1 IFPRU 10 applies to an IFPRU investment firm, unless it is one of the following:

1. (1)

   an IFPRUlimited licence firm; or

2. (2)

   an exempt IFPRU commodities firm.

A firm must calculate a capital conservation buffer of common equity tier 1 capital equal to 2.5% of its total risk exposure amount.

[Note: article 129(1) (part) of CRD]

A firm must calculate a countercyclical capital buffer of common equity tier 1 capital equal to its total risk exposure amount multiplied by the weighted average of the countercyclical buffer rates that apply to exposures in the jurisdictions where the firm'srelevant credit exposures are located.

[Note: article 130(1) (part) of CRD]

1. (1)

   To calculate the weighted average in IFPRU 10.3.1 R, a firm must apply to each applicable countercyclical buffer rate its total own funds requirements for credit risk, specific risk, incremental default and migration risk that relates to the relevant credit exposures in the jurisdiction in question, divided by its total own funds requirements for credit risk that relates to all of its relevant credit exposures.

2. (2)

   For the purposes of (1), a firm must calculate its total own funds requirement for credit risk, specific risk, incremental default and migration risk in accordance with Part Three, Titles II (Capital requirements for credit risk) and IV (Own funds requirements for market risk) of the EU CRR.

3. (3)

   The countercyclical buffer rate for an exposure located in the UK is the rate set by the UK countercyclical buffer authority for the UK.

4. (4)

   The countercyclical buffer rate for an exposure located in an EEA State other than the UK is:

   1. (a)

      the rate set by the EEA countercyclical buffer authority for that jurisdiction; or

   2. (b)

      if that rate exceeds 2.5% of total risk exposure amount and has not been recognised by the UK countercyclical buffer authority, 2.5%

5. (5)

   The countercyclical buffer rate for an exposure located in a third country is the rate set by the UK countercyclical buffer authority for that jurisdiction.

6. (6)

   If the UK countercyclical buffer authority has not set a rate for a third country, the countercyclical buffer rate for an exposure located in that jurisdiction is:

   1. (a)

      the rate set by the third country countercyclical buffer authority for that jurisdiction; or

   2. (b)

      if that rate exceeds 2.5% and has not been recognised by the UK countercyclical buffer authority, 2.5%.

7. (7)

   If the UK countercyclical buffer authority has not set a rate for a third country and either there is no third-country countercyclical buffer authority for that country or the authority has not set a rate for that jurisdiction, the countercyclical buffer rate for an exposure located in that jurisdiction is zero.

8. (8)

   If the countercyclical buffer rate for the UK is increased, that increase takes effect from the date specified by the UK countercyclical buffer authority.

9. (9)

   If the countercyclical buffer rate for an EEA State other than the UK is increased, subject to (4)(b), that increase takes effect from:

   1. (a)

      the date specified by the EEA countercyclical buffer authority for that jurisdiction, if the rate applied under this chapter does not exceed 2.5%; or

   2. (b)

      the date specified by the UK countercyclical buffer authority if the rate applied under this chapter exceeds 2.5%.

10. (10)

    If the countercyclical buffer rate for a third country is increased by the UK countercyclical buffer authority, that increase takes effect from the date specified by the UK countercyclical buffer authority.

11. (11)

    If the UK countercyclical buffer authority does not set a countercyclical buffer rate for a third country and that rate is increased by the third-country countercyclical buffer authority for that jurisdiction, subject to 6(b), that increase takes effect from:

    1. (a)

       the date 12 months after the date on which the increase was published by the third-country countercyclical buffer authority in accordance with the relevant law of the third country, if the rate applied under this chapter does not exceed 2.5%; or

    2. (b)

       the date specified by the UK countercyclical buffer authority if the rate applied under this chapter exceeds 2.5%.

12. (12)

    If a countercyclical buffer rate is reduced, that reduction takes effect immediately.

[Note: articles 136(4) (part) , 139(2) to (5) (part) and 140(1) to (4) and (6) (part) of CRD]

A firm does not meet the combined buffer if the common equity tier 1 capital maintained by the firm which is not used to meet the own funds requirement under article 92(1)(c) of the EU CRR (Total capital ratio) does not meet the combined buffer.

[Note: articles 129(1) (part) and 130(5) (part) of CRD]

A firm that meets the combined buffer must not make a distribution in connection with common equity tier 1 capital to an extent that would decrease its common equity tier 1 capital to a level where the combined buffer is no longer met.

[Note: article 141(1) of CRD]

1. (1)

   A firm that does not meet the combined buffer must:

   1. (a)

      calculate the MDA in accordance with (4); and

   2. (b)

      report the MDA to the FCA in writing no later than five business days after the firm identified that it did not meet the combined buffer.

2. (2)

   A firm that does not meet the combined buffer must not undertake any of the following actions before it has calculated the MDA:

   1. (a)

      make a distribution in connection with common equity tier 1 capital;

   2. (b)

      create an obligation to pay variable remuneration or discretionary pension benefits or pay variable remuneration or discretionary pension benefits if the obligation to pay was created at a time when the firm did not meet the combined buffer; and

   3. (c)

      make payments on additional tier 1 instruments.

3. (3)

   If a firm does not meet the combined buffer, it must not distribute more than the MDA, calculated in (4), through any action in (2)(a) to (c).

