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 4 — Chargeable equity and liabilities
306

     (10)
In sub-paragraph (8)—
(a)
“agreement” includes an agreement which forms part of a multi-
lateral agreement, arrangement or trading facility,
(b)
references to assets of one party which correspond to liabilities of
another party are to amounts receivable by that first party which
5
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
liability covered by the provisions mentioned in sub-paragraph
(8)(c) arises.
10
     (11)
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.
     (12)
“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 (8)(c), and
(b)
are not excluded liabilities.
15
     (13)
“M’s net settlement assets” means M’s assets so far as corresponding to N’s
net settlement liabilities.
     (14)
“N’s net settlement liabilities” means N’s liabilities to M so far as they are
covered by the provision mentioned in sub-paragraph (8)(c).
     (15)
If M’s net settlement liabilities exceed M’s net settlement assets, and a
20
proportion (A%) of those liabilities is long term liabilities and a proportion
(B%) of those liabilities is short term liabilities, under sub-paragraph (11)—
(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.
25
Chargeable equity and liabilities of a relevant non-banking group
19    (1)
This paragraph applies if the relevant group is a relevant non-banking
group.
      (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.
30
      (3)
Type A equity and liabilities are the chargeable equity and liabilities of any
relevant UK banking sub-group.
      (4)
“UK banking sub-group” means a group of entities—
(a)
which is a group for the purposes of those provisions of international
accounting standards or UK GAAP which relate to the preparation
35
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 bank, and
(c)
the members of which are all members of the relevant group.
      (5)
A UK banking sub-group is “relevant” if—
40
(a)
consolidated financial statements for the chargeable period are
prepared for it under international accounting standards or UK
GAAP, and
(b)
its members are not members of any larger UK banking sub-group
for which such financial statements are prepared.
45

Finance (No. 3) Bill
Schedule 19 — The bank levy
Part 4 — Chargeable equity and liabilities
307

      (6)
To determine the amount of the chargeable equity and liabilities of a
relevant UK banking sub-group—
(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,
5
(b)
adjust the amount in accordance with paragraphs 20 and 43 (so far as
applicable), and
(c)
finally, reduce the 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
10
purposes of an adjustment under paragraph (b) is an asset to
which paragraph 20(11) applies, and
(ii)
where sub-paragraph (8) applies, the amount determined
under that sub-paragraph.
      (7)
Sub-paragraph (8) applies where—
15
(a)
as at the end of the chargeable period, the assets of the relevant UK
banking sub-group include a financial asset in respect of an advance
of cash made by a member of the 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
20
paragraph 20(11) applies, and
(c)
underlying that asset, as collateral, is an item (“the collateral”) owned
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.
25
      (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
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
30
asset, the total of the amounts determined under paragraph (a) in
respect of each of those assets.
      (9)
For the purposes of this paragraph and paragraph 20 the assets, equity and
liabilities of a relevant UK banking sub-group are to be determined by
reference to the amounts recognised in its consolidated financial statements
35
for the chargeable period.
     (10)
Type B equity and liabilities are the chargeable equity and liabilities of any
UK resident bank which—
(a)
is a member of the relevant group, but
(b)
is not a member of a relevant UK banking sub-group.
40
     (11)
Type C equity and liabilities are the chargeable equity and liabilities of any
entity (apart from a UK resident bank) which—
(a)
is a member of the relevant group, and
(b)
is a member of a UK banking sub-group but is not a member of a
relevant UK banking sub-group.
45
     (12)
To determine the amount of the chargeable equity and liabilities of an entity
covered by sub-paragraph (10) or (11)—
(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,

Finance (No. 3) Bill
Schedule 19 — The bank levy
Part 4 — Chargeable equity and liabilities
308

