The Financial Services and Markets Act 2000 (Excluded Activities and Prohibitions) Order 2014

[^key-710851974d9f720445460a38a12e6acb]: Word in art. 19B(2) inserted (4.2.2025) by The Financial Services and Markets Act 2000 (Ring-fenced Bodies, Core Activities, Excluded Activities and Prohibitions) (Amendment) Order 2025 (S.I. 2025/30), arts. 1(2), 10(6)(b)

[^key-8272530e0fad384d00b078a1ea05c7a5]: Art. 19B(3) inserted (4.2.2025) by The Financial Services and Markets Act 2000 (Ring-fenced Bodies, Core Activities, Excluded Activities and Prohibitions) (Amendment) Order 2025 (S.I. 2025/30), arts. 1(2), 10(6)(c)

[^key-3ea0d036b81c10d3de51a19ae23213ff]: Art. 20 omitted (4.2.2025) by virtue of The Financial Services and Markets Act 2000 (Ring-fenced Bodies, Core Activities, Excluded Activities and Prohibitions) (Amendment) Order 2025 (S.I. 2025/30), arts. 1(2), 10(8)

Financial institution exposures: financing of infrastructure projects

19A

• (1) A ring-fenced body may incur a financial institution exposure to a relevant financial institution (“A”) where—

• (a) A is an infrastructure special purpose vehicle; and

• (b) the exposure arises from financial assistance given by the ring-fenced body to A.

• (2) For the purposes of this article—

• (a) “financial assistance” means—

• (i) loans,

• (ii) guarantees or indemnities, or

• (iii) the purchase of bonds or notes.

• (b) “infrastructure special purpose vehicle” means an entity the only business of which (apart from incidental activities) is financing the acquisition, design, construction, conversion, improvement, operation and repair of infrastructure ....

• (c) “infrastructure” means—

• (i) housing,

• (ii) water, electricity, gas, telecommunications, sewerage or other services,

• (iii) railway facilities (including rolling stock), roads or other transport facilities,

• (iv) health or educational facilities, and

• (v) court or prison facilities.

Financial institution exposures: changes in status of counterparties

19B

• (1) Subject to paragraph (2), where a ring-fenced body incurs a prohibited financial institution exposure as a result of a counterparty to a transaction becoming a relevant financial institution at any time after the date upon which the transaction was entered into, that exposure is permitted for a period of twelve months commencing on the date upon which the counterparty became a relevant financial institution.

• (2) A ring-fenced body is not permitted to incur the prohibited financial institution exposure by virtue of paragraph (1) where, at the time the transaction was entered into, the ring-fenced body knew, or could reasonably be expected to have known, that the counterparty would become a relevant financial institution.

• (3) In this article, “prohibited financial institution exposure” means a financial institution exposure which would be prohibited under article 14(1) if it was not permitted under this article.

Prohibitions: Non-EEA branches and subsidiaries

Transitional provision

Prohibitions: Non-UK and non-EEA branches and subsidiaries

Excluded activities: SME exception

7A

• (1) A ring-fenced body does not carry on an excluded activity by entering into a transaction to—

• (a) acquire or dispose of shares in a UK SME, provided that the ring-fenced body only has a minority interest in the UK SME concerned,

• (b) invest in an SME investment undertaking by acquiring an interest in the SME investment undertaking, or disposing of that interest, provided that—

• (i) the interest is not a debt instrument issued by the SME investment undertaking, and

• (ii) where the SME investment undertaking is an investment company, the ring-fenced body only has a minority interest in the SME investment undertaking concerned, or

• (c) acquire, dispose of or exercise rights under instruments giving an entitlement to shares issued by a UK SME in consideration or part consideration for a loan made by the ring-fenced body to the UK SME.

• (2) Paragraph (1) does not apply unless the sum of the value of relevant investments held by the ring-fenced body does not exceed ten per cent of the value of the tier 1 capital of the ring-fenced body on a sub-consolidated basis where this is required under the prudential requirements regulation, and otherwise on an individual basis, for a continuous period of twelve months, and for these purposes—

• (a) “relevant investments” means—

• (i) shares, instruments giving an entitlement to shares or other interests acquired by the ring-fenced body under paragraph (1), and

• (ii) shares in a UK SME acquired by the ring-fenced body under article 6(4)(d),

but does not include any shares in a UK SME during any time in which the UK SME is a subsidiary undertaking of the ring-fenced body, or in which the ring-fenced body has a participating interest in the UK SME;

• (b) the value of relevant investments is their fair value, assessed in accordance with International Financial Reporting Standard 13 (fair value measurement) issued by the International Accounting Standards Board in May 2011, as amended from time to time;

• (c) tier 1 capital has the meaning given in Article 25 of the prudential requirements regulation, and the value of the tier 1 capital of the ring-fenced body on an individual basis or a sub-consolidated basis, as applicable, is to be calculated in accordance with the prudential requirements regulation;

• (d) references to holding capital on a sub-consolidated basis are to be interpreted in accordance with Article 4(1)(49) of the prudential requirements regulation.

