Related provisions for GENPRU 2.2.157

GENPRU 2.2.6G31/12/2010

This table belongs to GENPRU 2.2.5 G

Topic	Location of text
Application and purpose of the rules in this section	GENPRU 2.2.1 R to GENPRU 2.2.4 G
BIPRU firms that only have simple types of capital resources (simple capital issuers)	GENPRU 2.2.7 G
Principles underlying the definition of capital resources	GENPRU 2.2.8 G
Which method of calculating capital resources applies to which type of firm	GENPRU 2.2.17 R to GENPRU 2.2.19 R
Purpose of the limits on the use of different forms of capital	GENPRU 2.2.24 G
Use of higher tier capital in lower tiers	GENPRU 2.2.25 R to GENPRU 2.2.28 R
Calculation of capital resources for insurers	GENPRU 2.2.22 G to GENPRU 2.2.23 G; GENPRU 2 Annex 1
Limits on the use of different forms of capital for insurer (capital resources gearing rules for insurer)	GENPRU 2.2.29 R to GENPRU 2.2.41 R
Calculation of capital resources for banks	GENPRU 2 Annex 2
Calculation of capital resources for building societies	GENPRU 2 Annex 3
Limits on the use of different forms of capital for banks and building societies (certain types of capital resources cannot be used for certain purposes)	GENPRU 2.2.44 R8 to GENPRU 2.2.45 R; GENPRU 2.2.47 R to GENPRU 2.2.48 R 8
Limits on the use of different forms of capital for banks and building societies (capital resources gearing rules)	GENPRU 2.2.29 R to GENPRU 2.2.31 G; GENPRU 2.2.46 R; GENPRU 2.2.49 R
Calculation of capital resources for BIPRU investment firms	GENPRU 2.2.20 G to GENPRU 2.2.21 G; GENPRU 2 Annex 4 to GENPRU 2 Annex 6
Limits on the use of different forms of capital for BIPRU investment firms (certain types of capital resources cannot be used for certain purposes)	GENPRU 2.2.44 R8 to GENPRU 2.2.45 R; GENPRU 2.2.47 R to GENPRU 2.2.48 R 8
Limits on the use of different forms of capital for BIPRU investment firms (capital resources gearing rules)	GENPRU 2.2.29 R to GENPRU 2.2.31 G; GENPRU 2.2.46 R; GENPRU 2.2.50 R
Example of how the capital resources calculation for BIPRU firms works	GENPRU 2.2.51 G to GENPRU 2.2.59 G
Capital used to meet the base capital resources requirement for BIPRU firms	GENPRU 2.2.60 R to GENPRU 2.2.61 G
Tier one capital instruments: general	GENPRU 2.2.9 G to GENPRU 2.2.10 G; GENPRU 2.2.62 R to GENPRU 2.2.69 G; GENPRU 2.2.80 R to GENPRU 2.2.82 G
8 Tier one capital: payment of coupons (BIPRU firm only)	GENPRU 2.2.69A R to GENPRU 2.2.69F G
Core tier one capital: permanent share capital	GENPRU 2.2.83 R to 10GENPRU 2.2.84A G10
10General conditions for eligibility of capital instruments as core tier one capital (BIPRU firm only)	GENPRU 2.2.83A R to GENPRU 2.2.83D G; GENPRU 2.2.84A G
10 Core tier one capital: exception to eligibility criteria (building societies only)	GENPRU 2.2.83E R to GENPRU 2.2.83H G
Core tier one capital: profit and loss account and other reserves: material applicable to all firms	GENPRU 2.2.85 R; GENPRU 2.2.87 R to GENPRU 2.2.89 G; GENPRU 2.2.91 G
Core tier one capital: profit and loss account and other reserves: material specific to BIPRU firms	GENPRU 2.2.86 R; GENPRU 2.2.90 R; GENPRU 2.2.92 G
Core tier one capital: provisions relating to partnerships and limited liability partnerships	GENPRU 2.2.93 R to GENPRU 2.2.100 R
Core tier one capital: share premium account	GENPRU 2.2.101 R
Core tier one capital: externally verified interim net profits	GENPRU 2.2.102 R to GENPRU 2.2.103 G
Core tier one capital: valuation differences and fund for future appropriations for insurer	GENPRU 2.2.104 R to GENPRU 2.2.108 R
Core tier one capital: deferred shares (building society only)	GENPRU 2.2.108A R to GENPRU 2.2.108B G
Tier one capital: perpetual non-cumulative preference shares (insurer only)8	GENPRU 2.2.109 R to GENPRU 2.2.110 G
Innovative tier one capital (excluding issues through SPVs) (insurer only)8	GENPRU 2.2.76 R; GENPRU 2.2.113 R to GENPRU 2.2.122 G
8 Hybrid capital (excluding issues through SPVs) (BIPRU firm only)	GENPRU 2.2.115A R to GENPRU 2.2.119 G
Hybrid capital 8 (issues through SPVs) (BIPRU firm only)8 8	GENPRU 2.2.123 R to GENPRU 2.2.137 R
Tier one capital: conversion ratio	GENPRU 2.2.138 R to GENPRU 2.2.144 G
Tier one capital: requirement to have sufficient unissued stock	GENPRU 2.2.145 R
Deductions from tier one capital resources	GENPRU 2.2.155 R to GENPRU 2.2.156 G
Tier two capital	GENPRU 2.2.11 G; GENPRU 2.2.157 G to GENPRU 2.2.197 G
Deductions from tier one capital resources and tier two capital resources	GENPRU 2.2.202 R to GENPRU 2.2.240 G
Tier three capital	GENPRU 2.2.12 G; GENPRU 2.2.241 R to GENPRU 2.2.249 R
Deductions from total capital resources	GENPRU 2.2.14 G to GENPRU 2.2.16 G; GENPRU 2.2.250 R to GENPRU 2.2.265 R
The effect of swaps	GENPRU 2.2.198 R to GENPRU 2.2.201 R
Step-ups (Tier one capital and tier two capital)	GENPRU 2.2.76 R; GENPRU 2.2.146 R to GENPRU 2.2.154 G
Redemption of tier one instruments	GENPRU 2.2.64R (3); GENPRU 2.2.70 R to GENPRU 2.2.79 G
8Purchases of tier one instruments: BIPRU firm only	GENPRU 2.2.79A R to GENPRU 2.2.79H G; GENPRU 2.2.79L G10
Redemption of tier two instruments	GENPRU 2.2.172 R to GENPRU 2.2.174 R; GENPRU 2.2.177 R to GENPRU 2.2.178 R (upper tier two instruments); GENPRU 2.2.194 R to GENPRU 2.2.197 G (lower tier two instruments)
Non-standard capital instruments	GENPRU 2.2.13 G
Standard form documentation for subordinated debt	GENPRU 2.2.164 G
Public sector guarantees	GENPRU 2.2.276 R
Other capital resources for insurers: unpaid share capital or unpaid initial funds and calls for supplementary contributions	GENPRU 2.2.266 G to GENPRU 2.2.269 G
Additional requirements for insurer carrying on with-profits insurance business	GENPRU 2.2.270 R to GENPRU 2.2.275 G

GENPRU 2.2.14G31/12/2006

Deductions should be made at the relevant stage of the calculation of capital resources to reflect capital that may not be available to the firm or assets of uncertain value (for example, holdings of intangible assets and assets that are inadmissible for an insurer., or, in the case of a bank or building society, where that firm has made investments in a subsidiary undertaking or in another financial institution or in respect of participations that it holds).

GENPRU 2.2.15G31/12/2006

Deductions should also be made, in the case of certain BIPRU investment firms for illiquid assets (see GENPRU 2.2.19 R).

GENPRU 2.2.17R31/12/2006

A firm must calculate its capital resources in accordance with the version of the capital resources table applicable to the firm, subject to the capital resources gearing rules. The version of the capital resources table that applies to a firm is specified in the table in GENPRU 2.2.19 R.

GENPRU 2.2.18R31/12/2006

In the case of a BIPRU firm the capital resources table also sets out how the capital resources requirement is deducted from capital resources in order to decide whether its capital resources equal or exceed its capital resources requirement.

GENPRU 2.2.19R31/12/2006

This table belongs to GENPRU 2.2.17 R

Type of firm	Location of rules	Remarks
Insurer	GENPRU 2 Annex 1
Bank	GENPRU 2 Annex 2
Building society	GENPRU 2 Annex 3
BIPRU investment firm without an investment firm consolidation waiver	GENPRU 2 Annex 4 (Deducts material holdings)	Applies to a BIPRU investment firm not using GENPRU 2 Annex 5 or GENPRU 2 Annex 6
BIPRU investment firm without an investment firm consolidation waiver	GENPRU 2 Annex 5 (Deducts illiquid assets)	A BIPRU investment firm must give one Month's prior notice to the FSA before starting to use or stopping using this method
BIPRU investment firm with an investment firm consolidation waiver	GENPRU 2 Annex 6 (Deducts illiquid assets and material holdings)	A firm with an investment firm consolidation waiver must use this method. No other BIPRU investment firm may use it.

