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PDCOB 13.1 Application and purpose

General application

PDCOB 13.1.1 R

1Subject to PDCOB 13.1.2R, this chapter applies to firms with a Part 4A permission for regulated pensions dashboard activity.

PDCOB 13.1.2 R

1This chapter does not apply to a PRA-authorised person.

Purpose

PDCOB 13.1.3 G
  1. (1)

    1The purpose of PDCOB 13 is to set out the detailed prudential obligations that apply to regulated pensions dashboard activity.

  2. (2)

    Adequate financial resources are necessary for the effective management of prudential risks. The rules in this chapter therefore impose requirements relating to the financial resources of a firm to which this chapter applies.

  3. (3)

    The rules concern the adequacy of the financial resources that a firm needs to hold in order to be able to meet its liabilities as they fall due (the general solvency requirement). These resources include both capital and liquidity resources.

  4. (4)

    The rules also place a core capital resources requirement on a firm to which this chapter applies.

PDCOB 13.2 General solvency requirement

PDCOB 13.2.1 R

-1A firm must at all times maintain overall financial resources which are adequate, both as to amount and quality, to ensure that there is no significant risk that its liabilities cannot be met as they fall due. This includes capital resources and liquidity resources.

PDCOB 13.2.2 G

1The liabilities referred to in the general solvency requirement include:

  1. (1)

    a firm’s contingent and prospective liabilities;

  2. (2)

    liabilities that arise both in scenarios where the firm is a going concern and where the firm ceases to be a going concern; and

  3. (3)

    claims that could be made against a firm, which ought to be paid in accordance with fair treatment of customers, even if such claims could not be legally enforced.

PDCOB 13.2.3 G

1The liabilities referred to in the general solvency requirement exclude liabilities that might arise from transactions that a firm has not entered into and which it could avoid. This could include, for example, by taking realistic management actions such as ceasing to transact new business after a suitable period of time has elapsed.

PDCOB 13.2.4 G

1A firm should therefore make its assessment of adequate financial resources on realistic valuation bases of assets and liabilities, taking into account the actual amounts and timing of cash flows under realistic adverse projections.

PDCOB 13.2.5 G

1Risks may be addressed through holding capital to absorb losses that unexpectedly materialise. The ability to pay liabilities as they fall due also requires liquidity. Therefore, firms should consider both capital and liquidity needs in assessing the adequacy of their financial resources. A firm should also consider the quality of its financial resources such as the loss-absorbency of different types of capital and the time required to liquidate different types of assets.

PDCOB 13.2.6 G

1As part of its day-to-day supervision of a firm, the FCA may review whether the amount and quality of capital and liquidity resources that a firm holds to comply with its general solvency requirement is sufficient.

PDCOB 13.2.7 G

1Where necessary, the FCA may consider the use of its powers under section 166 of the Act (Reports by skilled persons) to assist with the review referred to in PDCOB 13.2.6G.

PDCOB 13.2.8 G
  1. (1)

    1Following such a review, the FCA may conclude that a firm should hold an additional amount or quality of capital or liquidity resources to comply with the general solvency requirement.

  2. (2)

    Where this is the case, the FCA will normally specify an amount or quality of capital or liquidity resources that the firm should hold by:

    1. (a)

      issuing individual capital guidance;

    2. (b)

      issuing individual liquidity guidance; or

    3. (c)

      imposing a requirement on the firm.

  3. (3)

    The amounts in (2) will typically represent the FCA’s assessment of the firm’s general solvency requirement. However, in some cases, it may be specified on a different basis (such as by reference to a specific component of the general solvency requirement or to a particular risk or harm).

  4. (4)

    The FCA may choose to conduct reviews of the sector of firms carrying on regulated pensions dashboard activity, or aspects of it. In such cases, the FCA may subsequently choose to issue guidance on a sectoral basis or to impose additional requirements on all, or only a subset of, the entities included within that review. The guidance or requirement may relate to:

    1. (a)

      additional amounts or quality of capital or liquidity resources that such firms must hold; or

    2. (b)

      other actions that such firms must undertake.

PDCOB 13.2.9 G

1The FCA will determine whether a requirement or guidance is more appropriate. Where the FCA chooses to issue guidance, this will normally explain how the FCA will approach supervising the general solvency requirement in relation to the firm. The FCA expects that the firm would normally confirm to the FCA that the firm will hold the amounts specified in that guidance going forward (and will therefore hold the relevant capital and or liquidity resources to comply with the general solvency requirement), unless the firm subsequently determines that higher amounts are required.

PDCOB 13.2.10 G

1Where the FCA considers that it is appropriate to apply a requirement in connection with the general solvency requirement, it may invite a firm to make a voluntary application under section 55L(5) of the Act to impose a requirement on the firm to hold the level of capital or liquidity resources that the FCA has assessed as being required by the firm in order to meet the general solvency requirement.

