exempt IFPRU commodities firms) does not apply to an energy market participant (because it has been granted a waiver of that chapter): see SUP 3.1.2R; (c) SUP 16.12 (Integrated Regulatory Reporting): energy market participants whose main business consists of the generation, production, storage, distribution and/or transmission of energy may be granted a waiver of this section in the FCA’s discretion: see SUP 21; (d) SUP 17A (Transaction reporting): does not apply to energy market participants which are not MiFID investment firms or third country investment firms; and (e) SUP App 2 (Insurers: Scheme of operations) does not apply. …

FCA 2021/50 Page 175 of 184 Annex O Amendments to the Oil Market Participants guide (OMPS) In this Annex, underlining indicates new text and striking through indicates deleted text. 1.1.3 G The reader should note that an oil market participant is defined to exclude a number of different categories of firm, including any MiFID investment firm. 1.2 Parts of the Handbook applicable to oil market participants 1.2.1 R The parts of the Handbook and their applicability to oil market participants are listed in OMPS 1.2.2G. Oil market participants should read applicable parts of the Handbook to find out what the detailed regulatory requirements for oil market participants are. 1.2.2 G Parts of the Handbook applicable to oil market participants This table belong to OMPS 1.2.1G Part of Handbook Applicability to oil market participants … Prudential standards Interim Prudential sourcebooks (IPRU) Chapter 1 (Application and General) of IPRU(INV) (Interim Prudential sourcebook: Investment Businesses) applies. Chapter 3 (Financial resources for Securities and Futures Firms which are not MiFID investment firms or which are exempt BIPRU commodities firms or exempt IFPRU commodities firms) of IPRU(INV)applies, with the following qualifications: (a) to an oil market participant only if it is a member of a recognised 1 Special guide for oil market participants 1.1 Application and purpose …

FCA 2021/50 Page 176 of 184 investment exchange or a designated investment exchange which is, under the rules of that exchange, entitled to trade with other members: see IPRU(INV) 3- 1A;. (b) the concentrated risk requirements do not apply to an oil market participant if it is an exempt IFPRU commodities firm that applies the large exposure requirements in Part Four (articles 387 to 403) of the UK CRR see IPRU(INV) 3-1BR, IPRU(INV) 3- 1CG and IPRU(INV) 3-1DG; and [deleted] (c) the concentrated risk requirements apply to an oil market participant if it is an exempt BIPRU commodities firm that satisfies the conditions in BIPRU TP 16 in the version as at 31 December 2013. [deleted] The other parts of IPRU(INV) do not apply. [deleted] The other IPRU sourcebooks do not apply. General Prudential sourcebook (GENPRU) [deleted] Except for provisions on capital requirements and the ICAAP rules, this applies to an oil market participant if it is an exempt BIPRU commodities firm: see BIPRU TP 15.9G-BIPRU TP 15.10G. [deleted] Prudential sourcebook for Banks, Building Societies and Investment Firms (BIPRU) [deleted] Except for provisions on capital requirements and the ICAAP rules, this applies to an oil market participant if it is an exempt BIPRU commodities firm: see BIPRU TP 15.9G-BIPRU TP 15.10G. [deleted] Prudential sourcebook for Investment Firms (IFPRU) [deleted] Except for provisions on combined buffer, own funds, own funds requirements and the ICAAP rules, this applies to an oil market participant if it is an exempt

FCA 2021/50 Page 177 of 184 IFPRU commodities firm: see IFPRU 1.1.1G. [deleted] … Regulatory processes … Supervision manual (SUP) … This applies, with the following qualifications: (a) in SUP 3 (Auditors), only some provisions apply if IPRU(INV) 3 (Financial Resources for Securities and Futures Firms which are not MiFID investment firms or which are exempt BIPRU commodities firms or exempt IFPRU commodities firms) does not apply to an oil market participant: see SUP 3.1.2R; (c) SUP 16.7 (Financial reports) does not apply to the firm if IPRU(INV) 3 does not apply: see SUP 16.1.3R and SUP 16.7.5G; (d) SUP 17A (Transaction reporting) does not apply to an oil market participant which is not a MiFID investment firm or a third country investment firm: (e) SUP App 2 (Insurers: Scheme of operations) does not apply. …

