GENPRU 2.1 Calculation of capital resources requirements

1This section applies to:

1. (1)

   a BIPRU firm; and

2. (2)

   an insurer, unless it is:

   1. (a)

      a non-directive friendly society; or

   2. (b)

      a Swiss general insurer; or

   3. (c)

      an EEA-deposit insurer; or

   4. (d)

      an incoming EEA firm; or

   5. (e)

      an incoming Treaty firm.

1. (1)

   This section applies to a firm in relation to the whole of its business, except where a particular provision provides for a narrower scope.

2. (2)

   Where an insurer carries on both long-term insurance business and general insurance business, except where a particular provision provides otherwise, this section applies separately to each type of business.

A firm must at all times monitor whether it is complying with GENPRU 2.1.13 R (the main capital adequacy rule for insurer) or the main BIPRU firm Pillar 1 rules and be able to demonstrate that it knows at all times whether it is complying with those rules.

A firm must notify the appropriate regulator immediately of any breach, or expected breach, of GENPRU 2.1.13 R (in the case of an insurer) or the main BIPRU firm Pillar 1 rules (in the case of a BIPRU firm).

A BIPRU firm must maintain at all times capital resources equal to or in excess of the amount specified in the table in GENPRU 2.1.45 R (Calculation of the variable capital requirement for a BIPRU firm).

A BIPRU firm must maintain at all times capital resources equal to or in excess of the base capital resources requirement (see the table in GENPRU 2.1.48 R).

At the time that it first becomes a bank, building society or BIPRU investment firm, a firm must hold initial capital of not less than the base capital resources requirement applicable to that firm.

When a3 collective portfolio management investment firm9 calculates the credit risk capital requirement and the market risk capital requirement for the purpose of calculating the variable capital requirement under GENPRU 2.1.40 R it must do so only3 in respect of designated investment business. For this purpose managing an AIF or managing a UCITS9 is excluded from designated investment business.

The amount of a BIPRU firm's base capital resources requirement is set out in the table in GENPRU 2.1.48 R.

A BIPRU firm must calculate its credit risk capital requirement as the sum of:

1. (1)

   the credit risk capital component;

2. (2)

   the counterparty risk capital component; and

3. (3)

   the concentration risk capital component.

1. (1)

   A BIPRU firm must calculate its market risk capital requirement as the sum of:

   1. (a)

      the interest rate PRR (including the basic interest rate PRR for equity derivatives set out in BIPRU 7.3 (Equity PRR and basic interest rate PRR for equity derivatives));

   2. (b)

      the equity PRR;

   3. (c)

      the commodity PRR;

   4. (d)

      the foreign currency PRR;

   5. (e)

      the option PRR; and

   6. (f)

      the collective investment undertaking PRR.

2. (2)

   Any amount calculated under BIPRU 7.1.9 R - BIPRU 7.1.13 R (Instruments for which no PRR treatment has been specified) must be allocated between the PRR charges in (1) in the most appropriate manner.

In relation to a BIPRU investment firm which is required to calculate a fixed overheads requirement, the amount of that requirementis equal to one quarter of the firm's relevant fixed expenditure calculated in accordance with GENPRU 2.1.54 R.

For the purpose of GENPRU 2.1.53 R, and subject to GENPRU 2.1.55 R to GENPRU 2.1.57 R,a BIPRU investment firm's relevant fixed expenditure is the amount described as total expenditure in its most recent audited annual report and accounts, less the following items (if they are included within such expenditure):

1. (1)

   staff bonuses, except to the extent that they are guaranteed;

2. (2)

   employees' and directors' shares in profits, except to the extent that they are guaranteed;

3. (3)

   other appropriations of profits;

4. (4)

   shared commission and fees payable which are directly related to commission and fees receivable, which are included within total revenue;

5. (5)

   interest charges in respect of borrowings made to finance the acquisition of the firm's readily realisable investments;

6. (6)

   interest paid to customers on client money;

7. (7)

   interest paid to counterparties;

8. (8)

   fees, brokerage and other charges paid to clearing houses, exchanges and intermediate brokers for the purposes of executing, registering or clearing transactions;

9. (9)

   foreign exchange losses; and

10. (10)

    other variable expenditure.

The relevant fixed expenditure of a firm in the following circumstances is:

1. (1)

   where its most recent audited annual report and accounts do not represent a twelve month period, an amount calculated in accordance with GENPRU 2.1.54 R, pro-rated so as to produce an equivalent annual amount; and

2. (2)

   where it has not completed twelve months' trading, an amount based on forecast expenditure included in the budget for the first twelve months' trading, as submitted with its application for authorisation.

A firm must adjust its relevant fixed expenditure calculation so far as necessary if and to the extent that since the date covered by the most recent audited annual report and accounts or (if GENPRU 2.1.55R (2) applies) since the budget was prepared:

1. (1)

   its level of fixed expenditure changes materially; or

2. (2)

   its regulated activities comprised within its permission change.

