Finance (No. 3) Bill

Session 2010 - 11
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Finance (No. 3) Bill

Finance (No. 3) Bill
Schedule 19 — The bank levy
Part 3 — Groups covered by the bank levy
299

“deposit” has the meaning given by article 5(2) of the Financial Services
and Markets Act 2000 (Regulated Activities) Order 2001 (S.I. 2001/
544) but ignoring the exclusions in articles 6 to 9AB;
“exempt activities” means—
(a)
insurance activities, asset management activities and related
5
activities, and
(b)
non-financial trading activities;
“financial trading entity” means an entity which—
(a)
is an authorised person for the purposes of FISMA 2000 (see
section 31 of that Act),
10
(b)
is not UK resident, but if it were and it carried out its activities
in the United Kingdom, would be required to be an
authorised person, or
(c)
is not within paragraph (a) or (b) but carries on a trade
consisting wholly or partly in dealing in securities;
15
“insurance activities” means—
(a)
the effecting or carrying out of contracts of insurance by a
regulated insurer, and
(b)
investment business that arises directly from activities falling
within paragraph (a);
20
“lending activities” means—
(a)
acceptance of deposits or other repayable funds,
(b)
lending of money, including consumer credit, mortgage
credit, factoring (with or without recourse) and financing of
commercial transactions (including forfeiting),
25
(c)
finance leasing (as lessor),
(d)
issuing and administering means of payment,
(e)
provision of guarantees or commitments to provide money,
(f)
money transmission services,
(g)
provision of alternative finance arrangements, and
30
(h)
other activities carried on in connection with activities falling
within any of paragraphs (a) to (g);
“net-basis activities” means activities normally reported on a net basis
in consolidated financial statements prepared under the applicable
accounting standards;
35
“non-financial trading activities” means activities carried on by an
entity which is not a financial trading entity, other than—
(a)
lending activities, and
(b)
dealing on own account, with the exception of any hedging
transactions in relation to activities which (disregarding this
40
exception) are non-financial trading activities;
“regulated insurer”, in relation to the relevant group, means a member
of the group which—
(a)
is authorised under the law of any territory to carry on
insurance business, or
45
(b)
is a member of a body or organisation which is so authorised;
“related activities” means—
(a)
activities which are ancillary to insurance activities or asset
management activities of any entity which is a member of the

Finance (No. 3) Bill
Schedule 19 — The bank levy
Part 4 — Chargeable equity and liabilities
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relevant group (whether or not the entity carrying on the
insurance activities or asset management activities), and
(b)
activities which would not be carried on but for such
insurance activities or asset management activities being
carried on,
5
but does not include dealing on own account;
“securities” includes—
(a)
shares,
(b)
rights of unit holders in unit trust schemes to which TCGA
1992 applies as a result of section 99 of that Act, and
10
(c)
in the case of a company with no share capital, interests in the
company possessed by members of the company.
Part 4
Chargeable equity and liabilities
Definition of “assets”, “equity” and “liabilities”
15
14    (1)
For the purposes of this Schedule, “assets”, “equity” and “liabilities” have
the same meanings as they have for the purposes of international accounting
standards.
      (2)
Sub-paragraph (1) is without prejudice to any provision of this Schedule
which requires anything to be determined by reference to amounts which
20
are recognised, or amounts which would have been recognised, in
consolidated financial statements or financial statements prepared under
UK GAAP.
Chargeable equity and liabilities of a UK banking group or a building society group
15    (1)
This paragraph applies if the relevant group is a UK banking group or a
25
building society group.
      (2)
To determine the amount of the relevant group’s chargeable equity and
liabilities—
(a)
determine the amount of the group’s equity and liabilities (other
than excluded equity and liabilities) as at the end of the chargeable
30
period,
(b)
adjust that amount in accordance with paragraphs 16 and 43 (so far
as applicable), and
(c)
finally, reduce that amount (but not below nil) by—
(i)
the amount of the group’s high quality liquid assets as at the
35
end of that period, other than any asset which for the
purposes of an adjustment under paragraph (b) is an asset to
which paragraph 16(3) applies, and
(ii)
where sub-paragraph (4) applies, the amount determined
under that sub-paragraph.
40
      (3)
Sub-paragraph (4) applies where—
(a)
as at the end of the chargeable period, the assets of the group include
a financial asset in respect of an advance of cash made by a member
of the group,

