MIFIDPRU 4.9 K-ASA requirement
1The K-ASA requirement of a MIFIDPRU investment firm is equal to 0.04% of the firm’s average ASA.
1When calculating its K-ASA requirement in accordance with this section, a MIFIDPRU investment firm must include within its ASA any amounts that relate to MiFID business of the firm that is carried on by any tied agents acting on its behalf.
1Due to the limited types of activities in respect of which a tied agent may be exempt from the requirement for authorisation in the UK (as explained in SUP 12.2.7G), the FCA generally expects that MIFIDPRU 4.9.2R would not be directly relevant to a MIFIDPRU investment firm on an individual basis. However, where MIFIDPRU 4.9 applies on a consolidated basis in accordance with MIFIDPRU 2.5 (Prudential consolidation), the UK parent entity must include any ASA attributable to a tied agent of a third country investment firm included within the consolidated situation.
1A firm must exclude from its measurement of ASA any units or shares in a qualifying money market fund that are treated as MiFID client money.
- (1)
1The definition of ASA includes only client assets held by a MIFIDPRU investment firm in the course of MiFID business. Therefore, client assets which are held in connection with business other than MiFID business do not need to be included within a MIFIDPRU investment firm’s calculation of ASA, except to the extent that MIFIDPRU 4.9.6R applies.
- (2)
As explained in MIFIDPRU 4.8.5G, the definitions of MiFID client money and CMH include amounts that a MIFIDPRU investment firm has placed with qualifying money market funds in accordance with CASS 7.13.3R(4). As a result, although the resulting units or shares in a qualifying money market fund may be treated as client assets for the purposes of the custody rules, under MIFIDPRU 4.9.4R, their value must be included in CMH not in ASA.
- (3)
Although client assets that a firm holds other than in the course of MiFID business do not contribute to the K-ASA requirement, a MIFIDPRU investment firm should still consider any potential material harms that may arise in connection with receiving assets from clients as part of its ICARA process under MIFIDPRU 7.
- (4)
As part of its ICARA process, a firm should also consider material harms that may arise in relation to amounts received that are not treated as client assets for the purposes of the custody rules but in relation to which the firm may have future obligations to a client, such as under a title transfer collateral arrangement.
1If a MIFIDPRU investment firm is unsure whether client assets are held in the course of MiFID business, it must treat those assets as held in the course of MiFID business for the purposes of this section until it is satisfied that the assets are not held in the course of MiFID business.
1A firm must calculate its K-ASA requirement on the first business day of each month.
1A firm must calculate the amount of its average ASA by:
- (1)
taking the total ASA as measured at the end of each business day for the previous 9 months;
- (2)
excluding the values for the most recent 3 months; and
- (3)
calculating the arithmetic mean of the daily values for the remaining 6 months.
1The values used by a firm under MIFIDPRU 4.9.8R should be consistent with the information on client assets in any relevant regulatory data reported by the firm to the FCA, and in any internal or external reconciliations and records maintained in accordance with CASS 6.6 (Records, accounts and reconciliations) unless a rule or relevant guidance requires the firm to take a different approach.
1The effect of MIFIDPRU 4.9.11R is that a firm will not reduce its level of ASA by delegating the safeguarding of assets to a third party. However, a firm will increase the level of its ASA by accepting the delegation of safeguarding and administration of assets to the firm by a third party. This reflects the harm that may result from a breach of the firm’s direct safeguarding responsibilities or the firm’s responsibilities in relation to the selection, appointment and periodic review of any third party to which the firm has delegated safeguarding.
1Where a firm has been safeguarding assets constituting ASA for less than 9 months, it must calculate its average ASA using the modified calculation in MIFIDPRU TP 4.11R(1) with the following adjustments:
- (1)
in MIFIDPRU TP 4.11R(1)(b), n is the relevant number of months for which the firm has been safeguarding assets (with the month during which the firm begins that activity counted as month zero); and
- (2)
during month zero of the calculation, the firm must:
- (a)
use a best efforts estimate of expected ASA for that month based on its projections when beginning the new activity;
- (b)
use the estimate in (a) as its average ASA;
- (a)
- (3)
during month 1 of the calculation and each month thereafter, the firm must apply the approach in (1) using observed historical data from the preceding months; and
- (4)
the modified calculation ceases to apply on the date that falls 9 months after the date on which the firm began safeguarding assets constituting ASA.