CIU Exposures¶

CIU exposures are holdings of units or shares in Collective Investment Undertakings (funds — UCITS, AIFs, money-market funds, ETFs). Under Basel 3.1 (PRA PS1/26 Art. 132–132C), CIUs are a standalone exposure class with three calculation approaches and a 1,250% fallback.

Definition¶

A CIU exposure is any holding of units or shares in a fund. Under Basel 3.1 Art. 112 Table A2 priority 2, CIUs sit second only to securitisation positions in the exposure-class waterfall — the CIU treatment overrides any other classification an underlying instrument might attract.

CIUs that are excluded from the CIU treatment (Art. 132B(1)–(2)) include CET1/AT1/T2 instruments held by the CIU and required to be deducted, exposures to entities at 0% RW (after a firm election), and equities incurred under government-sponsored legislative programmes — these flow back to Art. 133 equity treatment.

The Three Approaches (Art. 132A)¶

PRA PS1/26 Art. 132 establishes three calculation approaches in descending order of preference:

flowchart TD
    A[CIU Holding] --> B{Sufficient information<br>about underlying exposures?}
    B -->|Yes| C[Look-through Approach<br>Art. 132A(1)]
    B -->|No| D{Mandate / prospectus<br>data quality conditions met?}
    D -->|Yes| E[Mandate-Based Approach<br>Art. 132A(2)]
    D -->|No| F[Fallback Approach<br>Art. 132(2) — 1,250%]

Look-Through Approach (Art. 132A(1))¶

The institution risk-weights every underlying exposure of the CIU as if it held them directly, then multiplies the resulting weighted total by its fractional holding in the fund. This is the lowest-RW route but has the strictest data requirements.

Conditions (Art. 132(3)):

• The CIU's prospectus or equivalent document discloses (i) authorised asset categories and (ii) where investment limits apply, the relative limits and methodology to compute them.
• Reporting from the CIU / management company:
  • Quarterly minimum frequency on the CIU's exposures
  • Granularity sufficient to compute the chosen approach
  • For look-through: underlying exposures verified by an independent third party

Mandate-Based Approach (Art. 132A(2))¶

Where the institution lacks sufficient data to look through individual exposures, it calculates the RWA against the maximum exposures permitted by the CIU's mandate.

Conservative assumption (Art. 132A(2) second sub-paragraph): the institution must assume the CIU first incurs exposures, to the maximum extent allowed, in the asset categories attracting the highest own-funds requirement, then continues in descending order until the maximum total exposure limit is reached, and that the CIU applies leverage to the maximum extent allowed under its mandate.

Reduced reporting: Quarterly reporting is not required for mandate-based — the institution may rely on the CIU's investment mandate plus updates only on first acquisition and on mandate change (Art. 132(3) derogation).

Fallback Approach (Art. 132(2))¶

Where neither look-through nor mandate-based conditions are met:

A 1,250% weight is equivalent to a full capital deduction (1 ÷ 8% = 12.5×) — every GBP of exposure consumes a full GBP of common equity capital. This is intentional: it makes look-through and mandate-based the only economically viable approaches for material CIU portfolios.

Details: See CIU Exposures (Art. 132) specification for the full spec including the third-party calculation route under Art. 132(4) and multi-level CIU rules under Art. 132(5).

Combining Approaches (Art. 132(2) Sub-Para 3)¶

An institution may use a combination of look-through, mandate-based, and fallback on a single CIU provided the conditions for each approach are met for the relevant exposures. A CIU disclosing 70% of its assets via verified look-through reporting and treating the remaining 30% as a mandate-based bucket is permitted, as is partial treatment with 1,250% fallback for the un-disclosed slice.

Multi-Level CIUs — CIUs of CIUs (Art. 132(5))¶

Where a level-1 CIU itself holds units in a level-2 CIU:

Third-Party Calculation Reliance (Art. 132(4))¶

An institution lacking the data to compute Art. 132A approaches itself may rely on a third party's calculation, provided:

• (a) The third party is the depository institution / depository financial institution (where the CIU invests exclusively in securities deposited there) or the CIU management company.
• (b) The third party uses Art. 132A(1), (2), or (3) (i.e., not its own bespoke method).
• (c) An external auditor has confirmed the correctness of the third party's calculation.

1.2× multiplier: The institution multiplies the third-party RWA by 1.2 as a "data-quality penalty". This multiplier is waived if the institution has unrestricted access to the detailed underlying calculations and can produce them on PRA request.

Cap on Risk-Sensitive Approaches (Art. 132(6))¶

The RWA produced by look-through or mandate-based shall be capped at the RWA the fallback (1,250%) would produce. This is a regulatory backstop — exotic structured funds where the modelled RWA on underlying derivatives or short positions might exceed 1,250% are still capped at 1,250%.

