CFM44030 | Deemed loan relationships: alternative finance: 'financial institution'

Definition of ‘financial institution’

CTA09/S502

Generally, one of the parties to an an alternative finance arrangement must be a ‘financial institution’.

The requirement is modified in relation to purchase and resale and diminishing shared ownership arrangements (CFM44035) and alternative finance investments bonds.

Financial institution is defined in S502 as

• a bank as defined in CTA10/S1120

• a building society within the meaning of the Building Societies Act 1986

• a wholly owned subsidiary of a bank or building society defined as one which has no members except the parent bank or building society and the parents wholly owned subsidiaries or persons acting on behalf of the parent or the parents wholly owned subsidiaries

• a person with permission under the Financial Services & Markets Act 2000 to enter into or exercise rights and duties under a contract of the kind mentioned in that Act

• a bond issuer, but only in relation to bond assets which are rights under CTA09/S503 (purchase and resale arrangements), S504 (diminishing shared ownership arrangements) or S506 (profit share agency arrangements);

• a person authorised in an overseas jurisdiction to receive deposits or other repayable funds from the public and to grant credits for its own account

• an insurance company as defined in FA12/S65

• a person authorised in an overseas jurisdiction to carry on a business which consists of effecting or carrying out contracts of insurance or substantially similar business but not an insurance special purpose vehicle as defined in FA12/S139(1)

The definition thus includes non-corporates and some overseas finance providers.

‘Financial institution’ and alternative finance investment bond issuers

CFM44020 explains that alternative finance investment bonds are economically equivalent to conventional corporate or government bonds. The issuer of an alternative finance investment bond will not necessarily be a ‘financial institution’ of the type listed under S502. However, the bond issuer is treated as a ‘financial institution’ where the assets it holds are alternative finance arrangements, so that these arrangements do not cease to qualify as alternative finance arrangements when they are transferred from the originating bank or other financial institution to the bond issuer.