PDCOB 13.2.11 G

1 Guidance on the general solvency requirement issued by the FCA will apply until the FCA issues revised guidance (or varies or removes the requirement relating to the general solvency requirement) in relation to the firm.

PDCOB 13.2.12 G

1If a firm subsequently determines, as a result of its own assessment, that it needs to hold a higher level or quality of capital or liquidity resources to satisfy the general solvency requirement, it must hold that higher level. This is because the FCA’s assessment (or a requirement applied to the firm by the FCA) reflects an assessment carried out at that point in time and does not relieve the firm of its obligation to ensure that it is meeting the general solvency requirement at all times.

PDCOB 13.2.13 G

1A firm’s business model or operating model may undergo a significant change, with the result that the firm considers that the amount or quality of capital or liquidity resources specified in the guidance issued by, or the requirement applied by, the FCA exceeds the amount or quality of capital or liquidity resources that the firm requires to comply with the general solvency requirement. In this case, the firm:

  1. (1)

    should undertake its own assessment of the amount that the firm now requires to comply with the general solvency requirement or, where applicable, to address the risks in relation to which the requirement was imposed; and

  2. (2)

    having undertaken the determination in (1), may contact the FCA to request a review of the existing guidance or requirement.

PDCOB 13.2.14 G

1The FCA will not give individual capital guidance or individual liquidity guidance to the effect that the amount of capital advised in that guidance is lower than the amount of capital which a firm should hold to meet its core capital resources requirement.

PDCOB 13.4 Capital resources: relevant accounting principles

PDCOB 13.4.1 R

1A firm must recognise an asset or liability, and measure its amount, in accordance with the relevant accounting principles applicable to it for the purpose of preparing its annual financial statements.

PDCOB 13.7 Calculation of core capital resources

The calculation of a firm’s core capital resources

PDCOB 13.7.1 R

1A firm must calculate its capital resources for the core capital resources requirement from the items that are eligible to contribute to a firm’s capital resources, as set out in items 1 to 6 in the table at PDCOB 13.7.3R.

PDCOB 13.7.2 R

1In arriving at its calculation of its capital resources for the core capital resources requirement, a firm must deduct the items set out in items 1 to 5 in the table at PDCOB 13.7.5R.

PDCOB 13.7.3 R

1The items that are eligible to contribute to the capital resources of a firm are set out in the following table.

Item

Additional explanation

1

Share capital

This must be fully paid and may include:

(1)

ordinary share capital; or

(2)

preference share capital (excluding preference shares redeemable by shareholders within 2 years).

2

Capital other than share capital (for example, the capital of a sole trader, partnership or limited liability partnership)

(1)

The capital of a sole trader is the net balance on the firm’s capital account and current account.

(2)

The capital of a partnership is the capital made up of the partners’:

(a)

capital account, which is the account:

(i)

into which capital contributed by the partners is paid; and

(ii)

from which, under the terms of the partnership agreement, an amount representing capital may be withdrawn by a partner only if:

(A)

the person ceases to be a partner and an equal amount is transferred to another such account by their former partners or any person replacing them as their partner; or

(B)

the partnership is otherwise dissolved or wound up; and

(b)

current accounts according to the most recent financial statement.

(3)

For the purpose of calculating capital resources in respect of a defined benefit occupational pension scheme:

(a)

a firm must derecognise any defined benefit asset; and

(b)

a firm may substitute for a defined benefit liability the firm’s deficit reduction amount, provided that the election is applied consistently in respect of any one financial year.

3

Reserves (Note)

(1)

These are (subject to the Note) the audited accumulated profits retained by the firm (after deduction of tax, dividends and proprietors’ or partners' drawings) and other reserves created by appropriations of share premiums and similar realised appropriations. Reserves also include gifts of capital, for example, from a parent undertaking.

(2)

For the purposes of calculating capital resources, a firm must make the following adjustments to its reserves, where appropriate:

(a)

A firm must deduct any unrealised gains or, where applicable, add back in any unrealised losses on debt instruments held, or formerly held, in the available-for-sale financial assets category.

(b)

A firm must deduct any unrealised gains or, where applicable, add back in any unrealised losses on cash flow hedges of financial instruments measured at cost or amortised cost.

(c)

In respect of a defined benefit occupational pension scheme:

(i)

a firm must derecognise any defined benefit asset; and

(ii)

a firm may substitute for a defined benefit liability the firm’s reduction amount, provided that the election is applied consistently in respect of any one financial year.

4

Interim net profits (Note)

If a firm seeks to include interim net profits in the calculation of its capital resources, the profits must (subject to the Note) be verified by the firm’s external auditor, net of tax, anticipated dividends or proprietors’ drawings and other appropriations.

5

Revaluation reserves

Revaluation reserves include reserves arising from the revaluation of land and buildings, which include any net unrealised gains for the fair valuation of equities held in the available-for-sale financial assets category.

