MIPRU 4.4 Calculation of capital resources

1. (1)

   A firm must calculate its capital resources only from the items which are eligible to contribute to a firm's capital resources from which it must deduct certain items (see MIPRU 4.4.4 R).

2. (2)

   If the firm is subject to the Prudential sourcebook for MiFID Investment Firms (MIFIDPRU) or the Interim Prudential sourcebook for investment businesses (IPRU(INV)), the capital resources are the higher of:

   96
   1. (a)

      the amount calculated under (1); and

   2. (b)

      the financial resources calculated under those sourcebooks10.

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In relation to a sole trader's firm or a firm which is a partnership, the sole trader or a partner in the firm may use personal assets to meet the general solvency requirement and the general capital resource requirement, to the extent necessary to make up any shortfall in meeting those requirements, unless:

1. (1)

   those assets are needed to meet other liabilities arising from:

   1. (a)

      personal activities; or

   2. (b)

      another business activity not regulated by the appropriate regulator; or

2. (2)

   the firm holds client money or other client assets.

A subordinated debt must not form part of the capital resources of the firm unless it meets the following conditions:

1. (1)

   (for a firm which carries on insurance distribution activity7 , home finance mediation activity1 (or both) but not home financing 1or home finance administration1) it has an original maturity of:

   1111
   1. (a)

      at least two years; or

   2. (b)

      it is subject to two years' notice of repayment;

2. (2)

   (for all other firms) it has an original maturity of:

   1. (a)

      at least five years; or

   2. (b)

      it is subject to five years' notice of repayment;

3. (3)

   the claims of the subordinated creditors must rank behind those of all unsubordinated creditors;

4. (4)

   the only events of default must be non-payment of any interest or principal under the debt agreement or the winding up of the firm;

5. (5)

   the remedies available to the subordinated creditor in the event of non-payment or other default in respect of the subordinated debt must be limited to petitioning for the winding up of the firm or proving the debt and claiming in the liquidation of the firm;

6. (6)

   the subordinated debt must not become due and payable before its stated final maturity date except on an event of default complying with (4);

7. (7)

   the agreement and the debt are governed by the law of England and Wales, or of Scotland or of Northern Ireland;

8. (8)

   to the fullest extent permitted under the rules of the relevant jurisdiction, creditors must waive their right to set off amounts they owe the firm against subordinated amounts owed to them by the firm;

9. (9)

   the terms of the subordinated debt must be set out in a written agreement or instrument that contains terms that provide for the conditions set out in this rule; and

10. (10)

    the debt must be unsecured and fully paid up.

1. (1)

   1If the reversion provider agrees under the terms of an instalment reversion plan to pay the reversion occupier for the qualifying interest in land over a period of time, then the provider must:

   1. (a)

      take out and maintain adequate insurance from an insurance undertaking authorised in the UK8 or a person of equivalent status in:

      1. (i)

         a Zone A country; or

      2. (ii)

         the Channel Islands, Gibraltar, Bermuda or the Isle of Man; or

   2. (b)

      enter into a written agreement with a credit institution;

   to meet these obligations in the event that the reversion provider is unable to do so.

2. (2)

   This rule does not apply if:

   1. (a)

      the instalment reversion plan is linked to an investment and it is reasonably anticipated that the amounts due to the reversion occupier under the plan will be paid out of the proceeds of the investment to the occupier by a product provider other than the reversion provider; or

   2. (b)

      the reversion provider acquires its interest in the property in steps proportionate to the instalments paid.

4If a SRB agreement provider agrees, under the terms of a regulated sale and rent back agreement, to account to the SRB agreement seller for any monetary sum, whether after a qualifying period, over a period of time, on the occurrence of a contingent event or otherwise, the provider must:

1. (1)

   take out and maintain adequate insurance from an insurance undertaking authorised in the EEA or a person of equivalent status in:

   1. (a)

      a Zone A country; or

   2. (b)

      the Channel Islands, Gibraltar, Bermuda, or the Isle of Man; or

2. (2)

   enter into a written agreement with a credit institution;

to meet these obligations in the event that the SRB agreement provider is unable to do so.