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HMRC internal manual

International Manual

The attribution of capital to foreign banking permanent establishments in the UK: The approach in determining an adjustment to funding costs - STEP 2: Risk weighting the assets: background

Banks do not require the same amount of capital in relation to each of their assets. The regulatory rules recognise that the capital requirement varies according to the risk implicit in the business - from 100% of an asset to 0%. The next step in attributing capital is therefore to apply the appropriate risk-weighting ratio to all the different classes of assets attributable to the permanent establishment (PE).

This will already be a requirement of the company’s regulator in relation to the whole of its business, including that of the PE. There are details in INTM267712 on the extent to which it is possible to base the risk weighting of assets for the PE on the existing regulatory requirements of the company’s home state.