Under the IFPR, the FCA will supervise some group structures on a consolidated basis, to ensure they take into account the risks they pose collectively.
The group consolidation rules apply where a corporate group structure contains more than one entity conducting investment firm business, but also apply to simpler structures containing one or more holding companies.
As well as the typical parent/subsidiary set up, the IFPR also introduces the concept of a connected undertaking.
A connected undertaking is a group of two or more entities where there is no parent, but the entities either share common management or common ownership, one entity exercises significant influence over the others, or one entity holds a participation in the others.
The consolidation rules mean that the group’s capital resources and capital requirements must be calculated based on the consolidated financials of the group. Liquid assets must also be calculated according to the consolidated financial position.
Regulatory reporting would be submitted by the consolidation group IN ADDITION TO the individual investment firms within the group. The same type of information is required from both.
There is an alternative option for some groups. They can apply to the FCA to apply the group capital test, which is an alternative approach to the full prudential consolidation. This would be available to groups which have a sufficiently simple structure and there is no significant risk of harm if the group is not supervised on a consolidated basis.
The group capital test ensures the parent entity holds enough capital resources to support its subsidiaries.
If firms are unsure whether they meet the criteria for a group capital test, we can review and advise.