GENPRU 2.2.20G31/12/2006

GENPRU 2.2.19 R sets out three different methods of calculating capital resources for BIPRU investment firms. The differences between the three methods relate to whether and how material holdings and illiquid assets are deducted when calculating capital resources. The method depends on whether a firm has an investment firm consolidation waiver. If a firm does have such a waiver, it should deduct illiquid assets, own groupmaterial holdings and certain contingent liabilities. If

GENPRU 2.2.21G31/12/2006

A consequence of a firm deducting all of its illiquid assets under GENPRU 2 Annex 5 is that it is allowed a higher limit on short term subordinated debt under GENPRU 2.2.49 R.

GENPRU 2.2.25R31/12/2010

A firm may include in a lower stage of capital, capital resources which are eligible for inclusion in a higher stage of capital if the capital resources gearing rules would prevent the use of that capital in that higher stage of capital. However:(1) the capital resources gearing rules applicable to that lower stage of capital apply to higher stage of capital included in that lower stage of capital; and(2) (subject to GENPRU 2.2.26 R and GENPRU 2.2.26A R)8 the rules in GENPRU governing

GENPRU 2.2.26R31/12/2006

An item of tier one capital which is included in a firm'stier two capital resources under GENPRU 2.2.25 R is not subject to the requirement to obtain a legal opinion in GENPRU 2.2.159R (12).

GENPRU 2.2.26AR31/12/2010

8A dated item of tier one capital which is included in a BIPRU firm'stier two capital resources under GENPRU 2.2.25 R is not subject to the requirement to have no fixed maturity date in GENPRU 2.2.177R (1).

GENPRU 2.2.28R31/12/2010

In the case of a BIPRU firm, the8 requirement to obtain a legal opinion in GENPRU 2.2.159R (12) does not apply to hybrid capital treated under GENPRU 2.2.25 R8 but the requirements to obtain a legal opinion in GENPRU 2.2.118 R continue to apply.88

GENPRU 2.2.30AR31/12/2010

8In relation to the tier one capital resources of a BIPRU firm, calculated at stage F of the calculation in the capital resources table (Total tier one capital after deductions):(1) no more than 50% may be accounted for by hybrid capital;(2) no more than 35% may be accounted for by hybrid capital included at stages B2 and C of the calculation in the capital resources table; and (3) no more than 15% may be accounted for by hybrid capital included at stage C of the calculation in

GENPRU 2.2.31G31/12/2010

The purpose of the requirements8 in GENPRU 2.2.29 R and GENPRU 2.2.30AR (1) is to ensure that the firm'stier one capital resources includes a minimum proportion of core tier one capital which provides the highest quality capital.8 Within the 50% limit on non-core tier one capital:88(1) 8GENPRU 2.2.30 R places a further sub-limit on the amount of innovative tier one capital that an insurer may include in its tier one capital resources; and(2) 8GENPRU 2.2.30AR (2) and GENPRU 2.2.30AR

GENPRU 2.2.44R31/12/2006

Tier one capital and tier two capital are the only type of capital resources that a BIPRU firm may use for the purpose of meeting:(1) the credit risk capital component;(2) the operational risk capital requirement;(3) the counterparty risk capital component; and(4) the base capital resources requirement.

GENPRU 2.2.45R31/12/2006

GENPRU 2.2.44 R (and the capital resources gearing rules that relate to it) also applies for the purposes of any other requirement in the Handbook for which it is necessary to calculate the capital resources of a BIPRU firm, except for the purposes described in GENPRU 2.2.47 R and except as may otherwise be stated in the relevant part of the Handbook.

GENPRU 2.2.46R31/12/2006

For the purpose of GENPRU 2.2.44 R:(1) the amount of the items which may be included in a BIPRU firm'stier two capital resources must not exceed the amount calculated at stage F of the calculation in the capital resources table (Total tier one capital after deductions); and(2) the amount of the items which may be included in a BIPRU firm'slower tier two capital resources must not exceed 50% of the amount calculated at stage F of the calculation in the capital resources table.

GENPRU 2.2.47R31/12/2006

For the purposes of meeting:(1) the market risk capital requirement; (2) the concentration risk capital component; and(3) the fixed overheads requirement (where applicable);a BIPRU firm may only use the following parts of its capital resources:(4) tier one capital to the extent that it is not required to meet the requirements in GENPRU 2.2.44 R (GENPRU 2.2.48 R explains how to calculate how much tier one capital is required to meet the requirements in GENPRU 2.2.44 R);(5) tier

GENPRU 2.2.48R31/12/2006

The amount of tier one capital and tier two capital that is not used to meet the requirements in GENPRU 2.2.44 R as referred to in GENPRU 2.2.47R (4) and (5)(5) is equal to the amount calculated at stage N of the calculation in the capital resources table (Total tier one capital plus tier two capital after deductions) less the parts of the capital resources requirement deducted immediately after stage N of the capital resources table (the parts of the capital resources requirements

GENPRU 2.2.49R31/12/2006

For the purpose of meeting the requirements in GENPRU 2.2.47R (1) to GENPRU 2.2.47R (3) and subject to GENPRU 2.2.50 R, a BIPRU firm must not include any item in either:(1) its tier two capital resources falling within GENPRU 2.2.47R (6) (excess tier two capital); or(2) its upper tier three capital resources;to the extent that the sum of (1) and (2) would exceed 250% of the amount resulting from the following calculation:(3) calculate the amount at stage F of the calculation in

GENPRU 2.2.50R31/12/2006

In relation to a BIPRU investment firm which calculates its capital resources under GENPRU 2 Annex 4 (Capital resources table for a BIPRU investment firm deducting material holdings), the figure of 200% replaces that of 250% in GENPRU 2.2.49 R.

GENPRU 2.2.52G31/12/2010

This table belongs to GENPRU 2.2.51 G

Description of the stage of the capital resources calculation	Stage in the capital resources table	Amount (£)
Total tier one capital after deductions 8	Stage F	80
Total tier two capital 8	Stage K	80
Deductions	Stage M	(20)
Total tier one capital and tier two capital after deductions	Stage N	140
Upper tier three capital (this example assumes the firm has no lower tier three capital (trading book profits))	Stage Q	50
Total capital resources	Stage T	190

GENPRU 2.2.55G31/12/2006

The combined credit, operational and counterparty1 risk capital requirement is deducted after stage N of the capital resources table and the market risk requirement following stage T of the capital resources table. These calculations are shown in the table in GENPRU 2.2.56 G.

GENPRU 2.2.56G31/12/2006

This table belongs to GENPRU 2.2.55 G

Description of the stage of the capital resources calculation	Stage in the capital resources table	Amount (£)
Total tier one capital and tier two capital after deductions	Stage N	140
Credit, operational, and counterparty1 risk requirement		(100)
Tier one capital and tier two capital available to meet market risk requirement		40
Tier three capital	Stage Q	50
Total capital available to meet market risk requirement		90
Market risk requirement		(90)
Market risk requirement met subject to meeting gearing limit set out in GENPRU 2.2.49 R – see GENPRU 2.2.57 G

GENPRU 2.2.57G31/12/2006

The gearing limit in GENPRU 2.2.49 R (Combined tier two and tier three limits) requires that the upper tier three capital used to meet the market risk requirement does not exceed 250% of the relevant1tier one capital1.

GENPRU 2.2.58G31/12/2006

In this example it is assumed that the maximum possible amount of tier one capital is carried forward to meet the market risk requirement. There are other options as to the allocation of tier one capital and tier two capital to the credit, operational, and counterparty1 risk requirement.1In order to calculate the relevant tier one capital for the upper tier three gearing limit in accordance with GENPRU 2.2.49 R it is first necessary to allocate tier one capital and tier two capital

GENPRU 2.2.59G31/12/2006

The 250% gearing limit is met as the limit of £1251 is greater than the upper tier three capital of £50 used in this example.

GENPRU 2.2.60R31/12/2006

A BIPRU firm may use the capital resources used to meet the base capital resources requirement to meet any other part of the capital resources requirement.

GENPRU 2.2.79FR31/12/2010

8For the purposes of calculating its tier one capital resources, a firm must deduct the amount of any item of hybrid capital which it then holds.