(b)
adjust the amount in accordance with paragraphs 20 and 43 (so far as
applicable), and
(c)
finally, reduce the amount (but not below nil) by—
(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
5
purposes of an adjustment under paragraph (b) is an asset to
which paragraph 20(11) applies, and
(ii)
where sub-paragraph (14) applies, the amount determined
under that sub-paragraph.
     (13)
Sub-paragraph (14) applies where—
10
(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 20(11) applies, and
15
(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—
20
(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
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
25
respect of each of those assets.
     (15)
For the purposes of this paragraph and paragraph 20 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
30
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—
35
(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
40
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
45
(b)
is not a member of a UK banking sub-group.
     (18)
If—

Finance (No. 3) Bill
Schedule 19 — The bank levy
Part 4 — Chargeable equity and liabilities
309

(a)
the amount of the equity and liabilities, as at the end of the
chargeable period, of a relevant UK banking sub-group or an entity
covered by sub-paragraph (10) or (11), or
(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
5
(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
20
     (19)
But, the total amount of equity and liabilities which may be ignored under
10
sub-paragraph (18) may not exceed £200,000,000.
20    (1)
This paragraph applies for the purposes of paragraph 19(6) and (12).
      (2)
In this paragraph “relevant member” means—
(a)
a relevant UK banking sub-group,
(b)
a UK resident bank covered by paragraph 19(10), or
15
(c)
an entity covered by paragraph 19(11).
      (3)
Sub-paragraph (4) applies if the members of a relevant UK banking sub-
group are also members of one or more larger UK banking sub-groups.
      (4)
Any equity of the relevant UK banking sub-group is to be left out so far as it
would have been eliminated under normal consolidation procedures had
20
consolidated financial statements for the chargeable period been prepared
for the larger or largest UK banking 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 banking sub-group prepares
25
its financial statements under UK GAAP.
      (5)
Sub-paragraph (6) applies if a relevant member within sub-paragraph (2)(b)
or (c) is a member of one or more UK banking 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
30
financial statements for the chargeable period been prepared for the UK
banking sub-group or the largest UK banking 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 banking sub-group or the largest UK
35
banking sub-group prepares its financial statements under UK
GAAP.
      (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 19(17) so
40
far as the bank’s assets corresponding to the liabilities are assets of
the permanent establishment through which the bank carries on a
trade in the United Kingdom as determined at Step 2 in paragraph
24(1).
      (8)
Sub-paragraph (11) applies if—
45
(a)
an entity (“M”) within sub-paragraph (9) has liabilities to another
entity (“N”) which is neither an entity within that sub-paragraph nor

Finance (No. 3) Bill
Schedule 19 — The bank levy
Part 4 — Chargeable equity and liabilities
310

a relevant foreign bank covered by paragraph 19(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
5
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—
10
(a)
a member of a relevant UK banking sub-group, or
(b)
a relevant member within sub-paragraph (2)(b) or (c).
     (10)
In sub-paragraph (8)(c)—
(a)
“agreement” includes an agreement which forms part of a multi-
lateral agreement, arrangement or trading facility,
15
(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
20
liability covered by the provision mentioned in sub-paragraph (8)(c)
arises.
     (11)
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.
     (12)
“M’s net settlement liabilities” means M’s liabilities to N so far as they—
25
(a)
are covered by the provision mentioned in sub-paragraph (8)(c), and
(b)
are not excluded liabilities.
     (13)
“M’s net settlement assets” means M’s assets so far as corresponding to N’s
net settlement liabilities.
     (14)
“N’s net settlement liabilities” means N’s liabilities to M so far as they are
30
covered by the provision mentioned in sub-paragraph (8)(c).
     (15)
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 (11)—
(a)
the long term liabilities are reduced by A% of M’s net settlement
35
assets, and
(b)
the short term liabilities are reduced by B% of those assets.
Chargeable equity and liabilities of UK resident banks and building societies which are not
members of groups
21    (1)
This paragraph applies where the bank levy is charged as provided for by
40
paragraph 5 and the relevant entity is a UK resident bank or a building
society.
      (2)
To determine the amount of the relevant entity’s chargeable equity and
liabilities—
(a)
determine the amount of the entity’s equity and liabilities (other than
45
excluded equity and liabilities) as at the end of the chargeable period,

