1This chapter applies to:

1. (1)

   a debt management firm; and

2. (2)

   a not-for-profit debt advice body that, at any point in the last 12 months, has held £1 million or more in client money or as the case may be, projects that it will hold £1 million or more in client money at any point in the next 12 months.

1. (1)

   This chapter does not apply to an authorised professional firm:

   1. (a)

      whose main business is the practice of its profession; and

   2. (b)

      whose regulated activities covered by this chapter are incidental to its main business.

2. (2)

   A firm's main business is the practice of its profession if the proportion of income it derives from professional fees is, during its annual accounting period, at least 50% of the firm's total income (a temporary variation of not more than 5% may be disregarded for this purpose).

3. (3)

   Professional fees are fees, commissions and other receipts receivable in respect of legal, accountancy, conveyancing and surveying services provided to clients but excluding any items receivable in respect of regulated activities.

A contravention of the rules in this chapter does not give rise to a right of action by a private person under section 138D of the Act (and each of those rules is specified under section 138D(3) of the Act as a provision giving rise to no such right of action).

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

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

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.

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.

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.

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

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.

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.

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.

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

1. (1)

   A firm must calculate its prudential resources only from the items which are eligible to contribute to a firm's prudential resources (see CONC 10.3.2 R).

2. (2)

   In arriving at its calculation of its prudential resources a firm must deduct certain items (see CONC 10.3.3 R).

A subordinated loan/debt must not form part of the prudential resources of the firm unless it meets the following conditions:

1. (1)

   it has an original maturity of:

   1. (a)

      at least five years; or

   2. (b)

      it is subject to five years' notice of repayment;

2. (2)

   the claims of the subordinated creditors must rank behind those of all unsubordinated creditors;

3. (3)

   the only events of default must be non-payment of any interest or principal under the debt agreement or the winding up of the firm;

4. (4)

   the remedies available to the subordinated creditor in the event of non-payment or other default in respect of the subordinated loan/debt must be limited to petitioning for the winding up of the firm or proving the debt and claiming in the liquidation of the firm;

5. (5)

   the subordinated loan/debt must not become due and payable before its stated final maturity date, except on an event of default complying with (3);

6. (6)

   the agreement and the debt are governed by the law of England and Wales, or of Scotland or of Northern Ireland;

7. (7)

   to the fullest extent permitted under the rules of the relevant jurisdiction, creditors must waive their right to set off amounts they owe the firm against subordinated amounts owed to them by the firm;

8. (8)

   the terms of the subordinated loan/debt must be set out in a written agreement that contains terms that provide for the conditions set out in this rule; and

9. (9)

   the loan/debt must be unsecured and fully paid up.