GENPRU 2.2.108AR31/12/2010

8A building society may include a deferred share at stage A of the calculation in the capital resources table if (in addition to satisfying all the other requirements in relation to tier one capital) it is permanent share capital and is otherwise equivalent to an ordinary share in terms of its capital qualities, taking into account the specific constitution of building societies under the Building Societies Act 1986.

GENPRU 2.2.115AR31/12/2010

8A BIPRU firm must not include a capital instrument at stage B1 of the calculation in the capital resources table unless (in addition to satisfying all the other requirements in relation to tier one capital and hybrid capital) its contractual terms are such that:(1) it cannot be redeemed in cash but can only be converted into core tier one capital;(2) it must be converted into core tier one capital by the firm during emergency situations; (3) the emergency situations referred

GENPRU 2.2.115BG31/12/2010

8The intention of GENPRU 2.2.115A R is to ensure that capital instruments included in stage B1 of the calculation in the capital resources table have the same permanence as core tier one capital; the presence of a call option for these instruments may reduce their permanence.

GENPRU 2.2.115DR31/12/2010

8A BIPRU firm may include a capital instrument at stage B2 of the calculation in the capital resources table if (while satisfying all the other requirements in relation to tier one capital and hybrid capital)it cannot be included at stage B1 of that calculation as it does not satisfy the requirements of GENPRU 2.2.115A R.

GENPRU 2.2.115FR31/12/2010

8A BIPRU firm may include a capital instrument at stage C of the calculation in the capital resources table, and must not include it in stage B1 or B2 of that calculation, if (in addition to satisfying all the other requirements in relation to tier one capital and hybrid capital) it either:(1) is dated; or(2) provides an incentive for the firm to redeem it, as assessed at the date of its issue.

GENPRU 2.2.116AR31/12/2010

8A BIPRU firm must not include a capital instrument that is not a share at stage B1, B2 or C of the calculation in the capital resources table unless (in addition to satisfying all the other requirements in relation to tier one capital and hybrid capital) the firm's obligations under the instrument either:(1) do not constitute a liability (actual, contingent or prospective) under section 123(2) of the Insolvency Act 1986; or(2) do constitute such a liability but the terms of the

GENPRU 2.2.117AR31/12/2010

8A BIPRU firm must not include a capital instrument at stage B1, B2 or C of the calculation in the capital resources table unless (in addition to satisfying all the other requirements in relation to tier one capital and hybrid capital) its contractual terms provide for a mechanism within the instrument which:(1) is clearly defined and legally certain;(2) is disclosed and transparent to the market;(3) makes the recapitalisation of the firm more likely by adequately reducing the

GENPRU 2.2.118R31/12/2010

8(1) 8An insurer may not include an innovative tier one instrument, unless it is a preference share, in its tier one capital resources unless it has obtained a properly reasoned independent legal opinion from an appropriately qualified individual confirming that the criteria in GENPRU 2.2.64R (6) (loss absorption) and GENPRU 2.2.80 R to GENPRU 2.2.81 R (Loss absorption) are met.(2) A BIPRU firm may not include a capital instrument at stage B1, B2 or C of the calculation in the

GENPRU 2.2.125R31/12/2010

A BIPRU firm may only count capital to which GENPRU 2.2.124 R applies at stage C of the calculation in the capital resources table.88

GENPRU 2.2.141R31/12/2006

In GENPRU 2.2.138 R to GENPRU 2.2.142 R, the conversion ratio as at the date of issue of the original capital item is calculated as if the original capital item were redeemable at that time.

GENPRU 2.2.142R31/12/2006

If the conversion instruments or the original capital item are subdivided or consolidated or subject to any other occurrence that would otherwise result in like not being compared with like, the conversion ratio calculation in GENPRU 2.2.138 R must be adjusted accordingly.

GENPRU 2.2.143G31/12/2010

(1) The significance of the limitations on conversion in GENPRU 2.2.138R (2) can be seen in the example in this paragraph, which uses the conversion ratio applicable to an insurer. 8(2) An insurer8 issues innovative notes with a par value of £100 each. The terms of the instrument provide that if the instrument is not called at par at the first call date the notes convert into a variable number of ordinary shares.8(3) If the market price of the ordinary shares is 400 pence per

GENPRU 2.2.146R31/12/2006

(1) Where a rule in this section says that a particular treatment applies to an item of capital that is subject to a step-up of a specified amount, the question of whether that rule is satisfied must be judged by reference to the cumulative amount of all step-ups since the issue of that item of capital rather than just by reference to a particular step-up.(2) Where a step-up arises through a change from paying a coupon on a debt instrument to paying a dividend on a share issued

GENPRU 2.2.147R31/12/2010

(1) A firm may not include in its tier one capital resources a tier one instrument that is or may be subject to a step-up that does not meet the definition of moderate in the press release of the Basle Committee on Banking Supervision of 27th October 1998 called "Instruments eligible for inclusion in Tier 1 capital".(2) For the purpose of (1) the words in that press release "than, at national supervisory discretion, either" are replaced by "than the higher of the following two

GENPRU 2.2.148G31/12/2006

The effect of GENPRU 2.2.147 R is that for inclusion in tier one capital resources, step-ups in instruments should be moderate. A moderate step-up for these purposes is one which results in an increase over the initial rate that is no greater than the higher of the following two amounts:(1) 100 basis points, less the swap spread between the initial index basis and the stepped-up index basis; or(2) 50% of the initial credit spread, less the swap spread between the initial index

GENPRU 2.2.150G31/12/2006

Where the step-up involves a conversion from fixed to floating (or vice versa), or a switch in basis index, the swap spread should be fixed at pricing date, reflecting the differential in pricing between indices at the time. The significance of deducting the swap spread can be seen by the following example:(1) the pricing date:(a) 10 year gilts (G) = 5.5% (the initial index basis);(b) 3 month LIBOR is the stepped up index basis and the 10 year mid swap rate (L) = 5.9%;(c) initial

GENPRU 2.2.151R31/12/2006

(1) Subject to (2), if a tier two instrument is or may be subject to a step-up that does not meet the definition of moderate in the press release of the Basle Committee on Banking Supervision referred to in GENPRU 2.2.147R (1) as adjusted under GENPRU 2.2.147R (2), the first date that a step-up can take effect is deemed to be its final maturity date if that date is before its actual maturity date.(2) If a tier two instrument:(a) is or may be subject to a step-up during the period

GENPRU 2.2.152R31/12/2006

An instrument does not breach GENPRU 2.2.147 R or as the case may be, is not subject to a deemed maturity date under GENPRU 2.2.151 R, even though it is or may be subject to a step-up that exceeds the amount specified in those rules if:(1) the instrument is fungible with other instruments (the "existing stock") that are included in the firm'stier one capital resources (in the case of GENPRU 2.2.147 R) or tier two capital resources (in the case of GENPRU 2.2.151 R);(2) (if there

GENPRU 2.2.153R31/12/2006

(1) A firm must not include in its tier one capital resources a potential tier one instrument that is or may become subject to a step-up if that step-up can arise earlier than the tenth anniversary of the date of issue of that item of capital.(2) A firm must not include in its tier two capital resources a capital instrument that is or may become subject to a step-up if that step-up can arise earlier than the fifth anniversary of the date of issue of that item of capital.

GENPRU 2.2.155R31/12/2006

A firm must deduct from its tier one capital resources the value of intangible assets.

GENPRU 2.2.156G31/12/2006

Intangible assets include goodwill as defined in accordance with the requirements referred to in GENPRU 1.3.4 R (General requirements: accounting principles to be applied) applicable to the firm. The treatment of deferred acquisition cost assets for BIPRU investment firms is dealt with in GENPRU 1.3 (Valuation); they should not be deducted as an intangible asset.

GENPRU 2.2.174R06/03/2009

In relation to a tier two instrument, a firm must notify the FSA:(1) in the case of an insurer, six Months; and(2) in the case of a BIPRU firm, one Month;before it becomes committed to7 the proposed repayment (unless that firm intends to repay an instrument on its final maturity date). When giving notice, the firm must provide details of its position after such repayment in order to show how it will:777(3) meet its capital resources requirement; and7(4) have sufficient financial

GENPRU 2.2.179G31/12/2010

(1) The purpose of GENPRU 2.2.177R (2) is to ensure that a firm which issues an item of capital with a coupon retains flexibility over the payments of such coupon and can preserve cash in times of financial stress. However, a firm may include, as part of the capital instrument terms, a right to make payments of a coupon mandatory if an item of capital becomes ineligible to form part of its capital resources (for example, through a change in the relevant rules) and the firm has

GENPRU 2.2.185R31/12/2006

(1) This rule applies to a BIPRU firm.(2) A BIPRU firm must, in relation to equities held in the available-for-sale financial assets category:(a) deduct any net losses at stage E of the calculation in the capital resources table (Deductions from tier one capital); and(b) include any net gains (after deduction of deferred tax) in revaluation reserves at stage G of the calculation in the capital resources table (Upper tier two capital).(3) A BIPRU firm must include any net gains,

GENPRU 2.2.190R31/12/2006

A BIPRU firm calculating risk weighted exposure amounts under the IRB approach may include in its upper tier two capital resources positive amounts resulting from the calculation in BIPRU 4.3.8 R (Treatment of expected loss amounts), up to 0.6% of the risk weighted exposure amounts calculated under that approach.