Finance (No. 3) Bill
Schedule 19 — The bank levy
Part 4 — Chargeable equity and liabilities
301

(b)
that financial asset is not an asset which, for the purposes of an
adjustment under sub-paragraph (2)(b), is an asset to which
paragraph 16(3) applies, and
(c)
underlying that asset, as collateral, is an item (“the collateral”) owned
by that member which would form part of the group’s high quality
5
liquid assets as at the end of that period were the collateral, rather
than the financial asset, an asset of the group.
      (4)
The amount within sub-paragraph (2)(c)(ii) is—
(a)
the amount of the financial asset as at the end of that period or, if
lower, an amount equal to the fair value of the collateral as at that
10
time, or
(b)
if this sub-paragraph applies in relation to more than one financial
asset, the total of the amounts determined under paragraph (a) in
respect of each of those assets.
      (5)
For the purposes of this paragraph and paragraph 16 the relevant group’s
15
assets, equity and liabilities are to be determined by reference to—
(a)
the amounts recognised in the group’s consolidated financial
statements for the chargeable period as prepared under international
accounting standards or UK GAAP, or
(b)
if no such financial statements are prepared, the amounts which
20
would have been so recognised had consolidated financial
statements for the group been prepared for the chargeable period
under international accounting standards.
      (6)
In reducing the amount of any equity or liabilities under sub-paragraph
(2)(c), long term equity and liabilities are to be reduced before short term
25
liabilities.
16    (1)
This paragraph applies for the purposes of paragraph 15(2) if—
(a)
a member (“M”) of the relevant group has liabilities to an entity (“N”)
which is not a member of the group and N has assets which
correspond to those liabilities,
30
(b)
M also has assets which correspond to liabilities which N has to M,
(c)
there is in place an agreement between M and N which makes
provision for there to be a single net settlement of all M’s liabilities
to N (so far as covered by the provision) and all N’s liabilities to M
(so far as covered by the provision) if the netting event occurs, and
35
(d)
the provision mentioned in paragraph (c) is legally effective and
enforceable.
      (2)
For the purposes of sub-paragraph (1)—
(a)
“agreement” includes an agreement which forms part of a multi-
lateral agreement, arrangement or trading facility,
40
(b)
references to assets of one party which correspond to liabilities of
another party are to amounts receivable by that first party which
correspond to amounts due from that other party, and
(c)
“the netting event occurs” if the insolvency or bankruptcy of M or N
gives rise to the termination of any arrangements under which any
45
liability covered by the provision mentioned in sub-paragraph (1)(c)
arises.
      (3)
The amount of M’s net settlement liabilities is to be reduced (but not below
nil) by the amount of M’s net settlement assets.

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Part 4 — Chargeable equity and liabilities
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      (4)
“M’s net settlement liabilities” means M’s liabilities to N so far as they—
(a)
are covered by the provision mentioned in sub-paragraph (1)(c), and
(b)
are not excluded liabilities.
      (5)
“M’s net settlement assets” means M’s assets so far as corresponding to N’s
net settlement liabilities.
5
      (6)
“N’s net settlement liabilities” means N’s liabilities to M so far as they are
covered by the provision mentioned in sub-paragraph (1)(c).
      (7)
If M’s net settlement liabilities exceed M’s net settlement assets, and a
proportion (A%) of those liabilities is long term liabilities and a proportion
(B%) of those liabilities is short term liabilities, under sub-paragraph (3)—
10
(a)
the long term liabilities are reduced by A% of M’s net settlement
assets, and
(b)
the short term liabilities are reduced by B% of those assets.
Chargeable equity and liabilities of a foreign banking group
17    (1)
This paragraph applies if the relevant group is a foreign banking group.
15
      (2)
The amount of the chargeable equity and liabilities of the relevant group is
the sum of all type A, type B, type C and type D equity and liabilities.
      (3)
Type A equity and liabilities are the chargeable equity and liabilities of any
relevant UK sub-group.
      (4)
“UK sub-group” means a group of entities—
20
(a)
which is a group for the purposes of those provisions of international
accounting standards or UK GAAP which relate to the preparation
of consolidated financial statements,
(b)
which has as its parent or parent undertaking for the purposes of
those provisions an entity which is a UK resident entity, and
25
(c)
the members of which for the purposes of those provisions are all
members of the relevant group.
      (5)
A UK sub-group is “relevant” if—
(a)
consolidated financial statements for the chargeable period are
prepared for it under international accounting standards or UK
30
GAAP, and
(b)
its members are not members of any larger UK sub-group for which
such financial statements are prepared.
      (6)
To determine the amount of the chargeable equity and liabilities of a
relevant UK sub-group—
35
(a)
determine the amount of the sub-group’s equity and liabilities (other
than excluded equity and liabilities) as at the end of the chargeable
period,
(b)
adjust that amount in accordance with paragraphs 18 and 43 (so far
as applicable), and
40
(c)
finally, reduce that amount (but not below nil) by—
(i)
the amount of the sub-group’s high quality liquid assets as at
the end of that period, other than any asset which for the
purposes of an adjustment under paragraph (b) is an asset to
which paragraph 18(11) applies, and
45