FCA 2021/50 Page 178 of 184 Annex P Amendments to the Perimeter Guidance manual (PERG) In this Annex, underlining indicates new text and striking through indicates deleted text, unless otherwise stated. 1 Introduction to the Perimeter Guidance manual … 1.4 General guidance to be found in PERG … 1.4.2 G Table: list of general guidance to be found in PERG. Chapter: Applicable to: About: … PERG 13: Guidance on the scope of the UK provisions which implemented MiFID and CRD IV Any UK person who needs to know whether MiFID or the CRD and UK CRR (which allow provisions which correspond to the recast CAD to continue to apply to certain firms) apply to him applies to them the scope of the UK provisions which implemented MiFID and the CRD and UK CRR. … 10 Guidance on activities related to pension schemes … 10.4A The application of requirements which implemented EU directives Q.41A Are pension scheme trustees and administration service providers likely to be subject to authorisation under the UK provisions which implemented the Markets in Financial Instruments Directive or subject to the UK provisions which implemented the Directive on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms?

FCA 2021/50 Page 179 of 184 This is possible, but in many instances it is likely that pension scheme trustees and service providers will either not be providing an investment service for the purposes, or otherwise be exempt under the exemptions which were set out in article 2.1 of the Markets in Financial Instruments Directive but have been onshored in Part 1 of Schedule 3 to the Regulated Activities Order. The following table expands on this in broad terms. As for the UK provisions which implemented the CRD, these will only apply to persons who are MiFID investment firms or CRD credit institutions. Detailed guidance on the scope of the UK provisions which implemented the MiFID and the CRD and UK CRR is in PERG 13. In the table below, references to relevant paragraphs of Article 2.1 of MIFID should be read as the equivalent exemptions which have been onshored in Part 1 of Schedule 3 to the Regulated Activities Order, or, in respect of Article 3 of MIFID, which can now be found in regulation 8 of the MiFI Regulations. … … 13 Guidance on the scope of the UK provisions which implemented MiFID and CRD IV 13.1 Introduction 13.1 The purpose of this chapter is to help UK firms consider: • whether they fall within the scope of the UK provisions which implemented Markets in Financial Instruments Directive 2014/65/EU (‘MiFID’) and therefore are subject to the requirements derived from it;, and • how their existing permissions correspond to related MiFID derived concepts;. • whether the UK provisions which implemented CRD and the UK CRR apply to them, and for certain firms, whether the provisions which correspond to the recast CAD continue to apply to them; and • if so, which category of investment firm they are for the purposes of the the provisions which correspond to the recast CAD or the UK provisions which implemented CRD and the UK CRR. … CRD IV [deleted] Investment firms subject to the UK provisions which implemented MiFID, including those who fall within the article 3 MiFID exemption, onshored in regulation 8 of the MiFI Regulations, but opt not to take advantage of it, are subject to the requirements of the UK provisions which implemented CRD and the UK CRR. There are special provisions for certain commodities firms as well as firms whose MiFID investment services and activities are limited to only one or more of the following investment services and activities: • execution of orders on behalf of clients;