GENPRU 2.2.192R31/12/2006

For the purpose of GENPRU 2.2.190 R and GENPRU 2.2.191 R, risk weighted exposure amounts must not include those calculated in respect of securitisation positions which have a risk weight of 1250%.

GENPRU 2.2.194R31/12/2006

A firm may include a capital instrument in its lower tier two capital resources if (in addition to meeting the requirements of the rules about eligibility for inclusion in tier two capital) either the holder has no right to repayment or it satisfies either of the following conditions:(1) it has an original maturity of at least five years; or(2) it is redeemable on notice from the holder, but the period of notice of repayment required to be given by the holder is five years or

GENPRU 2.2.196R31/12/2006

(1) For the purposes of calculating the amount of a lower tier two instrument which may be included in a firm'scapital resources:(a) in the case of an instrument with a fixed maturity date, in the final five years to maturity; and(b) in the case of an instrument with or without a fixed maturity date but where five years' or more notice of redemption or repayment has been given, in the final five years to the date of redemption or repayment;the principal amount must be amortised

GENPRU 2.2.201R31/12/2006

A firm must recognise the effect of a hedge as referred to in GENPRU 2.2.200 R by including the net accounting fair value of the hedging instrument in the valuation of the debt instrument (as defined in GENPRU 2.2.198 R).

GENPRU 2.2.205R31/12/2006

The amount of qualifying holdings that a bank or building society must deduct in the calculation in the capital resources table is:(1) (if the firm has one or more qualifying holdings that exceeds 15% of its relevant capital resources) the sum of such excesses; and(2) to the extent not already deducted in (1), the amount by which the sum of each of that firm'squalifying holdings exceeds 60% of its relevant capital resources.

GENPRU 2.2.206R31/12/2006

The relevant capital resources of a firm mean for the purposes of this rule the sum of the amount of capital resources calculated at stages L (Total tier one capital plus tier two capital) and Q (Total tier three capital) of the calculation in the capital resources table as adjusted in accordance with the following:(1) the firm must not take into account the items referred to in any of the following:(a) GENPRU 2.2.190 R to GENPRU 2.2.193 R (surplus provisions); or(b) GENPRU 2.2.236

GENPRU 2.2.207R31/12/2006

The following are not included as qualifying holdings:(1) shares that are not held as investments; or(2) shares that are held temporarily during the normal course of underwriting; or(3) shares held in a firm's name on behalf of others.

GENPRU 2.2.209R01/08/2011

(1) Subject to (2) and (3), a material holding is:11(a) a BIPRU firm's holdings of shares and any other interest in the capital of an individual credit institution or financial institution (held in the non-trading book or the trading book or both) exceeding 10% of the share capital of the issuer, and, where this is the case, any holdings of subordinated debt of the same issuer are also included as a material holding; the full amount of the holding is a material holding; or11(b)

GENPRU 2.2.210G31/12/2006

For the purpose of the definition of a material holding, share capital includes preference shares. Share premium should be taken into account when determining the amount of share capital.

GENPRU 2.2.211R31/12/2006

When calculating the size of its material holdings a firm must only include an actual holding (that is, a long cash position). A firm must not net such holdings with a short position.

GENPRU 2.2.212R31/12/2006

A material insurance holding means the holdings of a BIPRU firm of items of the type set out in GENPRU 2.2.213 R in any:(1) insurance undertaking; or(2) insurance holding company;that fulfils one of the following conditions:(3) it is a subsidiary undertaking of that firm; or(4) that firm holds a participation in it.

GENPRU 2.2.214R31/12/2006

The amount to be deducted with respect to each material insurance holding is the higher of:(1) the book value of the material insurance holding; and(2) the solo capital resources requirement for the insurance undertaking or insurance holding company in question calculated in accordance with Part 3 of GENPRU 3 Annex 1 (Method 3 of the capital adequacy calculations for financial conglomerates).

GENPRU 2.2.216AG01/08/2011

(1) 3This paragraph gives guidance as to the amount to be deducted at Part 2 of stage M (Deductions from the totals of tier one and two) of GENPRU 2 Annex 2 (Capital resources table for a bank) and GENPRU 2 Annex 3 (Capital resources table for a building society) in respect of investments in subsidiary undertakings and participations (excluding any amount which is already deducted as material holdings or qualifying holdings).(2) The effect of those rules is to achieve the deduction

GENPRU 2.2.218R31/12/2006

A BIPRU firm must deduct at stage M of the calculation in the capital resources table (Deductions from the totals of tier one and two) any reciprocal cross-holdings. However a BIPRU firm must not deduct such holdings to the extent that they fall to be deducted at Part 1 of stage M of the calculation in the capital resources table (Deductions for material holdings, qualifying holdings and certain other items).

GENPRU 2.2.223R31/12/2006

A bank must not deduct any item as connected lending of a capital nature to the extent that it falls to be deducted at Part 1 of stage M of the calculation in the capital resources table (Deductions for material holdings, qualifying holdings and certain other items) or as a reciprocal cross-holding.

GENPRU 2.2.233R31/12/2006

The amount of a guarantee that constitutes connected lending of a capital nature that a firm must deduct is the amount guaranteed.

GENPRU 2.2.236R31/12/2006

A BIPRU firm calculating risk weighted exposure amounts under the IRB approach must deduct:(1) any negative amounts arising from the calculation in BIPRU 4.3.8 R (Treatment of expected loss amounts); and(2) any expected loss amounts2 calculated in accordance with BIPRU 4.7.12 R (Expected loss amounts under the simple risk weight approach to calculating risk weighted exposure amounts for exposures belonging to the equity exposureIRB exposure class) or BIPRU 4.7.17 R (Expected loss

GENPRU 2.2.238R31/12/2006

GENPRU 2.2.238 R to GENPRU 2.2.241 R apply to a BIPRU firm and relate to the deductions in respect of:(1) material holdings;(2) expected loss amounts and other negative amounts referred to in GENPRU 2.2.236 R; and(3) securitisation positions referred to in GENPRU 2.2.237 R.

GENPRU 2.2.239R31/12/2006

(1) The treatment in the capital resources table of the deductions in GENPRU 2.2.238 R only has effect for the purpose of the capital resources gearing rules.(2) In other cases (3) and (4) apply.(3) A BIPRU firm making the deductions described in GENPRU 2.2.238 R must deduct 50% of the total amount of those deductions at stage E (Deductions from tier one capital) and 50% at stage J (Deductions from tier two capital) of the calculation in the capital resources table after the application

GENPRU 2.2.240G31/12/2006

The alternative calculation in GENPRU 2.2.239R (3) to (4) is only relevant to BIPRU 11 (Pillar 3 disclosures) and certain reporting requirements under SUP. However the deduction of material holdings at Part 2 of stage E of the capital resources table in the case of a BIPRU investment firm with an investment firm consolidation waiver has effect for all purposes.

GENPRU 2.2.242R31/12/2006

A BIPRU firm may include subordinated debt in its upper tier three capital resources only if:(1) it has an original maturity of at least two years or is subject to at least two years' notice of repayment; and(2) payment of interest or principal is permitted only if, after that payment, the firm'scapital resources would be not less than its capital resources requirement.

GENPRU 2.2.243R31/12/2006

A BIPRU firm which includes subordinated debt in its tier three capital resources must notify the FSA one month in advance of all payments of either interest or principal made when the firm'scapital resources are less than 120% of its capital resources requirement.

GENPRU 2.2.244R31/12/2006

The rules in the table in GENPRU 2.2.245 R apply to short term subordinated debt that a BIPRU firm includes in its tier three capital resources in the same way that they apply to a firm'stier two capital resources with the adjustments in that table.

