BKLM331200 - Chargeable equity and liabilities: excluded equity and liabilities: sovereign repos

Paragraph 31 of Schedule 19

‘Repos’ or sale and repurchase agreements are transactions where one party (the borrower) sells securities to another (the lender) for cash, and repurchases the same or equivalent securities at a later date. The difference between the sale and repurchase price is the finance charge and the securities are the collateral for the in-substance lending transaction.

The exclusion for repo liabilities from the bank levy base where these are secured against sovereign and supranational debt is intended to reflect the relatively low risk associated with those instruments and the deep markets for the collateral. For tax purposes repos are defined at Part 6 Chapter 10 Corporation Taxes Act 2009.

Chargeable periods ending on or before 30 September 2016

For chargeable periods ending on or before 30 September 2016, the exclusion relied on PRA guidelines and the definition of ‘high quality’ contained in BIPRU 12 of the PRA Handbook and covered repos of:

• high quality debt securities issued by a government or central bank of an EEA State, Australia, Canada, Japan, Switzerland or the United States of America and which met the criteria for credit rating and currency denomination specified in the PRA Handbook, and
• securities issued by a designated multilateral development bank or supranational institution*.

The definition of a designated multilateral development bank could also be found in the PRA Handbook.

*Supranational institutions: are generally accepted as being international organisations, or unions, whereby member states transcend national boundaries or interests to share in the decision-making and vote on issues pertaining to the wider grouping. For example, the European Union and the World Trade Organisation are both supranational institutions.

Chargeable periods ending on or after 1 October 2016

For chargeable periods ending on or after 1 October 2016 the exclusion for repo liabilities continues to rely on regulatory guidelines. However from 1 October 2015 these reflect Basel III liquidity coverage ratios for banks, building societies and investment firms known as Capital Requirements Directive IV (CRD IV).

From 1 October 2015 the PRA has required banks and building societies and investment firms to use the CRD IV definitions to determine the requirements for a bank’s liquid asset buffer and the type of assets which may be included within them.

For the purposes of the bank levy, ‘high quality liquid assets’ are defined in BKLM361000.

References to revoked Articles in the Capital Requirements Regulation

Paragraph 31 refers to Article 10 of the Commission Delegated Regulation (2015/61) which (as a matter of UK law) was revoked by SI 2021/1078 and should be read as references to the corresponding provisions in the PRA’s CRR Rules in the PRA Rulebook from 1 January 2022.