You are viewing COREPRU 4.3 Fixed overheads requirement as it appeared on 25/10/2027. The current version of COREPRU 4.3 Fixed overheads requirement was last updated on 25/10/2027.

COREPRU 4.3 Fixed overheads requirement

25/10/2027R
  1. (1) The fixed overheads requirement is an amount equal to one quarter of a firm’s relevant expenditure during the preceding year.
  2. (2) When calculating its fixed overheads requirement in (1), a firm must use the figures resulting from the accounting framework applied in accordance with COREPRU 4.3.2R.
  3. (3) This rule is subject to COREPRU 4.3.6R and COREPRU 4.3.8R.
25/10/2027R
  1. (1) For the purposes of the calculation in COREPRU 4.3.1R, a firm must use the figures in its most recent:
    1. (a) audited annual financial statements; or
    2. (b) unaudited annual financial statements, where audited annual financial statements are not available.
  2. (2) If a firm has used unaudited annual financial statements in accordance with (1)(b) and audited annual financial statements subsequently become available, the firm must update the calculation in COREPRU 4.3.1R using the audited figures.
  3. (3) Where the financial statements in (1) do not cover a 12-month period, the firm must:
    1. (a) divide the amounts included in those statements by the number of months the financial statements cover; and
    2. (b) multiply the result of the calculation in (3)(a) by 12 to produce an equivalent annual amount.
25/10/2027R
  1. (1) For the purpose of COREPRU 4.3.1R(1), a firm must calculate its relevant expenditure by:
    1. (a) calculating the firm’s total expenditure before distribution of profits; and
    2. (b) deducting any of the items in (2) from the total expenditure in (1)(a) to the extent that those items have been included in the expenditure.
  2. (2) The items that a firm may deduct from its total expenditure are:
    1. (a) any of the following, if they are fully discretionary:
      1. (i) staff bonuses and other variable remuneration;
      2. (ii) employees’, directors’, partners’ and limited liability partnership members’ shares in profits; and
      3. (iii) other appropriations of profits;
    2. (b) shared commission and fees payable that meet all of the following conditions:
      1. (i) they are directly related to commission and fees receivable;
      2. (ii) the commission and fees receivable are included within total revenue; and
      3. (iii) the payment of the commission and fees payable is contingent on receipt of the commission and fees receivable;
    3. (c) non-recurring expenses from non-ordinary activities;
    4. (d) fees, brokerage and other charges paid to trading venues, intermediate brokers, central counterparties and other similar parties for the purposes of executing, registering and clearing transactions, provided that the fees, brokerage and charges are directly passed on and charged to customers, unless COREPRU 4.3.4R applies;
    5. (e) 80% of the value of any fees, brokerage and other charges paid to trading venues, intermediate brokers, central counterparties and other similar parties for the purposes of executing, registering and clearing transactions, unless:
      1. (i) the fees, brokerage or other charges have already been deducted under (d); or
      2. (ii) COREPRU 4.3.4R applies;
    6. (f) taxes where they fall due in relation to the annual profits of the firm;
    7. (g) losses from trading in financial instruments or qualifying cryptoassets;
    8. (h) payments related to contract-based profit and loss transfer agreements according to which the firm is obliged to transfer its annual profit to the parent undertaking following the preparation of the firm’s annual financial statements;
    9. (i) other expenses, to the extent that their value has already been reflected in a deduction from own funds under COREPRU 3; and
    10. (j) (for a MIFIDPRU investment firm) any other deductions permissible under MIFIDPRU 4.5.3R and MIFIDPRU 4.5.4R.
25/10/2027R

The deducted amounts in COREPRU 4.3.3R(2)(d) and (e) must not include fees and other charges necessary to maintain membership of, or otherwise meet loss-sharing financial obligations to, trading venues or central counterparties.

Expenses incurred on behalf of the firm by third parties

25/10/2027R
  1. (1) A firm must add any fixed expenses that have been incurred on its behalf by a third party to the firm’s total expenditure for the purposes of COREPRU 4.3.3R in accordance with this rule.
  2. (2) A firm is not required to add fixed expenses which are already included in the figures resulting from COREPRU 4.3.3R.
  3. (3) Where a breakdown of the third party’s expenses is available, the firm must add its share of the third party’s expenses.
  4. (4) Where a breakdown of the third party’s expenses is not available, the firm must:
    1. (a) add its share of the third party’s expenses as projected in the firm’s business plan; or
    2. (b) (if the firm does not have a business plan that projects the third party’s expenses) reasonably estimate the share of those expenses that are attributable to the firm’s business and add that estimated share of expenses to the firm’s total expenditure.