GENPRU 2.2.247R31/12/2006

A BIPRU firm's net interim trading book profits mean its net trading book profits adjusted as follows:(1) they are net of any foreseeable charges or dividends and less net losses on its other business; and(2) a firm must not take into account items that have already been included in the calculation of capital resources as part of the calculation of the following items:(a) interim net profits (see stage (A) of the capital resources table); or(b) interim net losses or material interim

GENPRU 2.2.248R31/12/2006

Trading book profits and losses, other than those losses to which GENPRU 2.2.86R (2) (Valuation adjustment and reserves) refers, originating from valuation adjustments or reserves as referred to in GENPRU 1.3.29 R to GENPRU 1.3.35 G (Valuation adjustments or reserves) must be included in the calculation of net interim trading book profits and be added to or deducted from tier three capital resources.

GENPRU 2.2.264R31/12/2006

(1) The excess trading book position is the excess of:(a) a bank or building society's aggregate net long (including notional) trading bookpositions in shares, subordinated debt or any other interest in the capital of credit institutions or financial institutions;over;(b) 25% of that firm'scapital resources calculated at stage T (Total capital after deductions) of the capital resources table (calculated before deduction of the excess trading book position).(2) Only the excess

BIPRU 7.10.2G01/01/2007

BIPRU 7.10 provides details of when the FSA expects to allow a firm to use a VaR model (value at risk model) for the purpose of calculating part or all of its PRR. It introduces the concept of a VaR model, the methodology behind it and the link to the standard market risk PRR rules. It then goes on to detail the application and review process. The bulk of BIPRU 7.10 specifies the model standards and risk management standards that firms will be required to meet in order to use

BIPRU 7.10.46R01/11/2007

(1) If a firm'sVaR model covers the calculation of PRR with respect to specific risk the firm must meet the VaR specific risk minimum requirements in addition to the other requirements of BIPRU 7.10.(2) The VaR model must explain the historical price variation in the portfolios concerned.(3) The VaR model must capture concentration in terms of magnitude and changes of composition of the portfolios concerned.(4) The VaR model must be robust to an adverse environment.(5) The VaR

BIPRU 7.10.93G01/01/2007

Backtesting conducted only at a whole portfolio level using a single measure of profit and loss has limited power to distinguish an accurate VaR model from an inaccurate one. Backtesting should therefore be regarded as an additional safeguard rather than a primary validation tool. Such testing does however form the basis of the FSA'splus factor system. The test has been chosen as the basis of the backtesting regime because of its simplicity. A firm will therefore be expected to

BIPRU 7.10.94R01/01/2007

A firm must have the capacity to analyse and compare its clean profit and loss figures and clean hypothetical profit and loss figures to the VaR measure, both at the level of the whole portfolio covered by the VaR model permission and at the level of individual books that contain material amounts of risk.

BIPRU 7.10.96R01/01/2007

A firm must, on each business day, compare each of its 250 most recent business days'clean profit and loss figures (ending with the business day preceding the business day in question) with the corresponding one-day VaR measures.

BIPRU 7.10.100R01/01/2007

The clean profit and loss figure for a particular business day is the firm's actual profit or loss for that day in respect of the trading activities within the scope of the firm'sVaR model permission, adjusted by stripping out:(1) fees and commissions;(2) brokerage;(3) additions to and releases from reserves which are not directly related to market risk (e.g. administration reserves); and(4) any inception profit exceeding an amount specified for this purpose in the firm'sVaR model

BIPRU 7.10.102G01/01/2007

The FSA will review as part of a firm'sVaR model permission application the processes and documentation relating to the derivation of profit and loss used for backtesting. A firm's documentation should clearly set out the basis for cleaning profit and loss. To the extent that certain profit and loss elements are not updated every day (for example certain reserve calculations) the documentation should clearly set out how such elements are included in the clean profit and loss

BIPRU 7.10.103R01/01/2007

A backtesting exception is deemed to have occurred for any business day if the clean profit and loss figure for that business day shows a loss, which in absolute magnitude, exceeds the one-day VaR measure for that business day. The only exception is if that business day is identified in the firm'sVaR model permission as giving rise to an excluded backtesting exception.

BIPRU 7.10.104R01/01/2007

If a backtesting exception occurs, the firm must notify its usual supervisory contact at the FSA orally by close of business two business days after the business day for which the backtesting exception occurred. Within five business days following the end of each Month, the firm must submit to the FSA a written account of the previous Month'sbacktesting exceptions (if any). This explanation must include the causes of the backtesting exceptions, an analysis of whether the backtesting

BIPRU 7.10.105G01/01/2007

(1) This paragraph gives guidance on the backtesting calculation and reporting process in BIPRU 7.10.96R - BIPRU 7.10.104R.(2) Let the day on which the loss referred to in BIPRU 7.10.100R is made be day n. The value-at-risk measure for that day will be calculated on day n-1, or overnight between day n-1 and day n. Profit and loss figures are produced on day n+1, and backtesting also takes place on day n+1. The firm's supervisor should be notified of any backtesting exceptions

BIPRU 7.10.106G01/01/2007

(1) This paragraph gives guidance on the process for excluding backtesting exceptions as referred to in BIPRU 7.10.103R.(2) The FSA will respond flexibly to backtesting exceptions. However, the FSA's starting assumption will be that a backtesting exception should be taken into account for the purpose of the calculation of plus factors. If the firm believes that a backtesting exception should not count for that purpose, then it should seek a variation of its VaR model permission

BIPRU 7.10.111R01/01/2007

A firm must also perform backtesting against a clean hypothetical profit and loss figure with respect to each business day. A clean hypothetical profit and loss figure for a business day means the clean profit and loss figure that would have occurred for that business day if the portfolio on which the VaR number for that business day is based remained unchanged.

BIPRU 7.10.112G01/01/2007

(1) A clean hypothetical profit and loss figure is based on the day's change in the value of the same portfolio that was used to generate the value-at-risk forecast.(2) Backtesting under BIPRU 7.10.111R, although carried out with respect to each business day, need not be carried out each day. A firm need only carry it out sufficiently frequently to comply with its reporting requirements under BIPRU 7.10.129R. An exception arising out of such backtesting need not be reported to

BIPRU 7.10.127G01/01/2007

Firms who gained model recognition before 1 January 2007 will be permitted to calculate PRR for specific risk in accordance with the methodology they were permitted to use immediately before that date instead of capturing event and default risk in their models (see BIPRU TP 14 (Market risk: VaR models)). This treatment will not be available to a firm that gains model recognition after that date.

BIPRU 7.10.129R01/01/2007

A firm must, no later than the number of business days after the end of each quarter specified in the VaR model permission for this purpose, submit, in respect of that quarter, a report to the FSA about the operation of the VaR model, the systems and controls relating to it and any changes to the VaR model and those systems and controls. Each report must outline as a minimum the following information in respect of that quarter:(1) methodological changes and developments to the

GENPRU 2.1.40R31/12/2006

A BIPRU firm must maintain at all times capital resources equal to or in excess of the amount specified in the table in GENPRU 2.1.45 R (Calculation of the variable capital requirement for a BIPRU firm).

GENPRU 2.1.41R31/12/2006

A BIPRU firm must maintain at all times capital resources equal to or in excess of the base capital resources requirement (see the table in GENPRU 2.1.48 R).

GENPRU 2.1.43G31/12/2006

The purpose of the base capital resources requirement for a BIPRU firm is to act as a minimum capital requirement or floor. It has been written as a separate requirement as there are restrictions in GENPRU 2.2 (Capital resources) on the types of capital that a BIPRU firm may use to meet the base capital resources requirement which do not apply to some other parts of the capital requirement calculation. In order to preserve the base capital resources requirement's role as a floor

GENPRU 2.1.44G31/12/2006

The base capital resources requirement and the variable capital requirement in GENPRU 2.1.40 R are together called the capital resources requirement (CRR) in the case of a BIPRU firm.

GENPRU 2.1.45R31/12/2006

Table: Calculation of the variable capital requirement for a BIPRU firm

This table belongs to GENPRU 2.1.40 R

Firm category	Capital requirement
Bank, building society or full scope BIPRU investment firm	the sum of the following:
	(1)	the credit risk capital requirement;
	(2)	the market risk capital requirement; and
	(3)	the operational risk capital requirement.
BIPRU limited activity firm	the sum of the following:
	(1)	the credit risk capital requirement;
	(2)	the market risk capital requirement; and
	(3)	the fixed overheads requirement.
BIPRU limited licence firm (including UCITS investment firm)	the higher of (1) and (2):
	(1)	the sum of:
		(a)	the credit risk capital requirement; and
		(b)	the market risk capital requirement; and
	(2)	the fixed overheads requirement.

GENPRU 2.1.46R06/04/2007

When a3UCITS investment firm calculates the credit risk capital requirement and the market risk capital requirement for the purpose of calculating the variable capital requirement under GENPRU 2.1.40 R it must do so only3 in respect of designated investment business. For this purpose scheme management activity is excluded from designated investment business.33

GENPRU 2.1.51R31/12/2006

A BIPRU firm must calculate its credit risk capital requirement as the sum of:(1) the credit risk capital component; (2) the counterparty risk capital component; and(3) the concentration risk capital component.

