A firm must:

1. (1)

   (at the time it is granted an e-money permission) have initial capital, calculated in accordance with ELM 2.4.2 R;

2. (2)

   (at all times) maintain own funds, calculated in accordance with ELM 2.4.2 R;

amounting to not less than:

1. (3)

   (if the firm'sbase currency is the euro) one million euro;

2. (4)

   (if the firm has another base currency) the equivalent amount in that currency.

Initial capital and own funds are calculated in accordance with ELM 2.4.2 R.

Ordinary share capital may only be included when making the calculations in ELM 2.4.2 R to the extent that it is paid up and permanent. In addition, there must be no fixed dividend and, if the shares carry a dividend, the terms of those shares must provide that a dividend payment can only be made if the firm's governing body has agreed that it should be made and must provide that the amount of the dividend payment cannot exceed the amount recommended or decided on by the firm's governing body. Accordingly, any dividends must be non-cumulative. Sums credited to a firm's share premium account are only included in its own funds if they are in respect of shares forming part of its own funds.

Audited reserves are audited accumulated profits retained by the firm after deduction of tax and dividends and other audited reserves created by similar realised appropriations. Reserves include gifts of capital.

If a reserve in ELM 2.4.2 R is negative, it must be deducted at the relevant stage of the calculation in ELM 2.4.2 R.

Externally verified interim net profits are interim net profits that the firm's external auditor has verified. They are net of any foreseeable charge, proprietors' drawings, dividend or similar amount.

Partnership capital is made up of the partners' capital accounts. The capital account is an account:

1. (1)

   into which capital contributed by the partners is paid; and

2. (2)

   from which under the terms of the partnership agreement an amount representing capital may be withdrawn by a partner only if:

   1. (a)

      he ceases to be a partner and an equal amount is transferred to another such account by his former partners or any person replacing him as their partner; or

   2. (b)

      the partnership is otherwise dissolved or wound up.

   If partnership capital is negative, it must be deducted.

Partnership capital is eligible for inclusion in a firm's own funds only to the extent that it is permanent and that no obligation that cannot be cancelled without cost exists to pay costs on it (for example in the form of interest).

Intangible assets are the full balance sheet value of intangible assets including goodwill, capitalised development costs, licences and intellectual property.

Interim net losses are any interim net losses (audited or unaudited).

Subordinated debt capital does not form part of the own funds of a firm unless the following requirements are met:

1. (1)

   the claims of the subordinated creditors (whether in respect of principal, interest or otherwise) must rank behind those of all unsubordinated creditors of the firm and behind any unsubordinated creditors of any partner in it;

2. (2)

   the debt capital is unsecured and fully paid up;

3. (3)

   to the fullest extent permitted under the laws of all relevant jurisdictions, creditors must waive their right to set off amounts they owe the firm against the subordinated debt capital;

4. (4)

   the remedies (other than rights falling into (3)) available to the subordinated creditor in the event of non-payment, an event of default, breach of agreement or other default in respect of the subordinated debt capital (so far as applicable) must be limited to:

   1. (a)

      bringing proceedings for the winding up, bankruptcy or administration of the firm (or any partner in the firm) or any similar or equivalent proceedings under the law of any part of the United Kingdom or of any other country; or

   2. (b)

      proving for the debt and claiming in the liquidation of the firm or in any other proceedings referred to in (4)(a);

5. (5)

   neither the firm nor any partner in it may by virtue of any remedy mentioned in ELM 2.4.11 R (4) be obliged to pay any sum or sums sooner than the same is payable under ELM 2.4.12 R (1) (in the case of lower tier two capital) or ELM 2.4.13 R (1) (in the case of upper tier two capital);

6. (6)

   the terms of the subordinated debt capital must be set out in a written agreement or instrument that contains terms that provide for the conditions set out in:

   1. (a)

      (1) to (5); and

   2. (b)

      ELM 2.4.12 R (in the case of lower tier two capital) or ELM 2.4.13 R (in the case of upper tier two capital); and

7. (7)

   the firm has obtained a written legal opinion from a suitably experienced external lawyer confirming that the debt capital meets the requirements of:

   1. (a)

      (1) to (6); and

   2. (b)

      ELM 2.4.12 R (in the case of lower tier two capital) or ELM 2.4.13 R (in the case of upper tier two capital).

