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MIFIDPRU 6.3 Core liquid assets

MIFIDPRU 6.3.1R

1Subject to MIFIDPRU 6.3.3R to MIFIDPRU 6.3.5R, a core liquid asset means any of the following, when denominated in pound sterling:

  1. (1)

    coins and banknotes;

  2. (2)

    short-term deposits at a UK-authorised credit institution;

  3. (3)

    assets representing claims on or guaranteed by the UK government or the Bank of England;

  4. (4)

    units or shares in a short-term MMF;

  5. (5)

    units or shares in a third country fund that is comparable to a short-term MMF; and

  6. (6)

    trade receivables, if the conditions in MIFIDPRU 6.3.3R are met.

MIFIDPRU 6.3.2G

1When assessing whether a third country fund is comparable to a short-term MMF, a firm should consider factors such as:

  1. (1)

    whether the restrictions on instruments eligible for inclusion in the fund are comparable to the restrictions on instruments in article 10(1) of the Money Market Funds Regulation; and

  2. (2)

    whether the fund is subject to requirements concerning portfolio diversification and risk management which are comparable to the requirements applicable to short-term MMFs in the Money Market Funds Regulation.

MIFIDPRU 6.3.3R

1A firm may treat trade receivables as core liquid assets if:

  1. (1)

    the firm is:

    1. (a)

      an SNI MIFIDPRU investment firm; or

    2. (b)

      a MIFIDPRU investment firm that does not have permission to carry on:

      1. (i)

        dealing on own account; or

      2. (ii)

        underwriting of financial instruments and/or placing of financial instruments on a firm commitment basis;

  2. (2)

    they are receivable within 30 days;

  3. (3)

    they account for no more than one third of the requirement based upon the fixed overheads requirement in MIFIDPRU 6.2.1R(1);

  4. (4)

    they are not used to meet the requirement for guarantees in MIFIDPRU 6.2.1R(2); and

  5. (5)

    they are subject to a minimum haircut of 50%.

MIFIDPRU 6.3.4R
  1. (1)

    1If a firm's relevant expenditure or guarantees are incurred in a currency other than pound sterling, the firm may also treat the following assets as liquid assets, when denominated in that currency:

    1. (a)

      coins and banknotes;

    2. (b)

      short-term deposits at a credit institution;

    3. (c)

      assets representing claims on or guaranteed by a central bank or government in a third country;

    4. (d)

      units or shares in a short-term MMF;

    5. (e)

      units or shares in a third country fund that is comparable to a short-term MMF; and

    6. (f)

      trade receivables, if the conditions in MIFIDPRU 6.3.3R are met.

  2. (2)

    The proportion of core liquid assets denominated in any currency other than pound sterling that a firm can rely upon to meet its basic liquid asset requirement, must be no greater than:2

    1. (a)

      for the requirement in MIFIDPRU 6.2.1R(1), the proportion of relevant expenditure incurred in that currency; and2

    2. (b)

      for the requirement in MIFIDPRU 6.2.1R(2), the proportion of guarantees provided in that currency. 2

  3. (3)

    This rule is subject to MIFIDPRU 6.3.5R.

MIFIDPRU 6.3.4AG

2The effect of MIFIDPRU 6.3.4R(2) is illustrated by the following example:

  1. (1)

    A firm has total fixed overheads with a value of £1,200,000, as follows:

    1. (a)

      20%, equivalent to £240,000, are incurred in USD; and

    2. (b)

      5%, equivalent to £60,000, are incurred in Swiss francs (CHF).

  2. (2)

    In addition, the firm has provided total guarantees to clients with a value of £10,000,000, of which 50%, equivalent to £5,000,000, are incurred in USD.

  3. (3)

    The firm’s fixed overheads requirement (one quarter of its total fixed overheads calculated in accordance with MIFIDPRU 4.5) is £300,000.

  4. (4)

    Under MIFIDPRU 6.2.1R, the firm’s basic liquid assets requirement amounts to £260,000, as follows:

    1. (a)

      £100,000 are in respect of the requirement in MIFIDPRU 6.2.1R(1) (one third of the amount of its fixed overheads requirement); and

    2. (b)

      £160,000 are in respect of the requirement in MIFIDPRU 6.2.1R(2) (1.6% of the total amount of any guarantees provided to clients).

  5. (5)

    To meet its requirement in MIFIDPRU 6.2.1R, a firm may choose to use liquid assets listed in MIFIDPRU 6.3.4R denominated in a currency other than pound sterling, up to a maximum equivalent to £105,000, as follows:

    1. (a)

      Up to the equivalent of £100,000 may be held in USD denominated liquid assets (i.e. 20% of 100,000 = 20,000, to meet the requirement in MIFIDPRU 6.2.1R(1); and 50% of 160,000 = 80,000 to meet the requirement in MIFIDPRU 6.2.1R(2)); and

    2. (b)

      Up to the equivalent of £5,000 may be held in CHF denominated liquid assets (i.e. 5% of 100,000 = 5,000, to meet the requirement in MIFIDPRU 6.2.1R(1)).

MIFIDPRU 6.3.5R

1A firm must not treat any of the following as a core liquid asset:

  1. (1)

    any asset that belongs to a client; and

  2. (2)

    any other asset that is encumbered.

MIFIDPRU 6.3.6G
  1. (1)

    1For the purposes of MIFIDPRU 6.3.5R(1), an asset may belong to a client even if the asset is held in the firm’s own name. Examples of assets belonging to a client include money or other assets held under the FCA's client asset rules.

  2. (2)

    For the purposes of MIFIDPRU 6.3.5R(2), an asset may be encumbered if it is pledged as security or collateral, or subject to some other legal restriction (for example, due to regulatory or contractual requirements) which affects the firm’s ability to liquidate, sell, transfer, or assign the asset.