GENPRU 2.1.53R31/12/2006

In relation to a BIPRU investment firm which is required to calculate a fixed overheads requirement, the amount of that requirementis equal to one quarter of the firm's relevant fixed expenditure calculated in accordance with GENPRU 2.1.54 R.

GENPRU 2.1.54R31/12/2006

For the purpose of GENPRU 2.1.53 R, and subject to GENPRU 2.1.55 R to GENPRU 2.1.57 R,a BIPRU investment firm's relevant fixed expenditure is the amount described as total expenditure in its most recent audited annual report and accounts, less the following items (if they are included within such expenditure):(1) staff bonuses, except to the extent that they are guaranteed;(2) employees' and directors' shares in profits, except to the extent that they are guaranteed;(3) other

GENPRU 2.1.55R31/12/2006

The relevant fixed expenditure of a firm in the following circumstances is:(1) where its most recent audited annual report and accounts do not represent a twelve month period, an amount calculated in accordance with GENPRU 2.1.54 R, pro-rated so as to produce an equivalent annual amount; and(2) where it has not completed twelve months' trading, an amount based on forecast expenditure included in the budget for the first twelve months' trading, as submitted with its application

GENPRU 2.1.56R31/12/2006

A firm must adjust its relevant fixed expenditure calculation so far as necessary if and to the extent that since the date covered by the most recent audited annual report and accounts or (if GENPRU 2.1.55R (2) applies) since the budget was prepared:(1) its level of fixed expenditure changes materially; or(2) its regulated activities comprised within its permission change.

GENPRU 2.1.57R31/12/2006

If a firm has a material proportion of its expenditure incurred on its behalf by third parties and such expenditure is not fully recharged to that firm then the firm must adjust its relevant fixed expenditure calculation by adding back in the whole of the difference between the amount of the expenditure and the amount recharged.

GENPRU 2.1.58G31/12/2006

For the purpose of GENPRU 2.1.57 R, the FSA would consider as material 10% of a firm's expenditure incurred on its behalf by third parties.

GENPRU 2.1.59G31/12/2006

For the purpose of GENPRU 2.1.54 R to 2.1.57 R, fixed expenditure is expenditure which is inelastic relative to fluctuations in a firm's levels of business. Fixed expenditure is likely to include most salaries and staff costs, office rent, payment for the rent or lease of office equipment, and insurance premiums. It may be viewed as the amount of funds which a firm would require to enable it to cease business in an orderly manner, should the need arise. This is not an exhaustive

GENPRU 2.1.61G31/12/2006

Where two or more banks merge, all of which individually have the benefit of GENPRU 2.1.60 R, the FSA may agree in certain circumstances that the base capital resources requirement for the bank resulting from the merger may be the sum of the aggregate capital resources of the merged banks, calculated at the time of the merger, provided this figure is less than €5 million.

GENPRU 2.1.62R31/12/2006

For the purpose of GENPRU 2.1.60 R:(1) an existing controller of a bank means:(a) a person who has been a parent undertaking of that bank since 31 December 2006 or earlier; or(b) a person who became a parent undertaking of that bank after 31 December 2006 but who, when he became a parent undertaking of that bank, was a subsidiary undertaking of an existing controller of that bank;(2) the relevant amount of capital as referred to in GENPRU 2.1.60R (2)(a) is adjusted by identifying

BIPRU 2.1.3G01/01/2007

The rules in GENPRU and BIPRU do not allow a firm that is a parent undertaking to incorporate the capital and requirements of a subsidiary undertaking in the calculation of that firm'scapital resources and capital resources requirement. A firm that wishes to incorporate a subsidiary undertaking for this purpose should therefore apply for a solo consolidation waiver.

BIPRU 2.1.7R31/12/2010

A firm that has a solo consolidation waiver must incorporate in the calculation of its requirements under the main BIPRU firm Pillar 1 rulesand BIPRU 10 (Large exposure requirements)2 each subsidiary undertaking to which the solo consolidation waiver applies. This does not apply to the base capital resources requirement.2

BIPRU 2.1.11R01/01/2007

Subject to BIPRU 2.1.13 R, a firm must calculate its capital resources in accordance with BIPRU 8.6 (Consolidated capital resources).

BIPRU 2.1.12R01/01/2007

A firm must calculate its capital resources requirement in accordance with BIPRU 8.7.13 R (3) (Treating group members as a single undertaking for consolidation purposes).

BIPRU 2.1.13R01/01/2007

Where GENPRU applies a different method of calculating capital resources or capital resources requirements depending on the category into which the firm in question falls, the method that applies is the one that would apply to the firm on a solo basis.

BIPRU 2.1.14G01/01/2007

For example, the effect of BIPRU 2.1.13 R is that if a firm that is applying BIPRU 2.1 is a limited licence firm it should continue to apply the capital resources and capital resources requirement applicable to a limited licence firm.

BIPRU 2.1.15R01/01/2007

A firm must continue to calculate its base capital resources requirement and the requirement in GENPRU 2.1.42 R (Calculation of capital resources requirement on authorisation) on a solo basis.

BIPRU 2.1.18R01/01/2007

A firm must include in full any subsidiary undertaking in respect of which the firm applies BIPRU 2.1 in the calculations under BIPRU 2.1.7 R.

MIPRU 4.2.3R01/01/2007

A 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 unless a rule requires otherwise.

MIPRU 4.2.11R06/04/2007

(1) If a firm carrying on insurance mediation activity or home finance mediation activity1(and no other regulated activity) does not hold client money or other client assets in relation to these activities, its capital resources requirement is the higher of:1(a) £5,000; and(b) 2.5% of the annual income from its insurance mediation activity or home finance mediation activity1(or both).1(2) If a firm carrying on insurance mediation activity or home finance mediation activity1(and

MIPRU 4.2.12R06/08/2008

(1) The capital resources requirement for a firm carrying on home financing, 1or home financing1and home finance administration1 (and no other regulated activity) is the higher of:111111(a) £100,000; and(b) 1% of:(i) its total assets plus total undrawn commitments and unreleased amounts under the home reversion plan1; less:(ii) excluded loans or amounts 1plus intangible assets (see Note 1 in the table in MIPRU 4.4.4 R).(2) Undrawn commitments and unreleased amounts 1means the

MIPRU 4.2.14R06/04/2007

When calculating total assets, the firm may exclude a loan or plan 1which has been transferred to a third party only if it meets the following conditions:(1) the first condition is that the loan or the plan 1has been transferred in a legally effective manner by:(a) novation; or(b) legal or equitable assignment; or(c) sub-participation; or(d) declaration of trust; and(2) the second condition is that the home finance provider1:1(a) retains no material economic interest in the loan

MIPRU 4.2.19R06/08/2008

The capital resources requirement for a firm carrying on home finance administration only, which has all the home finance transactions1 that it administers off its balance sheet, is the higher of:11(1) £100,000; and(2) 10% of its annual income.

MIPRU 4.2.20R06/08/2008

The capital resources requirement for a firm carrying on insurance mediation activity and home financing1 or home finance administration1 is the sum of the requirements which are applied to the firm by: 1111(1) the capital resources rule for a firm carrying on insurance mediation activity or home finance mediation activity1 (and no other regulated activity) (see MIPRU 4.2.11 R); and1(2) (a) the capital resources requirement rule for a firm carrying on home financing1 or home

MIPRU 4.2.21R06/08/2008

(1) If a firm carrying on home finance mediation activity1 and home financing1 or home finance administration1 does not hold client money or other client assets in relation to itshome finance mediation activity1, the capital requirement isthe amount applied to a firm, according to the activities carried on by the firm, by:111111(a) the capital resources requirement rule for a firm carrying on home financing1 or home financing1 and home finance administrator1 (and no other regulated

MIPRU 4.2.22R06/08/2008

The capital resources requirement for a firm carrying any other combination of regulated activities is the amount which is applied to a firm carrying on insurance mediation activity and home financing1or home finance administration1(see MIPRU 4.2.20 R). 1111

BIPRU 8.7.1G01/01/2007

The calculation of the consolidated capital resources requirement of a firm's UK consolidation group or non-EEA sub-group involves taking the individual components that make up the capital resources requirement on a solo basis and applying them on a consolidated basis. Those components are the capital charge for credit risk (the credit risk capital requirement), the capital charge for market risk (the market risk capital requirement), the capital charge for operational risk (the

BIPRU 8.7.10R01/01/2007

A firm must calculate the consolidated capital resources requirement of its UK consolidation group or non-EEA sub-group in accordance with the method identified by the decision tree in BIPRU 8 Annex 5 (Decision tree for identifying the consolidated capital resources requirement of a UK consolidation group or a non-EEA sub-group).