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Schedule 19 — The bank levy
Part 4 — Chargeable equity and liabilities
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(b)
adjust that amount in accordance with paragraphs 22 and 43 (so far
as applicable), and
(c)
finally, reduce that amount (but not below nil) by—
(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
5
purposes of an adjustment under paragraph (b) is an asset to
which paragraph 22(3) applies, and
(ii)
where sub-paragraph (4) applies, the amount determined
under that sub-paragraph.
      (3)
Sub-paragraph (4) applies where—
10
(a)
as at the end of the chargeable period, the assets of the relevant 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 (2)(b), is an asset to which
15
paragraph 22(3) applies, and
(c)
underlying that asset, as collateral, is an item (“the collateral”) owned
by the 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.
20
      (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
time, or
(b)
if this sub-paragraph applies in relation to more than one financial
25
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 22 the relevant entity’s
assets, equity and liabilities are to be determined by reference to the
amounts recognised in the entity’s financial statements for the chargeable
30
period as prepared under international accounting standards or UK GAAP.
      (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
liabilities.
22    (1)
This paragraph applies for the purposes of paragraph 21(2) if—
35
(a)
the relevant entity has liabilities to another entity (“N”) and N has
assets which correspond to those liabilities,
(b)
the relevant entity also has assets which correspond to liabilities
which N has to the relevant entity,
(c)
there is in place an agreement between the relevant entity and N
40
which makes provision for there to be a single net settlement of all
the relevant entity’s liabilities to N (so far as covered by the
provision) and all N’s liabilities to the relevant entity (so far as
covered by the provision) if the netting event occurs, and
(d)
the provision mentioned in paragraph (c) is legally effective and
45
enforceable.
      (2)
In sub-paragraph (1)—
(a)
“agreement” includes an agreement which forms part of a multi-
lateral agreement, arrangement or trading facility,

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Part 4 — Chargeable equity and liabilities
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(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 the
relevant entity or N gives rise to the termination of any arrangements
5
under which any liability covered by the provisions mentioned in
sub-paragraph (1)(c) arises.
      (3)
The amount of the relevant entity’s net settlement liabilities is to be reduced
(but not below nil) by the amount of the entity’s net settlement assets.
      (4)
The relevant entity’s “net settlement liabilities” are its liabilities to N so far
10
as they—
(a)
are covered by the provision mentioned in sub-paragraph (1)(c), and
(b)
are not excluded liabilities.
      (5)
The relevant entity’s “net settlement assets” are its assets so far as
corresponding to N’s net settlement liabilities.
15
      (6)
“N’s net settlement liabilities” means N’s liabilities to the relevant entity so
far as they are covered by the provision mentioned in sub-paragraph (1)(c).
      (7)
If the relevant entity’s net settlement liabilities exceed the entity’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,
20
under sub-paragraph (3)—
(a)
the long term liabilities are reduced by A% of the entity’s net
settlement assets, and
(b)
the short term liabilities are reduced by B% of those assets.
Chargeable equity and liabilities of relevant foreign banks which are not members of groups
25
23    (1)
This paragraph applies where the bank levy is charged as provided for by
paragraph 5 and the relevant entity is a relevant foreign bank.
      (2)
The chargeable equity and liabilities of the relevant entity is the amount of
its UK allocated equity and liabilities (see paragraph 24) as at the end of the
chargeable period.
30
Definition of “UK allocated equity and liabilities”
24    (1)
Take Steps 1 to 4 to determine the amount of the UK allocated equity and
liabilities of a relevant foreign bank as at the end of the chargeable period.

Take Steps 5 and 6 to determine how much of that amount is to be treated as
long term equity and liabilities and how much as short term liabilities for the
35
purposes of Step 3 in paragraph 6(2).
Step 1

Determine the amount (“A”) of the bank’s assets as at the end of the
chargeable period (subject to any adjustment under paragraph 25(4)).
Step 2
40

In accordance with paragraph 26, determine the amount (“B”) of the assets,
as at the end of the chargeable period, of the permanent establishment
through which the bank carries on a trade in the United Kingdom (subject to
any adjustment under paragraph 25(5)).