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HMRC internal manual

Banking Manual

Bank compensation restriction: definition of banking company: the investment banking condition

CTA09/S133E(4)(b), (5); S133G & S133H

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.

Regulatory definition {#regulatory}

The first test is met if the company is an investment bank. The definition of an investment bank for the purpose of the compensation measure is provided in CTA09/S133H. The definition depends upon the regulation in force at the date of the relevant conduct. A company or partnership will be an investment bank if:

  • from 1 January 2014 if it is both an IFPRU 730K firm and a full scope IFPRU investment firm as defined in the FCA Handbook , or a company or partnership designated by the PRA as an investment firm
  • at any time between 1 April 2013 to 31 December 2013 it was both a BIPRU 730K firm and a full scope BIPRU investment firm as defined in the PRA Handbook
  • at any time between 1 January 2007 to 31 March 2013 if it was both a BIPRU 730K firm and a full scope BIPRU investment firm as defined in the Handbook of the Financial Services Authority (FSA) at that time
  • before 1 January 2007 if it was both a BIPRU 730K firm and a full scope BIPRU investment firm as defined in the Handbook of the FSA as in force on 1 January 2007

A non-resident company or partnership carrying on activities outside the UK will be an investment bank if it would need to be regulated as an IFPRU 730K firm and a full scope IFPRU investment firm (or their earlier equivalents) in order to carry on the same activities if it was resident in the UK.

Activity test {#}

The second part of the investment banking condition looks at the nature and extent of the activities the entity carries out. The test applies differently depending on the regulation in force at the date of the relevant conduct.

From 1 December 2001 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 40 (safeguarding and administering investments), and
  • article 61 (entering into regulated mortgage contracts)

Before 1 December 2001 the activity test is satisfied if 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) in the form that these regulations had effect on 1 December 2001.

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.