BKM402400 - Banking surcharge: definition of banking company: the investment banking condition

CTA10/S269B(5)(b), (6), (6A), (6B), (6C), (6D)

The investment banking condition is intended to ensure that investment banks are also classified as banking companies. As investment banking can consist of a wide variety of different activities, some of these activities are carried on by firms that are not normally considered as investment banks.

The investment banking condition is therefore designed to exclude those companies or partnerships that have permissions to carry out a wide range of regulated activities but where those activities are either narrow in range or are a relatively small part of its business.

The investment banking condition has three tests, all of which need to be met.

Investment banking condition: regulatory definition

The first test is met if the company or partnership is an investment bank. The definition of an investment bank for the purpose of the surcharge and bank loss restriction is provided at CTA10/S269B(6A).

A company or partnership will be an investment bank if:

  • it is an FCA investment firm that meets the condition in CTA10/S269B(6B) (see BKM402425) or,
  • a company or partnership designated by the PRA as an investment firm - the PRA regularly publishes a list of investment firms

UK branches of foreign investment banks would not have their registered office or head office in the UK and therefore may hold the regulatory permissions that permit them to carry on activities in the UK whilst not being classified as an FCA investment firm. This may mean without a special rule they would not be regarded as an investment bank.

CTA10/S269BC(10) says that the entity, to which the branch belongs, will be regarded as an investment bank if it is or was carrying on the same type of activities as a UK investment bank. This is achieved by asking whether the entity would be an FCA investment firm that meets the conditions in CTA10/S269B(6B) if it was resident in the UK.

See the activity test below for the kind of activities that would bring the foreign investment bank into this definition.

Investment banking condition: activity test

The second part of the investment banking condition looks at the nature and extent of the activities the entity carries out.

The activity test is satisfied when the entity’s activities consist wholly or mainly of any of the regulated activities described in the following articles of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (SI2001/544):

  • article 14 (dealing in investments as principal)
  • article 21 (dealing in investments as agent)
  • article 25 (arranging deals in investments)
  • article 25DA (operating an organised trading facility), but only where dealing on own account in relation to sovereign debt instruments for which there is no liquid market (within the meaning of the FCA Handbook);
  • article 40 (safeguarding and administering investments)
  • article 61 (entering into regulated mortgage contracts)

Investment banking condition: trade test

The third part of the investment banking condition is that the entity carries on those regulated activities wholly or mainly in the course of trade.