BKLM352000 - Chargeable equity and liabilities: netting: definition of a netting agreement

For the purposes of the bank levy a netting agreement is an agreement which is:

• between a relevant member and a counterparty or a member of the counterparty’s group (either through a bilateral or multilateral arrangement)
• provides for a single net settlement of all of the assets and liabilities covered by the agreement in the event of termination as a result of bankruptcy or insolvency of either party, and
• legally effective and enforceable.

‘Legally effective and enforceable’ means that the entity has a well founded legal basis for concluding that the agreement is legally effective and enforceable.

Relevant members may undertake a number of financial instrument transactions with a counterparty (or members of the counterparty’s group) and may enter into a ‘bilateral or multi-lateral master netting arrangement’ with them.

Providing the netting agreement meets the above conditions the relevant members will be able to net off from their liabilities any asset balances recognised on balance sheet and covered by the master netting agreement for the purposes of determining their bank levy liability - see, for example, CFM13100 (external users can find the guidance at https://www.gov.uk/hmrc-internal-manuals/corporate-finance-manual/cfm13100) regarding the ISDA Master Agreement for swaps and similar derivatives.