BIPRU 8.7.11R01/01/2007

A firm must calculate a consolidated requirement component by applying the risk capital requirement applicable to that consolidated requirement component to the UK consolidation group or non-EEA sub-group in accordance with BIPRU 8.7.13 R. Except where BIPRU 8.7.34 R to BIPRU 8.7.38 R allow the requirements of another regulator to be used, the risk capital requirement must be calculated in accordance with the FSA'srules. The risk capital requirement applicable to a consolidated

BIPRU 8.7.20R01/01/2007

A firm may use a combination of the CCR standardised method, the CCR mark to market method and the CCR internal model method on a permanent basis with respect to the firm's UK consolidation group or non-EEA sub-group for the purposes of calculating the consolidated credit risk requirement. In particular, where the firm is permitted to apply the CCR internal model method on a consolidated basis with respect to its UK consolidation group or non-EEA sub-group, it may combine the

BIPRU 8.7.31G01/01/2007

If a firm is calculating a risk capital requirement for an undertaking that is not a BIPRU firm it should calculate it as if the undertaking were a BIPRU firm.

BIPRU 8.7.33G01/01/2007

A firm should not use an advanced prudential calculation approach for calculating a risk capital requirement unless this is permitted as explained in BIPRU 8.8 (Advanced prudential calculation approaches).

BIPRU 8.7.34R01/01/2007

A firm may calculate the risk capital requirement for an institution in the firm'sUK consolidation group or non-EEA sub-group that is an EEA firm in accordance with the CRD implementation measures in the EEA firm'sEEA State that correspond to the FSA'srules that would otherwise apply under this section if the institution is subject to those CRD implementation measures.

BIPRU 2.2.11G24/09/2010

As part of its SREP, the FSA will consider whether the amount and quality4 of capital which a firm should hold to meet its CRR in GENPRU 2.1 (Calculation of capital resources requirements) is sufficient for that firm to comply with the overall financial adequacy rule.4

BIPRU 2.2.12G24/09/2010

After completing a review as part of the SREP, the FSA will normally give that firm individual guidance (individual capital guidance), advising it of the amount and quality4 of capital which it should hold to meet the overall financial adequacy rule.

BIPRU 2.2.16G24/09/2010

If the FSA gives individual capital guidance to a firm, the FSA will state what amount and quality of capital the FSA considers the firm needs to hold in order to comply with the overall financial adequacy rule. It will generally do so by saying that the firm should hold capital resources of an amount which is 3at least equal to a specified percentage of that firm'scapital resources requirement plus one or more static add-ons in relation to specific risks in accordance with the

BIPRU 2.2.17G01/01/2007

(1) Individual capital guidance may refer to two types of capital resources.(2) The first type is referred to as general capital. It refers to total tier one capital resources and tier two capital resources after deductions.(3) The second type is referred to as total capital. It refers to total tier one capital resources, tier two capital resources and tier three capital resources after deductions.

BIPRU 2.2.18G01/01/2007

(1) In both of the cases in BIPRU 2.2.17 Gcapital resources should be calculated in the same way as they are in GENPRU 2.2 (Capital resources). This includes the rules limiting the amount of capital that can be included in the various tiers of capital when capital resources are being calculated.(2) GENPRU 2.2.42 R does not allow innovative tier one capital to count as tier one capital resources for certain purposes. This restriction does not apply for the purposes in BIPRU 2.2.17

BIPRU 2.2.19AG24/09/2010

4Where the FSA notifies a firm that it should hold a capital planning buffer, the notification will state what amount and quality of capital the FSA considers that is adequate for the firm to hold as such. This will normally be notified to the firm together with its individual capital guidance and expressed as a separate amount of capital resources that the firm should hold in excess of the amount of capital resources indicated as its individual capital guidance.

BIPRU 2.2.40G14/12/2009

To assess its expected capital requirements over the economic and business cycles, a firm may wish to project forward its financial position taking account of its business strategy and expected growth according to a range of assumptions as to the state of the economic or business environment which it faces. For example, an ICAAP should include an analysis of the impact that the actions of a firm's competitors might have on its performance, in order to see what changes in its environment

BIPRU 2.2.41R01/01/2007

A firm with an IRB permission must ensure that there is no significant risk that it will not be able to meet its capital resource requirements for credit risk under GENPRU 2.1 (Calculation of capital resources requirements) at all times throughout an economic cycle, including the capital resources requirements for credit risk indicated by any stress test carried out under BIPRU 4.3.39 R to BIPRU 4.3.40 R (Stress tests used in assessment of capital adequacy for a firm with an IRB

BIPRU 2.2.43R01/01/2007

If BIPRU 2.2.41 R applies to a firm on a consolidated basis the following adjustments are made to BIPRU 2.2.41 R in accordance with the general principles of BIPRU 8 (Group risk - consolidation):(1) references to capital resources are to the consolidated capital resources of the firm'sUK consolidation group or, as the case may be, its non-EEA sub-group; and(2) references to the capital requirements in GENPRU 2.1 (Calculation of capital resources requirements) are to the consolidated

BIPRU 2.2.74G01/01/2007

In relation to the use of an ECM (see BIPRU 2.2.27 G), the FSA is likely to place more reliance on a firm'sICAAP if the firm provides the following information:(1) a comparison of the amount of capital that the ECM generates in respect of each of the risks captured in the CRR before aggregation with the corresponding components of the CRR calculation; and(2) evidence that the guidance in BIPRU 2.2.71 G to BIPRU 2.2.78 G has been followed.

BIPRU 4.10.25R31/12/2010

Where the ratio of the value of the collateral (C) to the exposure value (E) is below a threshold level of C* (the required minimum collateralisation level for the exposure) as laid down in BIPRU 4.10.28 R, LGD* must be the LGD laid down in the other sections of BIPRU 4 for uncollateralised exposures to the counterparty. For this purpose, the exposure value of items listed in BIPRU 4.4.37 R to BIPRU 4.4.39 R and BIPRU 4.8.29 R must be calculated using a conversion factor or percentage

BIPRU 4.10.28R01/01/2007

Table: Minimum LGD for secured portion of exposures

This table belongs to BIPRU 4.10.24 R - BIPRU 4.10.27 R

	LGD* for senior claims or contingent claims	LGD* for subordinated claims or contingent claims	Required minimum collateralisation level of the exposure (C*)	Required minimum collateralisation level of the exposure (C**)
Receivables	35%	65%	0%	125%
Residential real estate/commercial real estate	35%	65%	30%	140%
Other collateral	40%	70%	30%	140%

[Note: BCD Annex VIII Part 3 point 72 (part)]

BIPRU 4.10.30R01/01/2007

(1) Where:(a) risk weighted exposure amounts and expected loss amounts are calculated under the IRB approach; and(b) an exposure is collateralised by both financial collateral and other eligible collateral;LGD* to be taken as the LGD for the purposes of the IRB approach must be calculated in accordance with this rule.(2) A firm must subdivide the volatility-adjusted value of the exposure (i.e. the value after the application of the volatility adjustment as set out in BIPRU 5.4.28

BIPRU 4.10.34R01/01/2007

(1) This rule sets out how the calculations under BIPRU 5.6.29 R (Calculating risk-weighted exposure amounts and expected loss amounts for master netting agreements covering repurchase transactions and/or securities or commodities lending or borrowing transactions and/or other capital market driven transactions) must be modified under the IRB approach.(2) E* must be taken as the exposure value of the exposure to the counterparty arising from the transactions subject to the master

BIPRU 4.10.35R01/01/2007

(1) This rule sets out how the calculations under BIPRU 5.4.28 R (Calculating adjusted values under the financial collateral comprehensive method) must be modified under the IRB approach.(2) E as referred to in the provisions listed in (1) is the exposure value as would be determined under the IRB approach if the exposure was not collateralised. For this purpose, where a firm calculates risk weighted exposure amounts under the IRB approach, the exposure value of the items listed

BIPRU 4.10.42R01/01/2007

A firm must have clearly specified criteria for the types of guarantors it recognises for the calculation of risk weighted exposure amounts.[Note: Annex VII Part 4 point 98]

BIPRU 4.10.45R01/01/2007

A firm must have clearly specified criteria for adjusting grades, pools or LGD estimates, and in the case of retail exposures and eligible purchased receivables, the process of allocating exposures to grades or pools, to reflect the impact of guarantees for the calculation of risk weighted exposure amounts. These criteria must comply with the minimum requirements referred to in BIPRU 4.10.43 R.[Note: BCD Annex VII Part 4 point 101]