If a firm has a material proportion of its expenditure incurred on its behalf by third parties and such expenditure is not fully recharged to that firm then the firm must adjust its relevant fixed expenditure calculation by adding back in the whole of the difference between the amount of the expenditure and the amount recharged.

1. (1)

   This rule applies to a bank that meets the following conditions:

   1. (a)

      on 31 December 2006 it had the benefit of IPRU(BANK) rule 3.3.12 (Reduced minimum capital requirement for a bank that is a credit institution which immediately before 1 January 1993 was authorised under the Banking Act 1987);

   2. (b)

      the relevant amount (as referred to in IPRU(BANK) rule 3.3.12) applicable to it was below €5 million as at 31 December 2006; and

   3. (c)

      on 1 January 2007 it did not comply with the base capital resources requirement as set out in the table in GENPRU 2.1.48 R (€5 million requirement).

2. (2)

   Subject to (3), the applicable base capital resources requirement as at any time (the "relevant time") is the higher of:

   1. (a)

      the relevant amount applicable to it under IPRU(BANK) rule 3.3.12 as at 31 December 2006 as adjusted under GENPRU 2.1.62R (2); and

   2. (b)

      the highest amount of eligible capital resources which that bank has held between 1 January 2007 and the relevant time.

3. (3)

   This rule ceases to apply when:

   1. (a)

      that bank's eligible capital resources at any time since 1 January 2007 equal or exceed €5 million; or

   2. (b)

      a person (other than an existing controller) becomes the parent undertaking of that bank.

4. (4)

   If this rule ceases to apply under (3)(a) it continues not to apply if the bank's eligible capital resources later fall below €5 million.

For the purpose of GENPRU 2.1.60 R:

1. (1)

   an existing controller of a bank means:

   1. (a)

      a person who has been a parent undertaking of that bank since 31 December 2006 or earlier; or

   2. (b)

      a person who became a parent undertaking of that bank after 31 December 2006 but who, when he became a parent undertaking of that bank, was a subsidiary undertaking of an existing controller of that bank;

2. (2)

   the relevant amount of capital as referred to in GENPRU 2.1.60R (2)(a) is adjusted by identifying the time as of which the amount of capital it was obliged to hold under IPRU(BANK) rule 3.3.12 as referred to in GENPRU 2.1.60R (2)(a) was fixed and then recalculating the capital resources it held at that time in accordance with the definition of eligible capital resources (as defined in (3)); and

3. (3)

   eligible capital resources mean capital resources eligible under GENPRU 2.2 (Capital resources) to be used to meet the base capital resources requirement.

11A collective portfolio management investment firm must maintain capital resources which equal or exceed the higher of (1) and (2).

1. (1)
   1. (a)

      The higher of:

      1. (i)

         the funds under management requirement (in line with GENPRU 2.1.66 R); and

      2. (ii)

         the fixed overheads requirement (in line with GENPRU 2.1.53 R); plus

   2. (b)

      whichever is applicable of:

      1. (i)

         the professional negligence capital requirement (in line with GENPRU 2.1.67G (1)(a); or

      2. (ii)

         the PII capital requirement (in line with GENPRU 2.1.67G (1)(b).

2. (2)

   The amount specified in the table in GENPRU 2.1.45 R.

11A collective portfolio management investment firm must hold liquid assets (in line with GENPRU 2.1.73 R) which equal or exceed:

1. (1)

   the higher of:

   1. (a)

      the funds under management requirement (in line with GENPRU 2.1.66 R) less the base capital resources requirement in GENPRU 2.1.48 R; and

   2. (b)

      the fixed overheads requirement (in line with GENPRU 2.1.53 R); plus

2. (2)

   whichever is applicable of:

   1. (a)

      the professional negligence capital requirement (in line with GENPRU 2.1.67G (1)(a)); or

   2. (b)

      the PII capital requirement (in line with GENPRU 2.1.67G (1)(b)).12

11The funds under management requirement is (subject to a maximum of €10,000,000) the sum of:

1. (1)

   the base capital resources requirement; plus

2. (2)

   0.02% of the amount by which the funds under management exceed €250,000,000.

11If a firm satisfies the requirement referred to in GENPRU 2.1.67 G with professional indemnity insurance, it must, in addition to maintaining an amount of own funds to cover any defined excess, hold adequate own funds to cover any exclusions in the insurance policy that would otherwise result in the firm having insufficient resources to cover liabilities arising. A firm may satisfy its requirements for professional indemnity insurance with a policy that also provides cover to one or more entities other than the firm, provided the policy satisfies the conditions of the AIFMD level 2 regulation, exclusive of the cover provided to other firms by the policy.12

11In GENPRU 2.1.64 R, liquid assets are assets which:

1. (1)

   are readily convertible to cash within one month; and

2. (2)

   have not been invested in speculative positions.12