FCA 2021/50 Page 180 of 184 • portfolio management; • giving investment advice; or • receiving and transmitting client orders, and who are not permitted to hold client money or securities nor are authorised to provide ancillary service (1) referred to in Section B of Annex 1 to MiFID, onshored in Part 3A of Schedule 2 to the Regulated Activities Order (which is safekeeping and administration of financial instruments for the account of clients, including custodianship and related services such as cash/collateral management). Collective portfolio management investment firms (a term that is used to refer to both AIFM investment firms and UCITS investment firms) are subject to the requirements of the UK provisions which implemented CRD and the UK CRR, unless they are firms whose MiFID investment services and activities are limited to those in the preceding paragraph. Under the UK implementation of the CRD and the UK CRR, the level of capital an investment firm subject to MiFID requires is determined by the type of investment services and activities it provides or performs, its scope of permission and any limitations or requirements attaching to that permission (see PERG 13.6). A firm relying on an article 2 or 3 MiFID exemption, onshored in Part 1 of Schedule 3 to the Regulated Activities Order and Regulation 8 of the MiFI Regulations, is not subject to CRD and the UK CRR. How does this document work? This document is made up of Q and As divided into the following sections: • … • Exemptions from MiFID derived provisions (PERG 13.5); and • The CRD IV (PERG 13.6); and • Flow charts, tables and lists (PERG 13 Annex 1, and PERG 13 Annex 2, PERG 13 Annex 3, PERG 13 Annex 4.) We have also included guidance in the form of flow charts to help firms decide whether the UK provisions which implemented MiFID and the CRD and the UK CRR (which allow provisions which correspond to the recast CAD to apply to certain firms) apply to them as well as permission maps indicating which regulated activities and specified investments correspond to MiFID investment services, activities and MiFID financial instruments (see PERG 13 Annex 1 and PERG 13 Annex 2 and PERG 13 Annex 3.) … 13.2 General Q.1 Why does it matter whether or not we fall within the scope of MiFID? Depending on whether or not you fall within the scope of MiFID, you may be subject to: • domestic legislation implementing MiFID (for example, FCA rules); • “direct EU legislation”, which became part of UK law as at IP completion day in accordance with section 3 of the European Union (Withdrawal) Act 2018, and is known as “retained EU law” in accordance with section 6 of

FCA 2021/50 Page 181 of 184 the same legislation. (such as MiFIR, UK CRR and all directly applicable regulations made under them it or under MiFID); and • domestic legislation implementing the CRD (see PERG 13.6). other FCA rules or legislation whose scope is drawn by reference to MiFID (for example, the Prudential sourcebook for MiFID investment firms (MIFIDPRU)). Q.2 Is there anything else we should be reading? The Q and As complement, and should be read in conjunction with, the relevant legislation and the general guidance on regulated activities, which is in chapter 2 of our Perimeter Guidance manual (‘PERG’). The Q and As relating to the CRD and the UK CRR (which allow the recast CAD to apply to certain firms) should be read in conjunction with the relevant parts of our Prudential sourcebook for Investment Firms (IFPRU), the Interim Prudential sourcebook for Investment Businesses (IPRU(INV)), the General Prudential sourcebook (‘GENPRU’) and the Prudential sourcebook for banks, building societies and investment firms (‘BIPRU’). Q.3 How much can we rely on these Q and As? The answers given in these Q and As represent the FCA’s views but the interpretation of financial services legislation is ultimately a matter for the courts. How the scope of MiFID and the CRD and the UK CRR affect the regulatory position of any particular person will depend on their individual circumstances. If you have doubts about your position after reading these Q and As, you may wish to seek legal advice. The Q and As are not a substitute for reading the relevant UK provisions which implemented MiFID, the CRD and the UK CRR (and the provisions which correspond to the recast CAD for certain firms). Moreover, MiFID, the CRD and the UK CRR were has been subject to guidance and communications by the European Commission, the European Securities and Markets Authority (‘ESMA’) and the European Banking Authority (‘EBA’), we have now issued guidance on how this will be treated after IP completion day. … 13.3 Investment Services and Activities … Dealing on own account Q.16 What is dealing on own account (A3, article 4.1(6)) and recital 24)? … If a firm executes client orders by standing between clients on a matched principal basis (back-to-back trading), it is both dealing on own account and executing orders on behalf of clients. A firm is still dealing on own account under MiFID if it meets all of the conditions of article 29(2) of CRD (see Q61) or article 5.2 of the recast CAD, as applicable under the CRD and the UK CRR to certain firms (see Q58A). However, a firm which meets all the conditions of these articles of CRD or the