Finance (No. 3) Bill
Schedule 19 — The bank levy
Part 4 — Chargeable equity and liabilities
303

(ii)
where sub-paragraph (8) applies, the amount determined
under that sub-paragraph.
      (7)
Sub-paragraph (8) applies where—
(a)
as at the end of the chargeable period, the assets of the relevant UK
sub-group include a financial asset in respect of an advance of cash
5
made by a member of that sub-group,
(b)
that financial asset is not an asset which, for the purposes of an
adjustment under sub-paragraph (6)(b), is an asset to which
paragraph 18(11) applies, and
(c)
underlying that asset, as collateral, is an item (“the collateral”) owned
10
by that member which would form part of the sub-group’s high
quality liquid assets as at the end of that period were the collateral,
rather than the financial asset, an asset of the sub-group.
      (8)
The amount within sub-paragraph (6)(c)(ii) is—
(a)
the amount of the financial asset as at the end of that period or, if
15
lower, an amount equal to the fair value of the collateral as at that
time, or
(b)
if this sub-paragraph applies in relation to more than one financial
asset, the total of the amounts determined under paragraph (a) in
respect of each of those assets.
20
      (9)
For the purposes of this paragraph and paragraph 18, the assets, equity and
liabilities of a relevant UK sub-group are to be determined by reference to
the amounts recognised in its consolidated financial statements for the
chargeable period.
     (10)
Type B equity and liabilities are the chargeable equity and liabilities of any
25
UK resident entity which—
(a)
is a member of the relevant group, but
(b)
is not a member of a relevant UK sub-group.
     (11)
Type C equity and liabilities are the chargeable equity and liabilities of any
non-UK resident entity which—
30
(a)
is a member of the relevant group, and
(b)
is a member of a UK sub-group but is not a member of a relevant UK
sub-group.
     (12)
To determine the amount of the chargeable equity and liabilities of an entity
covered by sub-paragraph (10) or (11)—
35
(a)
determine the amount of the entity’s equity and liabilities (other than
excluded equity and liabilities) as at the end of the chargeable period,
(b)
adjust that amount in accordance with paragraphs 18 and 43 (so far
as applicable), and
(c)
finally, reduce that amount (but not below nil) by—
40
(i)
the amount of the entity’s high quality liquid assets as at the
end of that period, other than any asset which for the
purposes of an adjustment under paragraph (b) is an asset to
which paragraph 18(11) applies, and
(ii)
where sub-paragraph (14) applies, the amount determined
45
under that sub-paragraph.
     (13)
Sub-paragraph (14) applies where—