Subordinated debt capital does not form part of the of the lower tier two capital of a firm unless the following requirements are met (in addition to those in ELM 2.4.11 R):

1. (1)

   (without limiting the requirements in ELM 2.4.11 R (1)) the subordinated debt capital must not be capable of becoming due and payable before any maturity date set under (2) except (if it is subject to any events of default) on an event of default complying with (3);

2. (2)

   (without limiting the requirements in ELM 2.4.11 R (1)) the subordinated debt capital must:

   1. (a)

      have a fixed original maturity of at least five years; or

   2. (b)

      be subject to notice of repayment of at least five years; or

   3. (c)

      be perpetual; or

   4. (d)

      be repayable only in a winding up of the firm or in any other proceedings referred to in ELM 2.4.11 R (4)(a);

3. (3)

   any events of default are limited to the winding-up of the firm or the bringing of any other proceedings referred to in ELM 2.4.11 R (4)(a); and

4. (4)

   any:

   1. (a)

      events of default; or

   2. (b)

      remedy referred to in ELM 2.4.11 R (3) or ELM 2.4.11 R (4); or

   3. (c)

      provision for a final maturity date;

   must not prejudice the subordination set out in (1) and ELM 2.4.11 R (1).

Subordinated debt capital does not form part of a firm's upper tier two capital unless the following requirements are met (in addition to those in ELM 2.4.11 R):

1. (1)

   (without limiting the requirements in ELM 2.4.11 R (1)) the subordinated debt capital is perpetual or is only repayable in a winding up of the firm or in any similar proceedings relating to the firm or relating to the firm and any partner of the firm;

2. (2)

   no interest, principal or other amount may be payable:

   1. (a)

      at a time when the firm is in breach of any ELM financial rule or is insolvent; or

   2. (b)

      if making that payment would result in the firm breaching any ELM financial rule or becoming insolvent;

3. (3)

   the firm may defer the payment of any interest;

4. (4)

   the subordinated debt capital complies with the conditions in article 632(2)(d) of the Banking Consolidation Directive;

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5. (5)

   the debt capital is not subject to any event of default; and

6. (6)

   any remedy referred to in ELM 2.4.11 R (3) or ELM 2.4.11 R (4) must not prejudice the subordination set out in (1) and ELM 2.4.11 R (1).

For the purposes of calculating the amount of subordinated debt capital which may be included in a firm's own funds as lower tier two capital in its final five years to maturity the principal amount must be amortised on a straight line basis by 20% per annum.

A firm may treat subordinated debt capital that would be eligible to form part of its upper tier two capital as falling into stage E of the calculation in ELM 2.4.2 R rather than stage D.

1. (1)

   The total amount of a firm'smaterial holdings as referred to at stage F of the calculation in the table in ELM 2.4.2 R is the sum of:1

   1
   1. (a)

      the total value of all ownership shares and all capital coming within (6)1 owned by the firm (or in which it has a position) in any relevant financial services company or1financial institution in which the firm owns more than 10% of the ownership shares;

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   2. (b)

      the amount by which the total amount specified in (3) exceeds 10% of the firm's own funds (calculated before the deduction of material holdings at stage F of the calculation in ELM 2.4.2 R);

   3. (c)

      ownership shares in any:1

      1. (i)

         insurance undertaking; or1

      2. (ii)

         insurance holding company;1

      if it fulfils one of the following conditions:1

      1. (iii)

         it is a subsidiary undertaking of the firm; or1

      2. (iv)

         the firm holds a participation in it; and1

   4. (d)

      any item of capital of a type referred to in (6) in an insurance undertaking or insurance holding company coming within (1)(c).1

2. (2)

   In the case of ownership shares in an issuer with a share premium account, the figure of 10% in (1)(a) must be calculated by reference to the share capital plus share premium of that issuer.

