CFM14060 - Understanding corporate finance: the legal and regulatory framework: regulated entities: banks

Definition of a bank

For regulatory purposes, a bank is a person who has permission from the Prudential regulatory Authority (PRA), under Part 4 of FSMA2000, to carry on a regulated activity of accepting deposits.

As a matter of general law a bank is defined by what it does. It

• accepts money, collects cheques for customers and places them to their credit;
• honours cheques for customers when presented, and debits customer accounts accordingly;
• keeps current accounts, or something of that nature in which the debits and credits are entered.

These factual tests were established in a non-tax case, United Dominions Trust Ltd v Kirkwood (1 All ER 968). Although a bank is entitled to use the money to lend on to customers, money lending by itself is not banking. For the taxation of moneylenders see the Business Income Manual (BIM62201). The Court found that UDT did not pass the factual tests but was nevertheless a bank because it had the reputation and standing of a bank in the City of London. This demonstrates that banking is not just a question of passing a number of factual tests - there must also be a perception of the company as a bank.

For certain purposes the question of what is a bank has been settled by CTA10/S1120 and ITA07/S991. This defines bank for the following purposes:

ITA07/SS878 & 879	Deduction of tax from interest
CTA10/S1100	Information relating to distributions
ITA07/S558 & S561	Approved charitable investments

The PRA maintains a list of recognised banks - CFM14070.

For other purposes, including bank surcharge, bank levy, bank loss and compensation restrictions and the code of practice on taxation for banks, the definition of a bank includes investment banks which may not carry on a regulated activity of accepting deposits. See the Banking Manual, Bank Levy Manual and Code Guidance for further details.