Off-Balance-Sheet CIU Commitments (Art. 132C)¶

Where an institution has an off-balance-sheet commitment to subscribe to a CIU (e.g., a subscription line not yet drawn):

For commitments where the institution applies look-through or mandate-based to the on-balance portion:

RW*_i = (RWEA_i / E*_i) × (A_i / EQ_i)

Where:

• RWEA_i = the RWA of the CIU's exposures under Art. 132A
• E*_i = the on-balance exposure value of the CIU
• A_i = the accounting value of the CIU's assets
• EQ_i = the accounting value of the CIU's equity (so A_i / EQ_i is the leverage ratio)

For all other off-balance commitments (i.e. where the institution falls back to 1,250% on the on-balance portion): RW*_i = 1,250%.

PRA Notification Threshold — "Relevant CIUs" (Art. 132(8))¶

A "relevant CIU" (defined in PS1/26 Art. 1.2 Glossary) is a CIU:

• managed by a company registered in a third country, AND
• for which the institution applies look-through (Art. 132A(1)) or mandate-based (Art. 132A(2)) — i.e., this notification regime does not bite where the firm uses the 1,250% fallback.

The institution must notify the PRA when either of the following thresholds is reached on an individual or consolidated basis (Art. 132(8)(a)):

The notification must include:

• A list of the countries in which the fund managers of all relevant CIUs are located (Art. 132(8)(d)(i))
• The total exposure values and total RWAs in respect of those countries (Art. 132(8)(d)(ii))

The institution must also notify the PRA promptly when both thresholds drop back below the limits (Art. 132(8)(c)), and must repeat the notification annually while in breach (Art. 132(8)(b)).

CRR vs Basel 3.1 — Key Differences¶

Implementation Status¶

Calculation Examples¶

Example 1 — Look-Through Equity Fund¶

Exposure:

• £20,000,000 holding in a UK UCITS equity fund (1.5% of fund)
• Fund holds £1,000,000,000 of FTSE-100 listed equity
• Quarterly verified third-party look-through reporting available

Calculation:

# Look-through: equity SA RW = 250% (Art. 133(3) listed)
RWA_underlying = 1,000,000,000 × 250% = 2,500,000,000
# Pro-rata to holding fraction
Institution_RWA = 2,500,000,000 × 1.5% = 37,500,000

Example 2 — Mandate-Based Mixed Fund¶

Exposure:

• £15,000,000 holding in a multi-asset fund (3% of fund)
• Mandate permits up to 60% equity, 30% IG corporate bonds, 10% leverage
• No quarterly look-through data available — mandate-based applies

Conservative mandate-based stack:

# Highest-RW first: 60% equity at 250% = 60% × 250% = 150%
# Next: 30% IG corporate at 65% = 30% × 65% = 19.5%
# Plus 10% leverage applied to the highest weight: 10% × 250% = 25%
Effective_RW = 150% + 19.5% + 25% = 194.5%
RWA_underlying = 1,000,000,000 × 194.5% = 1,945,000,000  # full fund
Institution_RWA = 1,945,000,000 × 3% = 58,350,000
# Cap (Art. 132(6)): cannot exceed 15,000,000 × 1250% = 187,500,000 — not binding

Example 3 — Fallback (Opaque Hedge Fund)¶

Exposure:

• £5,000,000 investment in an offshore hedge fund
• No mandate disclosure, no look-through reporting

Calculation:

RW = 1,250% (Art. 132(2) fallback)
RWA = 5,000,000 × 1,250% = 62,500,000
# Equivalent to full deduction: 5m × 8% = 400,000 capital required = 5m × 8%

Example 4 — Relevant-CIU Notification Trigger¶

Scenario:

• Total RWA for credit + dilution risk: £20,000,000,000
• 0.5% threshold: £100,000,000 RWA
• Holdings in third-country-managed CIUs: £1,200,000,000 exposure value, £840,000,000 RWA

Outcome:

# Test 1 (RWA): 840,000,000 > 100,000,000 → trigger
# Test 2 (Exposure value): 1,200,000,000 > 500,000,000 → trigger (independently)
→ PRA notification required (Art. 132(8)(a)).

The institution must list the third-country domiciles of every relevant CIU's fund manager and provide per-country exposure-value and RWA totals.

Input Schema Summary¶

Regulatory References¶

Next Steps¶

• Real Estate Exposures — for funds holding RE
• Other Exposure Classes — Equity — equity exclusion route under Art. 132B(2)
• Standardised Approach
• SA Risk Weights specification (Basel 3.1)