Finance (No. 3) Bill
Schedule 19 — The bank levy
Part 4 — Chargeable equity and liabilities
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(a)
as at the end of the chargeable period, the assets of the entity include
a financial asset in respect of an advance of cash made by the entity,
(b)
that financial asset is not an asset which, for the purposes of an
adjustment under sub-paragraph (12)(b), is an asset to which
paragraph 18(11) applies, and
5
(c)
underlying that asset, as collateral, is an item (“the collateral”) owned
by that entity which would form part of the entity’s high quality
liquid assets as at the end of that period were the collateral, rather
than the financial asset, an asset of the entity.
     (14)
The amount within sub-paragraph (12)(c)(ii) is—
10
(a)
the amount of the financial asset as at the end of the chargeable
period or, if lower, an amount equal to the fair value of the collateral
as at that time, or
(b)
if this sub-paragraph applies in relation to more than one financial
asset, the total of the amounts determined under paragraph (a) in
15
respect of each of those assets.
     (15)
For the purposes of this paragraph and paragraph 18 the assets, equity and
liabilities of an entity covered by sub-paragraph (10) or (11) are to be
determined by reference to—
(a)
the amounts recognised in the entity’s financial statements for the
20
chargeable period as prepared under international accounting
standards or UK GAAP, or
(b)
if no such financial statements are prepared, the amounts which
would have been so recognised had such financial statements been
prepared—
25
(i)
under international accounting standards, or
(ii)
under UK GAAP if that is what the entity prepares its
financial statements under.
     (16)
In reducing the amount of any equity or liabilities under sub-paragraph
(6)(c) or (12)(c), long term equity and liabilities are to be reduced before short
30
term liabilities.
     (17)
Type D equity and liabilities are the UK allocated equity and liabilities (see
paragraph 24) as at the end of the chargeable period of any relevant foreign
bank which—
(a)
is a member of the relevant group, but
35
(b)
is not a member of a UK sub-group.
     (18)
If—
(a)
the amount of the equity and liabilities, as at the end of the
chargeable period, of a relevant UK sub-group or an entity covered
by sub-paragraph (10) or (11), or
40
(b)
the amount of the UK allocated equity and liabilities, as at the end of
that period, of a relevant foreign bank covered by sub-paragraph
(17),

is less than £50,000,000, the equity and liabilities, or UK allocated equity and
liabilities, may be ignored for the purposes of this paragraph and paragraph
45
18.
     (19)
But, the total amount of equity and liabilities which may be ignored under
sub-paragraph (18) may not exceed £200,000,000.

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18    (1)
This paragraph applies for the purposes of paragraph 17(6) and (12).
      (2)
In this paragraph “relevant member” means—
(a)
a relevant UK sub-group,
(b)
a UK resident entity covered by paragraph 17(10), or
(c)
a non-UK resident entity covered by paragraph 17(11).
5
      (3)
Sub-paragraph (4) applies if the members of a relevant UK sub-group are
also members of one or more larger UK sub-groups.
      (4)
Any equity of the relevant UK sub-group is to be left out so far as it would
have been eliminated under normal consolidation procedures had
consolidated financial statements for the chargeable period been prepared
10
for the larger or largest UK sub-group—
(a)
under international accounting standards, or
(b)
under UK GAAP if the entity which is the parent or parent
undertaking for the larger or largest UK sub-group prepares its
financial statements under UK GAAP.
15
      (5)
Sub-paragraph (6) applies if a relevant member within sub-paragraph (2)(b)
or (c) is a member of one or more UK sub-groups.
      (6)
Any equity of the relevant member is to be left out so far as it would have
been eliminated under normal consolidation procedures had consolidated
financial statements for the chargeable period been prepared for the UK sub-
20
group or the largest UK sub-group—
(a)
under international accounting standards, or
(b)
under UK GAAP if the entity which is the parent or parent
undertaking for the UK sub-group or the largest UK sub-group
prepares its financial statements under UK GAAP.
25
      (7)
The following liabilities of a relevant member are to be left out—
(a)
liabilities to other relevant members, and
(b)
liabilities to a relevant foreign bank covered by paragraph 17(17) so
far as the bank’s assets corresponding to the liabilities are assets of
the permanent establishment through which the bank carries on a
30
trade in the United Kingdom as determined at Step 2 in paragraph
24(1).
      (8)
Sub-paragraph (11) applies if—
(a)
an entity (“M”) within sub-paragraph (9) has liabilities to another
entity (“N”) which is neither an entity within that sub-paragraph nor
35
a relevant foreign bank covered by paragraph 17(17), and N has
assets which correspond to those liabilities,
(b)
M also has assets which correspond to liabilities which N has to M,
(c)
there is in place an agreement between M and N which makes
provision for there to be a single net settlement of all M’s liabilities
40
to N (so far as covered by the provision) and all N’s liabilities to M
(so far as covered by the provision) if the netting event occurs, and
(d)
the provision mentioned in paragraph (c) is legally effective and
enforceable.
      (9)
An entity is within this sub-paragraph if it is—
45
(a)
a member of a relevant UK sub-group, or
(b)
a relevant member within sub-paragraph (2)(b) or (c).