FCA 2021/50 Page 182 of 184 PERG 13.6 (CRD IV) is deleted in its entirety. The deleted text is not shown but the chapter is marked [deleted] as shown below. Amend the following as shown. PERG 13 Annex 3 (Are you subject to the CRD and UK CRR (or allowed to be subject to the recast CAD?)) is deleted in its entirety. The deleted text is not shown but the Annex is marked [deleted] as shown below. recast CAD will not be considered as dealing on own account when determining which category of firm it is for the purposes of the FCA’s base own funds requirements (see PERG 13.6). … … 13.5 Exemptions from MiFID … The article 3 exemption … Q.53 What is the practical effect of exercising the optional exemption for those firms falling within its scope? You are not a firm to which MiFID applies and so are not a MiFID investment firm for the purposes of the Handbook. As such you are not subject to the requirements of the CRD as transposed in the Handbook and the UK CRR. Nor are you a MIFIDPRU investment firm subject to the prudential requirements in MIFIDPRU. Article 3.2 of MiFID applies certain MiFID requirements to firms making use of the article 3 exemption. These are implemented in the Handbook and the Act. 13.6 CRD IV [deleted] 13 Annex 1 Do the UK provisions which implemented MiFID apply to us? [Editor’s note: Delete the words “See Annex 3 flow charts 1 and 2 to see how the UK provisions which implemented CRD IV apply to you” from the diagram.] 13 Annex 3 Are you subject to the CRD and UK CRR (or allowed to be subject to the recast CAD)? [deleted]

FCA 2021/50 Page 183 of 184 Annex Q Amendments to the Wind-down Planning Guide (WDPG) In this Annex, underlining indicates new text and striking through indicates deleted text. 3 The concept and process of wind-down planning 3.1 What is wind-down planning … 3.1.6 G We know that some firms may have carried out similar planning exercises under different but related regulatory processes (e.g. ICAAP, RRD the ICARA process). This guide does not replace or re-interpret those processes. However, firms may want to take this guide into account to further strengthen their wind-down planning as well as to consider how consistent these processes are with one another. [Note: Internal Capital Adequacy Assessment Process (ICAAP) is for firms which are subject to the UK provisions which implemented CRD IV/ BIPRU. Some of these firms are also subject to the UK provisions which implemented the Recovery and Resolution Directive (RRD) the ICARA process is the process that MIFIDPRU investment firms are required to comply with under MIFIDPRU 7.] … 3.3 Wind-down scenarios: what would make a firm no longer viable? … 3.3.3 G To do this, firms may way to consider what events would be likely to make it no longer viable, which is often referred to as reverse stress￾testing. A firm is not viable if it no longer has adequate financial or non￾financial resources to carry on its regulated activities. This could happen for a variety of reasons, including: (1) Significant financial losses losses with no sign of recovery; … … 3.4 Effective risk management … 3.4.6 G Firms may consider potential options for recovery in the face of adverse business conditions, such as selling part of the business or seeking a capital injection. This is known as recovery planning. Even if a firm

FCA 2021/50 Page 184 of 184 has carried out recovery planning taken these or similar steps aiming for recovery, wind-down planning can still be relevant as there is no guarantee that recovery options would save the firm’s business. [Note: Some firms are required to prepare recovery plans, i.e. those subject to the UK provisions which implemented the Recovery and Resolution Directive (RRD).] … App 5 QRG: wind down scenarios and relevant management information App 5.1 Generating wind-down scenarios and identifying relevant management information to monitor App 5.1.1 G To generate wind-down scenarios, a firm may consider the following: … (2) which are the business areas subject to the greatest risks, e.g. if a sudden large volatility in the currency market will lead to great losses losses; … … App 5.1.4 G After outlining the wind-down scenario(s), a firm identifies the key management information that is most directly related to those scenario(s) and the relevant indicators it will want to monitor for danger signs. Effective Less effective Sample wind-down scenarios (covering those that are fast and slow-moving, firm specific and macro-economic) might include: • Severe economic downturn leading to continual losses losses with no sign of recovery; and … …

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