CFM72410 – Corporate Finance Handbook – HMRC Internal Handbook


The holding company: regulation 6

The holding company must meet two conditions:

  • its activity, apart from ancillary activities, must consist of the acquisition, holding and management of financial assets which constitute all or part of the guarantee of the capital market system (Condition A);
  • its debts representing debtor relations (under the legislation on credit relations) are due in whole or mainly to a company issuing bonds or to an intermediary company (s) borrower (s) ( s) (Condition B).

Rule 6 refers to a debtor relationship of an asset holding company with a single note issuing company or an intermediary borrower, but the singular can here be taken to include the plural.

” Financial assets “

As for the company issuing the notes, the shareholder must only hold financial assets. These are defined in Regulation 2 (CFM72350). The Taxation of Securitization Companies (Amendment) Regulations 2018 (SI2018 / 143), which entered into force on February 28, 2018, inserted a new definition of “financial asset” in Regulation 9A to replace the definition in Regulation 2 – see CFM72355.

The most commonly encountered securitizations will relate to financial assets such as mortgages and credit card debt. In such cases, the asset-holding company would normally be included in the scheme, although in the simplest cases there will be only one company that will hold the financial assets and issue the notes, which will therefore enter into also in the definition of a company “issuing of notes”.

In a whole enterprise securitization where the business assets include non-financial assets which are the ultimate security for the capital market agreement, these assets will normally be held by one company (or companies) within the originator group, this company raising a guaranteed loan from a note issuing company or an intermediary borrowing company. In such a case, the company holding the encumbered business assets is automatically excluded from the scheme because it could only qualify (if applicable) as an asset holder company but would fail the test first to have assets that are not. financial assets and secondly, for having carried out a trading activity which could not be qualified as ancillary to the CMA. Its business will not only consist of acquiring, holding and managing financial assets.

However, in such a case, the note issuing company and any intermediary borrowing company will be eligible provided they meet the other conditions.

What does “hold financial assets” mean?

In some cases, the assets transferred by the originator to the securitization company may continue to appear on the balance sheet of the originator, and the balance sheet of the securitization company may show an asset or a deemed asset other than the asset. real transferred. While the question of whether the assets are “financial assets” will depend on the application of the accounting definition, the securitization company will be considered to “hold” the assets it holds under the law.

A securitization firm may not always have direct and exclusive ownership of the assets that constitute the collateral for the capital market arrangement. Instead, the assets may be held by a “debt trustee” and the securitization company may have an undivided beneficial interest in the property of the debt trust. The holding of such beneficial interest will be considered the “holding” of the assets. Debt trust property may include non-financial assets, incidental to the holding of the financial assets by the trust, and for the securitization company this will be treated as an activity incidental to the holding of the financial assets.

CFM72420 deals with the case where assets are held through a partnership.

CFM72430 deals with the case where the holding company issues subordinated debt.


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