6

Subordinated loans/debt

Subordinated loans/debt must be included in capital on the basis of the provisions in this chapter that apply to subordinated loans/debts.

Note: Reserves and interim net profits

Reserves must be audited and interim net profits, general and collective provisions must be verified by the firm’s external auditor unless the firm is exempt from the provisions of Part 16 of the Companies Act 2006 (section 477 (Small companies: conditions for exemption from audit)) relating to the audit of accounts.
PDCOB 13.7.4 G

1A firm should keep a record of, and be ready to explain to its supervisory contacts in the FCA the reasons for, any difference between the deficit reduction amount and any commitment the firm has made in any public document to provide funding in respect of a defined benefit occupational pension scheme.

PDCOB 13.7.5 R

1In arriving at its calculation of its capital resources for the core capital resources requirement, a firm must deduct the items set out in the following table:

Item

Additional explanation

1

Investments in own shares

2

Investments in subsidiaries (Note 1)

3

Intangible assets (Note 2)

4

Interim net losses (Note 3)

5

Excess of drawings over profits for a sole trader or a partnership (Note 3)

Notes:

1. Investments in subsidiaries are the full balance sheet value.

2. Intangible assets are the full balance sheet value.

3. The interim net losses in row 4, and the excess of drawings in row 5, are in relation to the accounting period following the date as at which the capital resources are being computed.

Personal assets

PDCOB 13.7.6 R

1In 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 core capital resources requirement, to the extent necessary to make up any shortfall in meeting that requirement, 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 FCA; or

  2. (2)

    the firm holds client money or other client assets in relation to regulated activities other than regulated pensions dashboard activity.

PDCOB 13.7.7 G

1A sole trader or a partner may use any personal assets, including property, to meet the capital requirements of this chapter, but only to the extent necessary to make up a shortfall.

Subordinated loans

PDCOB 13.7.8 R

1A subordinated loan or debt must not form part of the capital resources for the core capital resources requirement of the firm unless it meets the following conditions:

  1. (1)
    1. (a)

      1it has an original maturity of at least 5 years; or

    2. (b)

      it is subject to 5 years’ notice of repayment;

  2. (2)

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

  3. (3)

    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;

  4. (4)

    the remedies available to the subordinated creditor in the event of non-payment or other default in respect of the subordinated loan or 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;

  5. (5)

    the subordinated loan or debt must not become due and payable before its stated final maturity date, except on an event of default complying with (3);

  6. (6)

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

  7. (7)

    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;

  8. (8)

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

  9. (9)

    the loan/debt must be unsecured and fully paid up.

PDCOB 13.7.9 R

1When calculating its capital resources, the firm must exclude any amount by which the aggregate amount of its subordinated loans or debts exceeds the amount calculated as follows:

A - B

where:

A is equal to the sum of items 1 to 6 (inclusive) in the table of items in PDCOB 13.7.3R, which are eligible to contribute to a firm’s capital resources.

B is equal to the sum of items 1 to 5 (inclusive) in the table of items in PDCOB 13.7.5R, which must be deducted in arriving at firm’s capital resources.

PDCOB 13.8 Systems, strategies, processes and reviews

Purpose

PDCOB 13.8.1 G

1In addition to adequate financial resources, adequate systems and controls are necessary for the effective management of prudential risks. This section therefore imposes requirements relating to such systems and controls.

PDCOB 13.8.2 G

1This section requires a firm to identify and assess:

  1. (1)

    risks to the firm being able to meet its liabilities as they fall due;

  2. (2)

    how the firm intends to mitigate these risks; and

  3. (3)

    the amount and nature of financial resources that the firm considers necessary to address any remaining risks.

PDCOB 13.8.3 G

1The FCA may review this assessment as part of its own assessment of the adequacy of a firm’s financial resources.

Systems, strategies and processes

PDCOB 13.8.4 R

1A firm must use sound, effective and comprehensive systems, strategies and processes to assess and maintain on an ongoing basis the amounts, types and distribution of financial resources that it considers adequate to cover:

  1. (1)

    the nature and level of the risks to which it is or might be exposed; and

  2. (2)

    the risk that the firm might not be able to meet its core capital resources requirement and general solvency requirement in the future.

PDCOB 13.8.5 G

1A firm should consider taking out professional indemnity insurance and insurance to cover the risk of cyber-attacks in relation to its regulated pensions dashboard activity.

Documentation of risk assessments

PDCOB 13.8.6 G

1The FCA may review the written record of the assessment in PDCOB 13.8.4R as required under PDCOB 16.12.1R as part of its own assessment of the adequacy of a firm’s financial resources as part of its day-to-day supervision of firms.

PDCOB 13.9 Action for damages

PDCOB 13.9.1 R

1A contravention of the rules in PDCOB 13 does not give rise to a right of action by a private person under section 138D of the Act, and each of those rules is specified for the purposes of section 138D(3) of the Act as a provision that does not give rise to such a right of action.