(7) Matters specifically related to the manner or technique of consolidation
| (a) | Unless specifically otherwise provided in this regulation 36, or specified or approved in writing by the Registrar, a bank or controlling company— |
| (i) | shall in the case of any majority owned or controlled bank, security firm or other financial subsidiary or entity, irrespective whether or not the said bank, security firm, subsidiary or entity is regulated, based on the relevant requirements specified in Financial Reporting Standards issued from time to time, fully consolidate the said bank, security firm, subsidiary or entity, as the case may be, provided that the Registrar may require a bank or controlling company, in its method towards calculating group capital adequacy, in addition to full consolidation that may be applied in cases such as, for example, the completion of the form BA 700, to apply— |
[Regulation 36(7)(a)(i) of subregulation (7)(a) substituted by regulation 6(a) of Notice No. R. 261 dated 27 March 2015]
| (A) | the aggregation method specified in paragraph (d) below in respect of— |
| (i) | any entity that conducts trading activities; or |
| (ii) | any other entity specified in writing by the Registrar. |
| (B) | the deduction method specified in paragraph (e) below in respect of any financial entity— |
| (i) | acquired through the realization of security held in respect of debt previously contracted, which financial entity is held by the said bank or controlling company on a temporary basis; |
| (ii) | subject to rules and regulations materially different from these Regulations; or |
| (iii) | in respect of which non-consolidation is required by law; |
which financial entity shall neither conduct any trading activity nor the business of a bank, and shall be subject to the rules and regulations of another supervisory authority;
| (ii) | shall in the case of any significant minority owned or controlled bank, security firm or other financial entity, that is, a financial entity in respect of which the said bank or controlling company does not exercise control, which financial entity— |
| (A) | has a significant shareholder other than the relevant bank or controlling company, which other significant shareholder or parent institution legally or de facto has the means and will to provide support in addition to any support that may be provided by the said bank or controlling company, subject to such further conditions as may be specified in writing by the Registrar, pro-rata consolidate the relevant bank, security firm or other financial entity, that is, consolidate the relevant entity on a proportionate basis; |
| (B) | is a financial entity other than a financial entity envisaged in item (A) above, apply the deduction method specified in paragraph (e) below; |
| (iii) | shall, subject to the relevant requirements that may be specified from time to time in regulation 38(5), in the case of an insurance subsidiary or insurer in respect of which the bank or controlling company holds a significant minority investment, apply the deduction method specified in paragraph (e) below, provided that, subject to the provisions of subregulation (10) below regarding the treatment of any surplus capital, the said bank or controlling company shall subsequently remove from its balance sheet any relevant assets, liabilities or third party investments relating to such insurance subsidiary or entity, that is, subject to the provisions of subregulation (10) below regarding the treatment of any surplus capital, no assets, liabilities or third party investments relating to an insurance subsidiary or insurer in respect of which the bank or controlling company holds a significant minority investment shall be included in the reporting bank or controlling company's consolidated amount of risk-weighted exposure or consolidated amount of qualifying capital and reserve funds; |
| (iv) | shall in the case of any investment in an entity other than— |
| (A) | a majority owned or controlled entity specified in subparagraph (i) above; or |
| (B) | a significant minority owned or controlled entity specified in subparagraph (ii) above; |
| (C) | an insurer envisaged in subparagraph (iii) above, |
risk weight the relevant investment or exposure in accordance with the relevant requirements of the approach adopted by the relevant bank or controlling company for the measurement of its exposure to credit risk.
(b) Full consolidation means—
| (i) | including in the consolidated returns of the relevant reporting bank or controlling company, for example, all the relevant assets and liabilities of the entity being consolidated; |
| (ii) | that the relevant reporting bank or controlling company, for example, includes on a line-by-line basis— |
| (A) | in the trading book of the said reporting bank or controlling company any assets and liabilities of an entity that conducts trading activities; |
| (B) | in the banking book of the said reporting bank or controlling company any assets and liabilities of an entity that conducts business other than trading activities; |
| (iii) | that a consolidated group or sub-group of entities consisting of the relevant reporting bank or controlling company, as the case may be, and the relevant entity or entities being consolidated is created through consolidation as if the said consolidated group or sub-group of entities is a single entity; |
| (c) | Pro-rata consolidation— |
| (i) | means including in the consolidated returns of the relevant bank or controlling company only the relevant share of the assets and liabilities of the entity in which the relevant bank or controlling company and any of its related persons have a participation; |
| (ii) | aims to reflect the fact that the bank or controlling company has an interest in an entity in which a significant shareholder other than the relevant bank or controlling company— |
| (A) | has the means and will to provide parental support; |
| (B) | also has a participation. |
| (i) | includes full aggregation or pro-rata aggregation, that is, in the case of— |
| (A) | a majority owned or controlled bank, security firm or other financial subsidiary, subject to the prior written approval of and such conditions as may be specified in writing by the Registrar, instead of full consolidation of the said subsidiary in order to determine the relevant required risk-weighted exposure amount on a fully consolidated basis, a bank, for example, may separately calculate the relevant required risk-weighted exposure amount of the said subsidiary and fully aggregate the separately calculated risk weighted exposure amount of the said majority owned or controlled subsidiary, even when the shareholding in that majority owned or controlled subsidiary is less than 100 per cent; |
