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CONC 10.2 Prudential resources requirements

General solvency requirement

CONC 10.2.1RRP

A firm must, at all times, ensure that it is able to meet its liabilities as they fall due.

General prudential resource requirement

CONC 10.2.2RRP

A firm must ensure that, at all times, its prudential resources are not less than its prudential resources requirement.

Prudential resources: relevant accounting principles

CONC 10.2.3RRP

A firm must recognise an asset or liability, and measure its amount, in accordance with the relevant accounting principles applicable to it for the purpose of preparing its annual financial statements unless a rule requires otherwise.

Prudential resources requirement: firms carrying on other regulated activities

CONC 10.2.4RRP

The prudential resources requirement for a firm carrying on a regulated activity or activities in addition to those covered by this chapter, is the higher of:

  1. (1)

    the requirement which is applied by this chapter; and

  2. (2)

    the prudential resources requirement which is applied by another rule or requirement to the firm.

Prudential resources requirement

CONC 10.2.5RRP

On its accounting reference date in each year, a firm must calculate:

  1. (1)

    the total value of its relevant debts under management outstanding on that date; and

  2. (2)

    the sum of:

    1. (a)

      0.25% of the first £5 million of that total value;

    2. (b)

      0.15% of the next £95 million of that total value; and

    3. (c)

      0.05% of any remaining total value.

CONC 10.2.6RRP

The total value of a firm's relevant debts under management outstanding referred to in CONC 10.2.5 R (1) is the sum of all the firm's customers' relevant debts under management.

CONC 10.2.7GRP

The definition of relevant debts under management refers to a debt due under a credit agreement or a consumer hire agreement in relation to which the firm is carrying on debt adjusting or an activity connected to that activity. The reference to "debt due" covers not only amounts that are payable at the time the prudential resources requirement is calculated but also amounts the borrower or hirer1 is presently obliged to pay under the credit agreement or the consumer hire agreement1 in the future.

CONC 10.2.8RRP

The prudential resources requirement for a firm to which this chapter applies is the higher of:

  1. (1)

    £5,000; or

  2. (2)

    the sum calculated in accordance with CONC 10.2.5 R (2);

for the period until (subject to CONC 10.2.13 R) its next accounting reference date.

CONC 10.2.9RRP

To determine a firm's prudential resources requirement for the period beginning on the date on which it obtains Part 4A permission and ending on the day before its next accounting reference date, the firm must carry out the calculation in CONC 10.2.5 R (2) on the basis of the total value of relevant debts under management the firm projects will be outstanding on the day before its next accounting reference date.

What is not included as relevant debts under management

CONC 10.2.10GRP

Activities carried on by a person acting as an insolvency practitioner (within section 388 of the Insolvency Act 1986 or, as the case may be, article 3 of the Insolvency (Northern Ireland) Order 1989) or by a person acting in reasonable contemplation of that person's appointment as an insolvency practitioner are excluded from the regulated activity of debt adjusting. A debt in relation to which a person is acting in such a capacity is, therefore, excluded from the calculation of its relevant debts under management (but a debt in relation to which the same person is not acting in such capacity and is carrying on debt-adjusting is included in the calculation).

Determining the prudential resources requirement

CONC 10.2.11GRP

If a firm has 1000 relevant debts under management and each of those debts is £10,000, the total value of the firm's relevant debts under management is £10,000,000. If the firm does not carry on any other regulated activity to which another higher prudential resources requirement applies, its prudential resources requirement is £20,000. This is calculated as follows:

  1. (1)

    0.25% x £5,000,000 = £12,500; and

  2. (2)

    0.15% x £5,000,000 = £7,500.

CONC 10.2.12GRP

If during the following year 20% (£200) of each relevant debt under management is paid off by the borrower or hirer leaving an outstanding balance of £800 on each relevant debt under management,and during that year the firm does not carry on debt adjusting in relation to any further debts due under credit agreements or consumer hire agreements, the total value of the firm's relevant debt under management is £8,000,000. If the firm does not carry on any other regulated activity to which another higher prudential resources requirement applies, its prudential resources requirement is £17,000. This is calculated as follows:

  1. (1)

    0.25% x £5,000,000 = £12,500; and

  2. (2)

    0.15% x £3,000.000 = £4,500.

Recalculating the prudential resources requirement

CONC 10.2.13RRP

If a firm experiences a greater than 15% increase in the total value of its relevant debts under management compared to the value used in its last prudential resources requirement calculation, it must recalculate its prudential resources requirement using the new total value of its relevant debts under management.

CONC 10.2.14RRP

A firm must notify the FCA of any change in its prudential resources requirement within 14 days of that change.