(1) a bank;

(2) a building society;

(3) a BIPRU investment firm; and

(4) groups containing such firms.

Purpose

Guidance on the categorisation of BIPRU investment firms

The definition of a BIPRU firm

(1) a building society; or

(2) a bank; or

(3)  a full scope BIPRU investment firm; or

(4) a BIPRU limited licence firm; or

(5) a BIPRU limited activity firm.

(1) an incoming EEA firm;

(2) an incoming Treaty firm;

(3) any other overseas firm;

(4) an ELMI;

(5) an insurer; and

(6) an ICVC.

(1) This paragraph applies to an undertaking that would be a third country BIPRU firm if it were authorised under the Act.

(2) Except in exceptional circumstances, it is the FSA's policy that it will not give an overseas applicant a Part IV permission unless the FSA is satisfied that the applicant will be subject to prudential regulation by its home state regulatory body that is broadly equivalent to that provided for in the Handbook and the applicable EEA prudential sectoral legislation. The FSA will take into account not only the requirements to which the firm is subject but how they are enforced. The FSA will also take into account the laws, regulations and administrative provisions to which it is subject in its home state. The reasons for that policy include:

(a) it is unlikely that a firm that is not subject to equivalent supervision will be able to satisfy the threshold conditions (and in particular threshold condition 5 (Suitability)) and it is unlikely that it will be possible to establish that the firm does satisfy them;

(b) such a firm is likely to pose a threat to the interests of consumers and potential consumers, particularly as effective supervision of an overseas firm depends on cooperation between the FSA and the regulatory body that authorises the firm in its home country and on the FSA being able to place appropriate reliance on the supervision carried out by such regulatory body; and

(c) under Article 38(1) of the Banking Consolidation Directive the FSA should not apply to branches of credit institutions having their head office outside the EEA, when commencing or carrying on their business, provisions which result in more favourable treatment than that accorded to branches of credit institutions having their head office in the EEA.

(3) If an undertaking is not subject to equivalent supervision in its home state and it wishes to carry on in the United Kingdom regulated activities coming within the scope of the activities that define a BIPRU firm it should establish a subsidiary undertaking in the United Kingdom. Such a subsidiary undertaking should be able to show, amongst other things, how it would comply with the threshold conditions (and in particular threshold conditions 3 (Close links) and 5 (Suitability)).

(4) If in exceptional circumstances the FSA does grant a Part IV permission to an undertaking that is not subject to equivalent prudential regulation the FSA is likely to take measures under the regulatory system to compensate for the lack of equivalent supervision. These may include applying the prudential requirements for BIPRU firms to the firm.

(5) An overseas firm that is subject to equivalent supervision is subject to the threshold conditions and the Principles. BIPRU and GENPRU do not generally apply. However 3 BIPRU 123 applies to a credit institution with respect to liquidity risk in relation to its United Kingdom branch.

Types of investment firm: Limited activity firms

(1) it meets the criteria in (a) or the criteria in (b):

(a) it deals on own account only:

(i) for the purpose of fulfilling or executing a client order; or

(ii) for the purpose of gaining entrance to a clearing and settlement system or a recognised investment exchange or designated investment exchange when acting in an agency capacity or executing a client order; or

(b) it satisfies the following conditions:

(i) it does not hold client money or securities in relation to investment services that it provides and is not authorised to do so;

(ii) the only 2investment service 2it undertakes is dealing on own account;

(iii) it has no external customers in relation to investment services it provides; and

(iv) the execution and settlement of its transactions in relation to investment services it provides takes place under the responsibility of a clearing institution and are guaranteed by that clearing institution;

(2) (in the case of a CAD investment firm that is a BIPRU investment firm) its base capital resources requirement is €730,000;

(3) (in the case of a CAD investment firm that is an EEA firm) it is subject to the CRD implementation measures of its Home State for Article 9 of the Capital Adequacy Directive (Initial capital requirement of €730,000); and

(4) (in the case of any other CAD investment firm) its base capital resources requirement would be €730,000 if it had been a BIPRU investment firm on the basis of the assumptions in BIPRU 1.1.14 R (3)(a) and BIPRU 1.1.14 R (3)(b).

Types of investment firm: Limited licence firms

(1) deal on own account; or

(2) provide the investment services of underwriting or placing financial instruments (as referred to in point 262 of Section A of Annex I of 2MiFID2) on a firm commitment basis.

Types of investment firm: CAD full scope firm

Types of investment firm: CAD investment firm

(1) In accordance with Article 3(1)(b) of the Capital Adequacy Directive, a person is a CAD investment firm if it falls into (2) or (3).

(2) A person whose head office is in an EEA State is a CAD investment firm if it is an investment firm that is subject to the requirements imposed by 2MiFID2 but excludes the following:

(a) a bank, a building society or an ELMI;

(b) a credit institution;

(c) a local; and

(d) an exempt CAD firm.