Material change to projected relevant expenditure during the year

25/10/2027R
  1. (1) This rule applies where:
    1. (a) there is an increase of 30% or more in the firm’s projected relevant expenditure for the current year; or
    2. (b) there would be an increase of £2 million or more in the firm's fixed overheads requirement based on projected relevant expenditure for the current year.
  2. (2) Where this rule applies, a firm must:
    1. (a) immediately recalculate its fixed overheads requirement by applying the methodology in COREPRU 4.3.3R to the projected relevant expenditure, taking into account the increase in (1);
    2. (b) immediately substitute the revised fixed overheads requirement that results from the calculation in (2)(a) for the firm’s previous fixed overheads requirement under COREPRU 4.3.1R(1); and
    3. (c) immediately recalculate its basic liquid assets requirement using the revised fixed overheads requirement in (2)(b) and substitute the updated amount for its previous basic liquid assets requirement.
25/10/2027G
  1. (1) Where there is a material increase in the firm’s projected relevant expenditure that triggers the obligation in COREPRU 4.3.6R, a firm should also consider the potential impact on its overall risk assessment and the conclusions documented in its last overall risk assessment document.
  2. (2) The review in (1) is particularly important if the firm’s own funds requirement was determined by the fixed overheads requirement immediately before the change occurred.
25/10/2027R
  1. (1) This rule applies where:
    1. (a) there is a decrease of 30% or more in the firm’s projected relevant expenditure for the current year; or
    2. (b) there would be a decrease of £2 million or more in the firm’s fixed overheads requirement based on projected relevant expenditure for the current year.
  2. (2) Where this rule applies, a firm may:
    1. (a) recalculate its fixed overheads requirement by applying the methodology in COREPRU 4.3.3R to the projected relevant expenditure, taking into account the decrease in (1); and
    2. (b) if it has obtained prior permission from the FCA, substitute the revised fixed overheads requirement that results from the calculation in (2)(a) for the firm’s original fixed overheads requirement.
  3. (3) To obtain the permission in (2), a firm must demonstrate all of the following:
    1. (a) that one of the conditions in (1)(a) or (1)(b) is met and the projected decrease in the firm’s relevant expenditure is a reasonable projection;
    2. (b) that the firm has adequately considered the impact of the decrease on the firm’s overall risk assessment and the conclusions documented in the firm’s last overall risk assessment document; and
    3. (c) that there is a reasonable basis to conclude that, following the reduction in the firm’s fixed overheads requirement, the firm will continue to hold sufficient own funds and liquid assets to comply with its obligations under the overall risk assessment.
25/10/2027G
  1. (1) Under COREPRU 4.3.2R, a firm is required to calculate its fixed overheads requirement based on its relevant expenditure as set out in its annual financial statement for the previous year.
  2. (2) Under COREPRU 4.3.6R, if there is a material increase in the firm’s projected relevant expenditure for the current year, the firm must recalculate its fixed overheads requirement on the basis of the projected increased relevant expenditure, taking into account the impact of that change.
  3. (3) However, under COREPRU 4.3.8R, if there is a material change that results in a decrease in the firm’s projected relevant expenditure for the current year, the firm must obtain permission from the FCA before substituting a reduced fixed overheads requirement calculated on the basis of the projected decrease.
  4. (4) In many cases, a material change of the type specified in COREPRU 4.3.6R(1) or COREPRU 4.3.8R(1) would result from planned changes to the firm’s business. Examples of these changes may include:
    1. (a) starting or ceasing a major business line;
    2. (b) acquiring or disposing of a major business; or
    3. (c) undertaking a significant investment, upgrade or restructuring programme.
  5. (5) A firm that is planning to implement a material change to its business should calculate the anticipated impact of that change on its fixed overheads requirement (and its broader own funds requirement) before executing the relevant change. This should include considering the potential impact on its overall risk assessment.

Firms in business for less than 1 year

25/10/2027R

(1) This rule applies where a firm has been in business for less than 1 year.

(2) For the purposes of the calculation in COREPRU 4.3.1R, a firm must use the relevant expenditure included in its projections for the first 12 months’ trading, as submitted in its application for authorisation.

Point In Time
25/10/2027