4. (4)
   1. (a)

      A firm must calculate the MDA by multiplying the sum calculated in (5) by the factor determined in (6).

   2. (b)

      Any of the actions in (2)(a), (b) or (c) shall have the effect of reducing the MDA.

5. (5)

   The sum to be multiplied in (4) shall consist of:

   1. (a)

      interim profits not included in common equity tier 1 capital under article 26(2) of the EU CRR (Common equity tier 1 items) that have been generated since the most recent decision on the distribution of profits or any of the actions in 2(a), (b) or (c);

   Plus

   1. (b)

      year-end profits not included in common equity tier 1 capital under article 26(2) of the EU CRR that have been generated since the most recent decision on the distribution of profits or any of the actions in (2) (a), (b) or (c);

   Minus

   1. (c)

      amounts which would be payable by tax if the items specified in (a) and (b) were to be retained.

6. (6)

   The factor in (4) shall be determined as follows:

   1. (a)

      if the common equity tier 1 capital maintained by the firm which is not used to meet the own funds requirement under article 92(1)(c) of the EU CRR expressed as a percentage of the firm'stotal risk exposure amount is within the first (ie, the lowest) quartile of the combined buffer, the factor shall be 0;

   2. (b)

      if the common equity tier 1 capital maintained by the firm which is not used to meet the own funds requirement under article 92(1)(c) of the EU CRR, expressed as a percentage of the firm'stotal risk exposure amount is within the second quartile of the combined buffer, the factor shall be 0.2;

   3. (c)

      if the common equity tier 1 capital maintained by the firm which is not used to meet the own funds requirement under article 92(1)(c) of the EU CRR expressed as a percentage of the firm'stotal risk exposure amount is within the third quartile of the combined buffer, the factor shall be 0.4;

   4. (d)

      if the common equity tier 1 capital maintained by the firm which is not used to meet the own funds requirement under article 92(1)(c) of the EU CRR expressed as a percentage of the firm'stotal risk exposure amount is within the fourth (ie, the highest) quartile of the combined buffer, the factor shall be 0.6.

7. (7)

   A firm must calculate the lower and upper bounds of each quartile of the combined buffer as follows:

   

   "Q_n" indicates the ordinal number of the quartile concerned.

8. (8)

   The restrictions imposed by this rule only apply to payments that result in a reduction of common equity tier 1 capital or in a reduction of profits, and where a suspension of payment or failure to pay does not constitute an event of default or a condition for the commencement of proceedings for an order for the appointment of a liquidator or administrator of the firm.

9. (9)

   If a firm does not meet the combined buffer and intends to distribute any of its distributable profits or undertake an action in (2)(a), (b) and (c), it must give the FCA not less than one month's notice before the intended date of distribution or action. When giving notice a firm must provide the following information:

   1. (a)

      the amount of own funds maintained by the firm, subdivided as follows:

      1. (i)

         common equity tier 1 capital;

      2. (ii)

         additional tier 1 capital; and

      3. (iii)

         tier 2 capital;

   2. (b)

      the amount of its interim and year-end profits;

   3. (c)

      the MDA calculated in (4);

   4. (d)

      the amount of distributable profits it intends to allocate between the following:

      1. (i)

         dividend payments;

      2. (ii)

         share buybacks;

      3. (iii)

         payments on additional tier 1 instruments; and

      4. (iv)

         the payment of variable remuneration or discretionary pension benefits, whether by creation of a new obligation to pay, or payment pursuant to an obligation to pay created at a time when the firm did not meet its combined buffer.

[Note: article 141(2) to (9) of CRD]

When a firm does not meet the combined buffer, it must prepare a capital conservation plan and submit it to FCA no later than five business days after the firm identified that it did not meet the combined buffer.

[Note: article 142(1) of CRD]

The capital conservation plan must include the following

1. (1)

   the MDA;

2. (2)

   estimates of income and expenditure and a forecast balance sheet;

3. (3)

   measures to increase the capital ratios of the firm; and

4. (4)

   a plan and timeframe for the increase of own funds with the objective of meeting the combined buffer.

[Note: article 142(2) of CRD]

This chapter applies to a firm on an individual basis, whether or not it also applies to the firm on a consolidated basis or sub-consolidated basis.

A firm that is a parent institution in a Member State must comply with this chapter on the basis of its consolidated situation.

A firm controlled by a parent financial holding company in a Member State or a parent mixed financial holding company in a Member State must comply with this chapter on the basis of the consolidated situation of that holding company in the FCA consolidation group.

A firm that is a subsidiary must apply this chapter on a sub-consolidated basis if the firm, or the parent undertaking where it is a financial holding company or mixed financial holding company, have an institution or financial institution as a subsidiary in a third country or hold a participation in such an institution or financial institution.

[Note: articles 129(1) (part) and 130(1) (part) of CRD]

This chapter does not apply to a firm that meets the condition in IFPRU 10.7.2 R.

[Note: articles 129(2) (part) and 130(2) (part) of CRD]

1. (1)

   The condition referred to in IFPRU 10.7.1 R is that the firm is a small and medium-sized investment firm.

2. (2)

   For this purpose, a firm is categorised as small and medium-sized in accordance with the European Commission Recommendation 2003/361/EC concerning the definition of micro, small and medium-sized enterprises.

[Note: articles 129(4) and 130(4) of CRD]