• (3) For the purposes of paragraph (1)(b), investing in an SME investment undertaking includes—

• (a) the acquisition of shares or other interests issued by a parent undertaking of an SME investment undertaking, provided that the ring-fenced body only has a minority interest in that parent undertaking;

• (b) the acquisition of an interest in a feeder scheme of an SME investment undertaking, provided that any master scheme in which the feeder scheme invests complies with all the conditions set out in paragraph (4).

• (4) For the purposes of paragraph (3)(b), a “feeder scheme” means a collective investment scheme, which—

• (a) invests at least 85% of the total property which is subject to the collective investment scheme in units or shares of—

• (i) a single collective investment scheme (a “master scheme”), or

• (ii) two or more master schemes which each have identical investment strategies, or

• (b) has an exposure of at least 85% of its assets to such a master scheme.

• (5) In this article, an “SME investment undertaking” means an eligible undertaking which satisfies all the following conditions—

• (a) it has an investment strategy of investing at least 50% of its investment capital in UK SMEs;

• (b) it does not at any time invest more than 50% of its investment capital in enterprises which are not UK SMEs;

• (c) it does not have an investment strategy of investing in other eligible undertakings.

• (6) For the purposes of this article—

• (a) the “investment capital” of an eligible undertaking which is a collective investment scheme, or the sub-fund of a collective investment scheme, is the sum of—

• (i) the capital which investors have provided for investment by the collective investment scheme, and

• (ii) the capital which investors may be required to provide for such investment under the terms of their investment in the collective investment scheme,

after the deduction of all fees, charges and expenses which are directly or indirectly borne by investors and which are agreed between the manager of the collective investment scheme and the investors;

• (b) the “investment capital” of an eligible undertaking which is an investment company is the sum of the assets of the investment company after the deduction of all fees, charges and expenses which are directly or indirectly borne by investors and which are agreed between the manager of the investment company and the investors;

• (c) a ring-fenced body has a “minority interest” in an undertaking if—

• (i) it does not hold a majority of the voting rights in that undertaking,

• (ii) it is a member of the undertaking, but does not control alone, pursuant to an agreement with other members of the undertaking, a majority of the voting rights in that undertaking,

• (iii) it is a member of the undertaking, but does not have the right to appoint or remove a majority of the board of directors, or equivalent management body, of that undertaking, and

• (iv) it does not have the right to exercise, nor actually exercises, dominant influence or control over that undertaking.

• (7) Schedule 7 to the Companies Act 2006 (parent and subsidiary undertakings: supplementary provisions) applies for the interpretation of paragraph (6)(c).

• (8) In this article—

• “debt instrument” is—a bond,any other instrument creating or acknowledging a debt, oran instrument giving rights to acquire a debt instrument;

• “eligible undertaking” means—a collective investment scheme,the sub-fund of a collective investment scheme which is structured with a number of separate sub-funds, provided that the property subject to that sub-fund cannot be used to discharge any liabilities of, or meet any claims against, any person other than the participants in that sub-fund, and for the purposes of this sub-paragraph, “sub-fund” has the meaning given in section 90ZA(2) of the Act, oran investment company, as defined by section 833(1) of the Companies Act 2006;

• “UK SME” is an undertaking which—is an SME at the time the ring-fenced body or SME investment undertaking first enters into a transaction to acquire shares, or instruments giving an entitlement to shares, in the undertaking, andis registered in, and has its principal place of business in, the United Kingdom.

Excluded activities: central bank exemption

Excluded activities: derivatives

Derivatives: forward contracts and swaps

Derivatives: options and swaptions

Derivatives: general conditions

Financial institution exposures: small exposures

19C

• (1) A ring-fenced body may incur a financial institution exposure where the total exposures of the ring-fenced body to the relevant financial institution are equal to or less than £100,000.

• (2) The amount of a ring-fenced body’s exposure to a relevant financial institution must be determined in accordance with the fair value of the assets giving rise to that exposure, assessed in accordance with International Financial Reporting Standard 13 (fair value measurement) issued by the International Accounting Standards Board, as amended from time to time.

Prohibitions: Non-UK and non-EEA branches and subsidiaries

Transitional provision