(3) An investment firm whose head office is not in an EEA State is a CAD investment firm if it would have fallen into (2) if:

(a) its head office had been in an EEA State; and

(b) it had carried on all its business in the EEA and had obtained whatever authorisations for doing so are required under 2MiFID2.

(1) an investment firm to which MiFID does not apply under Article 2(1); and2

(2) an investment firm with the benefit of an exemption pursuant to Article 3 of MiFID.2

Types of investment firm: Exempt CAD firm

(1) it would have been a CAD investment firm if exempt CAD firms were not excluded from the definition; and

(2) 4it is only authorised to provide the service of investment advice and/or44 receive and transmit4 orders from investors (as referred to in Section A of Annex I of 2MiFID2) without in both cases4, 4 holding money or securities belonging to its clients4 and which4 for that reason 4may not at any time place itself in 4debit with its4 clients.

Types of BIPRU investment firm

(1) A BIPRU limited licence firm means a limited licence firm that falls into (4).

(2) A BIPRU limited activity firm means a limited activity firm that falls into (4).

(3) A full scope BIPRU investment firm means a CAD full scope firm that falls into (4).

(4) A limited licence firm, limited activity firm or CAD full scope firm falls into (4) if:

(a) it is a firm; and

(b) its head office is in the United Kingdom and it is not otherwise excluded from the definition of BIPRU firm under BIPRU 1.1.7 R.

Alternative classification of BIPRU investment firms

(1) a UCITS investment firm;

(2) a BIPRU 50K firm;

(3) a BIPRU 125K firm; and

(4) a BIPRU 730K firm.

Types of investment firm: BIPRU 125K firm

(1) it does not:

(a) deal on own account; or

(b) underwrite issues of financial instruments (as referred in Section A of Annex I of 2MiFID2) on a firm commitment basis;

(2) it holds clients' money or securities in relation to investment services it provides or is authorised to do so;

(3) it offers one or more of the following services (all as referred to in Section A of Annex I of 2MiFID2):

(a) reception and transmission of investors' orders for financial instruments; or

(b) the execution of investors' orders for financial instruments; or

(c) the management of individual portfolios of investments in financial instruments; 2

(4) it is not a UCITS investment firm2 and;2

(5) it does not operate a multilateral trading facility.2

Types of investment firm: BIPRU 50K firm

(1) it satisfies the conditions in BIPRU 1.1.19 R (1)and (3);

(2) it does not hold clients' money or securities in relation to investment services it provides and it is not authorised to do so; 2

(3) it is not a UCITS investment firm2; and2

(4) it does not operate a multilateral trading facility.2

Types of investment firm: 730K firm

Types of investment firm: Part IV permission

Meaning of dealing on own account

(1) Dealing on own account means (for the purpose of GENPRU and BIPRU) the service of dealing in any financial instruments for own account as referred to in point 232 of Section A of 2Annex I 2to 2MiFID2, subject to (2) and (3).

(2) In accordance with 5article55(2) of the Capital Adequacy Directive (Definition of dealing on own account), a CAD investment firm that executes investors' orders for financial instruments and holds such financial instruments for its own account does not for that reason deal on own account if the following conditions are met:

(a) such position only arise as a result of the CAD investment firm's failure to match investors' orders precisely;

(b) the total market value of all such positions is no higher than 15% of the CAD investment firm's initial capital;

(c) (in the case of a BIPRU investment firm) it complies with the main BIPRU firm Pillar 1 rules and BIPRU 10 5(Large exposures requirements);5

(d) (in the case of a CAD investment firm that is an EEA firm) it complies with the CRD implementation measures of its Home State for Articles 18 and 20 (Minimum capital requirements) and 28 (Large exposures) of the Capital Adequacy Directive;

(e) (in the case of any other CAD investment firm) it would comply with the rules in (2)(c) if it had been a BIPRU investment firm on the basis of the assumptions in BIPRU 1.1.14 R (3)(a) and BIPRU 1.1.14R (3)(b); and

(f) such positions are incidental and provisional in nature and strictly limited to the time required to carry out the transaction in question.

(3) In accordance with Article 5(2) of the Capital Adequacy Directive, the holding of non-trading book positions in financial instruments in order to invest capital resources is not dealing on own account for the purposes referred to in BIPRU 1.1.18 R.

Interpretation of the definition of types of firm and undertaking

(1) it does that activity anywhere in the world; or

(2) if its permission includes that activity; or

(3) (in the case of an EEA firm) it is authorised by its Home State regulator to do that activity; or

(4) (if the carrying on of that activity is prohibited in a state or territory without an authorisation in that state or territory) that firm has such an authorisation.

(1) it offers that service anywhere in the world; or

(2) any of BIPRU 1.1.24 R (1) to BIPRU 1.1.24R (4) apply.