3. (3)

   The amount referred to in (1)(b) is the sum of the total value of all the ownership shares and all capital coming within (6) 1owned by the firm (or in which it has a position) in financial institutions or relevant financial services companies1 except for financial institutions or relevant financial services companies1 that fall into (1)(a).

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4. (4)

   The firm must include ownership shares and any item of capital of the type referred to in (6):1

   1
   1. (a)

      of which it is not the registered owner but which it owns beneficially; or1

   2. (b)

      that are or should be included as an asset in its accounting records.1

5. (5)

   The value of ownership shares and capital coming within (6) 1for the purposes of ELM 2.4.17 R1 is the full balance sheet value.

   11
6. (6)

   An item falls into this paragraph if it is a subordinated debt or other item of capital that:1

   1. (a)

      (in the case of an insurance undertaking or insurance holding company) falls into Article 16(3) of the First Non-Life Directive or, as applicable, Article 27(4) of the Consolidated Life Directive; or1

   2. (b)

      (in the case of a relevant financial services company or financial institution) falls into Article 632 or Article 642(3) of the Banking Consolidation Directive.1

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Any item that would otherwise form part of a firm's tier two capital must be excluded from the firm's own funds to the extent that the firm'stier two capital would otherwise exceed its tier one capital.

Any item that would otherwise fall into stage E of the calculation in ELM 2.4.2 R must be excluded from own funds to the extent that the sum of items falling into that stage would exceed 50% of the amount calculated at stage C of the calculation in ELM 2.4.2 R.

In accordance with article 612 of the Banking Consolidation Directive, tier one capital and revaluation reserves must not be included within a firm's own funds to the extent that those items do not represent capital that is available to the firm for unrestricted and immediate use to cover risks and losses as soon as these occur, whether because of taxation charges, any future foreseeable taxation charges or for any other reason.

2In accordance with article 64(4) of the Banking Consolidation Directive, the fair value reserves related to gains or losses on cash flow hedges of financial instruments measured at amortised cost or any gains or losses on their liabilities valued at fair value that are due to changes in the firm's own credit standing must not be included within a firm'sown funds.

A firm must, at all times, maintain own funds equal to or in excess of its own funds requirement.

A firm's own funds requirement is, at any time, 2% of the higher of the following amounts:

1. (1)

   its e-money outstandings at that time; and

2. (2)

   the average of its daily e-money outstandings amount for the six month period ending at that time.

If a firm has not been an ELMI for the whole of the period referred to in ELM 2.5.2 R (2), the firm must calculate the amount in ELM 2.5.2 R (2) from the projected amounts of its daily e-money outstandings amount for the six month period beginning on the day it is granted an e-money permission. Those projections must be the ones contained in the business plan supplied by the firm to the FSA as part of its application for the granting an e-money permission or (if the plan is amended and resubmitted to the FSA before the granting an e-money permission) the plan as so amended and resubmitted.

If, in relation to a firm:

1. (1)

   the projections referred to in ELM 2.5.3 R (or any further projections prepared under this rule) have proved to be significantly incorrect; or

2. (2)

   it is reasonably likely that those projections will prove to be significantly incorrect;

and more than one month of the six month period beginning on the date the firm is granted an e-money permission remains at the time that the circumstances in ELM 2.5.4 R (1) or ELM 2.5.4 R (2) first arise, the firm must prepare revised projections of its daily e-money outstandings amount for the rest of that period.

The revised projections in ELM 2.5.4 R must:

1. (1)

   be prepared to a high standard and be fair and reasonable;

2. (2)

   be based on reasonable and appropriate assumptions and research and (where appropriate) fact; and

3. (3)

   be completed and sent to the FSA within ten business days of the circumstances in ELM 2.5.4 R (1) or ELM 2.5.4 R (2) first arising.

If a firm produces new projections under ELM 2.5.4 R, the amount referred to in ELM 2.5.2 R (2) must be calculated from the average of its daily e-money outstandings amount for the six month period beginning on the day it is granted an e-money permission, as follows:

1. (1)

   (for the period prior to the day as of which the calculation is being made) from the firm's actual e-money outstandings; and

2. (2)

   (for the remainder of the six month period) from those new projections.