| (B) | significant minority owned or controlled bank, security firm or other financial entity as envisaged in paragraph (a)(ii)(A) above, subject to the prior written approval of and such conditions as may be specified in writing by the Registrar, instead of pro-rata consolidation of the relevant entity in order to determine the relevant required risk-weighted exposure amount on a pro-rata consolidated basis, a bank, for example, may separately calculate the relevant required risk-weighted exposure amount of the said entity and on a pro-rata aggregated or proportional basis include the relevant risk weighted exposure amount of an entity such as a joint venture; |
| (ii) | means that the relevant required risk-weighted exposure amount and required amount of capital and reserve funds relating to a particular entity or component of business relating to a particular entity that is not included in the required risk-weighted exposure amount and required amount of capital and reserve funds on a full or pro-rata consolidated basis is separately calculated and then added to the consolidated required amount of capital and reserve funds of the relevant reporting bank or controlling company, provided that— |
| (A) | subject to such conditions as may be specified in writing by the Registrar, any relevant deductions from capital and reserve funds prescribed by the relevant supervisory authority of the entity that is subject to the aggregation technique shall be deducted from the bank or controlling company's consolidated capital base; |
| (B) | subject to the relevant directives specified in subregulation (19) for the completion of columns 6 to 13 of items 22 to 34 of the form BA 600, in the case of a particular entity or component of the business of a particular entity that is subject to the aggregation method, the required risk-weighted exposure amount and required amount of capital and reserve funds in respect of the relevant entity or component of business shall in the case of— |
| (i) | a regulated entity be calculated in accordance with the rules and regulations of the relevant supervisory authority the rules and regulations of which are deemed by the Registrar to be equivalent to the provisions contained in the Act and in these Regulations, that is, when the rules and regulations of the relevant supervisory authority are deemed by the Registrar to be equivalent to the provisions contained in the Act and in these Regulations the same amount of required risk-weighted exposure and required capital and reserve funds in respect of the relevant entity shall apply in respect of the consolidation and solo supervision of the said entity; |
| (ii) | any credit risk exposure, market risk exposure, operational risk exposure or any other relevant exposure of an unregulated entity or activity be determined in accordance with the relevant requirements specified in these Regulations; |
| (C) | in order to calculate the relevant risk-weighted exposure amount of the relevant entity or component of the business the bank or controlling company shall multiply the relevant required amount of capital and reserve funds— |
| (i) | in the case of a regulated entity with the inverse of the relevant minimum capital adequacy ratio prescribed by the relevant supervisory authority, provided that the bank or controlling company shall in the calculation of the risk-weighted exposure of a subsidiary that obtained the approval of its supervisor to use its internal model to calculate a capital requirement in respect of its trading activities duly take into account any multiplication or plus factors specified by the relevant supervisor; |
| (ii) | in the case of an unregulated entity with the inverse of the relevant minimum required capital adequacy ratio prescribed or specified in writing for the relevant bank or controlling company; |
| (iii) | relates to a technique to incorporate into the consolidated risk exposure or consolidated capital and reserve funds any relevant required amount of risk-weighted exposure or capital and reserve funds when full consolidation or pro-rata consolidation may not be appropriate in respect of a particular entity or part of an entity's business; |
| (iv) | shall be allowed by the Registrar only on prior written application and in exceptional cases when— |
| (A) | certain risks or components of an entity's business is managed on such a decentralized basis that full or pro-rata consolidation is likely to provide misleading results; or |
| (B) | the advantages of the separate calculation and subsequent inclusion of the relevant required amounts of risk weighted exposure and capital and reserve funds of the relevant entity, calculated in accordance with the relevant requirements specified in these Regulations or rules and regulations of another supervisor, outweigh the cost relating to the full or pro-rata consolidation of the relevant entity or component of business in accordance with the relevant requirements specified in Financial Reporting Standards or these Regulations. |
| (i) | the assets of a particular entity are not fully or pro-rata consolidated with the risk-weighted exposure amount of a bank or controlling company in accordance with the relevant requirements specified in these Regulations, and instead— |
| (ii) | as a minimum, the amounts specified below are deducted from the capital and reserve funds of the relevant reporting bank or controlling company. |
In the case of—
| (A) | a majority owned or controlled entity— |
| (i) | the investment by the bank or controlling company in the equity or other regulatory capital instruments of the relevant entity; plus |
| (ii) | any shortfall in the capital requirement of the relevant entity, calculated in accordance with the rules and regulations of the relevant supervisor responsible for the supervision of the said entity, |
| (B) | a significant minority owned or controlled bank, security firm or other financial entity, or other relevant entity, the investment by the bank or controlling company in the equity or other relevant capital instruments of the relevant entity. |