BIPRU 4.10.49R31/12/2010

(1) This rule relates to the calculation of risk-weighted exposure amounts and expected loss amounts in the case of unfunded credit protection.(2) BIPRU 5.7.21 R (Tranching) applies for the purpose in (1).(3) The provisions in (4) replace those in BIPRU 5.7.22 R to BIPRU 5.7.25 R (Calculating risk weighted exposure amounts under the standardised approach in the case of unfunded credit protection).(4) For the covered portion of the exposure value E3 (based on the adjusted value

BIPRU 3.4.29R01/01/2007

A risk weight of 20% must be assigned to the portion of unpaid capital subscribed to the European Investment Fund.[Note: BCD Annex VI Part 1 point 21]

BIPRU 3.4.47R01/01/2007

Investments in equity or regulatory capital instruments issued by institutions must be risk weighted at 100%, unless deducted from capital resources.[Note: BCD Annex VI Part 1 point 39]

BIPRU 3.4.56AR06/03/2008

(1) 4A firm must not treat a lifetime mortgage as an exposure fully and completely secured on residential property for the purposes of BIPRU 3.4.56 R unless the amount of the exposure is calculated according to the following formula:exposure amount =where:(a) P is the current outstanding balance on the lifetime mortgage;(b) i is the interest rate charged on the lifetime mortgage, which for the purposes of this calculation must not be lower than the discount rate referred to in

BIPRU 3.4.81R01/01/2007

A firm may not treat an exposure as fully and completely secured by residential property located in the United Kingdom for the purpose of BIPRU 3.4.56 R or BIPRU 3.4.58 R unless the amount of the exposure or of the secured part of the exposure referred to in BIPRU 3.4.56 R or BIPRU 3.4.58 R, as the case may be, is 80% or less of the value of the residential property on which it is secured.

BIPRU 3.4.82G01/01/2007

(1) The application of BIPRU 3.4.81 R may be illustrated by an example. If a firm has a mortgage exposure of £100,000 secured on residential property in the United Kingdom that satisfies the criteria listed in BIPRU 3.4.56 R to BIPRU 3.4.80 R and the value of that property is £100,000, then £80,000 of that exposure may be treated as fully and completely secured and risk weighted at 35%. The remaining £20,000 may be risk weighted at 75% provided the exposure meets the criteria

BIPRU 3.4.87G01/01/2007

If a firm has more than one exposure secured on the same property they should be aggregated and treated as if they were a single exposure secured on the property for the purposes of BIPRU 3.4.56 R and BIPRU 3.4.58 R and BIPRU 3.4.81 R, BIPRU 3.4.83 R and BIPRU 3.4.84 R.

BIPRU 3.4.88G01/01/2007

If an exposure is secured on property that is used in part for residential purposes in accordance with BIPRU 3.4.56 R and partly for commercial purposes (such as a farm, public house, guest house or shop) it may be treated as secured by residential real estate if the firm can demonstrate that the property's main use is, or will be, residential and that the value of the property is not significantly affected by its commercial use.

BIPRU 3.4.107R01/01/2011

(1) Covered bonds means covered bonds as defined in paragraph (1) of the definition in the glossary (Definition based on Article 22(4) of the UCITS Directive) and collateralised by any of the following eligible assets:(a) exposures to or guaranteed by central governments, central bank, public sector entities, regional governments and local authorities in the EEA;(b) (i) exposures to or guaranteed by non-EEA central governments, non-EEAcentral banks, multilateral development banks,

BIPRU 3.4.108R01/01/2007

A firm must for real estate collateralising covered bonds meet the minimum requirements set out in BIPRU 3.4.64 R to BIPRU 3.4.73 R and the valuation rules set out in BIPRU 3.4.77 R to BIPRU 3.4.80 R.[Note: BCD Annex VI Part 1 point 69]

BIPRU 3.4.125R01/01/2007

A firm may rely on a third party to calculate and report, in accordance with the methods set out in BIPRU 3.4.123 R to BIPRU 3.4.124 R, a risk weight for the CIU provided that the correctness of the calculation and report is adequately ensured.[Note: BCD Annex VI Part 1 point 81]

BIPRU 3.4.129R01/01/2007

Cash items in the process of collection must be assigned a 20% risk weight. Cash in hand and equivalent cash items must be assigned a 0% risk weight.[Note: BCD Annex VI Part 1 point 84]

BIPRU 3.2.15G01/01/2007

In deciding what steps are reasonable for the purposes of BIPRU 3.2.11 R, a firm may take into account complexity and cost, as well as the materiality of the impact upon its capital calculation. A firm should be able to demonstrate to the FSA that it has complied with the obligation to take reasonable steps under BIPRU 3.2.11 R in the way it takes these factors into account.

BIPRU 3.2.18G01/01/2007

Where an exposure is denominated in a currency other than the euro, a firm may calculate the euro equivalent for purposes of BIPRU 3.2.10 R using any appropriate set of exchange rates provided its choice has no obvious bias and that the firm is consistent in its approach to choosing rates.

BIPRU 3.2.20R01/01/2007

(1) To calculate risk weighted exposure amounts, risk weights must be applied to all exposures, unless deducted from capital resources, in accordance with the provisions of BIPRU 3.4.(2) The application of risk weights must be based on the standardised credit risk exposure class to which the exposure is assigned and, to the extent specified in BIPRU 3.4, its credit quality.(3) Credit quality may be determined by reference to:(a) the credit assessments of eligible ECAIs in accordance

BIPRU 3.2.24R01/01/2007

Exposures the calculation of risk weighted exposure amounts for which is not otherwise provided for under the standardised approach must be assigned a risk weight of 100%.[Note: BCD Article 80(6)]

BIPRU 3.2.27AR31/12/2010

(1) 2For the purpose of BIPRU 3.2.25R (1)(e), a firm must be able on an ongoing basis to demonstrate fully to the FSA the circumstances and arrangements, including legal arrangements, by virtue of which there are no material practical or legal impediments, and none are foreseen, to the prompt transfer of capital resources or repayment of liabilities from the counterparty to the firm. (2) In relation to a counterparty that is not a firm, the arrangements referred to in (1) must

BIPRU 3.2.33G01/01/2007

A firm that has chosen to apply the treatment in BIPRU 3.2.25 R should monitor the exposures to which a 0% risk weight is applied under that treatment and report these to the FSA as required.

BIPRU 3.2.34G01/01/2007

If a firm has an IRB permission and exposures are exempted from the IRB approach under BIPRU 4.2.26 R (6) the firm may apply a 0% risk weight to them under BIPRU 3.2.25 R (2) (Zero risk weighting for intra-group exposures) if the conditions in BIPRU 3.2.25 R (1) are satisfied.

BIPRU 4.9.6R31/12/2010

The risk weighted exposure amounts must be calculated according to the formula:Risk-weighted exposure amount = 100% * exposure value except for when the exposure is a residual value of leased properties1 in which case it must1 be calculated as follows:1/t * 100% * exposure value;where t is the greater of 1 and the nearest number of whole years of the lease remaining.1[Note: BCD Annex VII Part 1 point 27]1

BIPRU 4.9.10R01/01/2007

For non credit-obligation assets the expected loss amount must be zero.[Note: BCD Article 88(4)]

BIPRU 4.9.11R31/12/2010

(1) Where exposures in the form of a CIU1 meet the criteria set out in BIPRU 3.4.121 R to BIPRU 3.4.122 R (Conditions for look through treatment under the standardised approach) and the firm is aware of all of the underlying exposures of the CIU, the firm must look through to those underlying exposures in order to calculate risk weighted exposure amounts and expected loss amounts in accordance with the methods set out in BIPRU 4.BIPRU 4.9.12 R applies to the part of the underlying

BIPRU 4.9.14G01/01/2007

For the purposes of BIPRU 4.9.12 R (2), a firm should ensure that any third party relied on for the calculations and report possesses the necessary competence and experience to ensure that the calculations and report are correct.

BIPRU 4.9.15R01/01/2007

The expected loss amounts for exposures referred to in BIPRU 4.9.11 R - BIPRU 4.9.12 R must be calculated in accordance with the methods set out in BIPRU 4.4.61 R (Calculation of expected loss for sovereigns, institutions and corporates), BIPRU 4.5.12 R - BIPRU 4.5.14 R (Calculation of expected loss for specialised lending), BIPRU 4.6.47 R - BIPRU 4.6.48 R (Calculation of expected loss for retail exposures), BIPRU 4.7.12 R, BIPRU 4.7.17 R and BIPRU 4.7.26 R (Calculation of expected

BIPRU 5.6.4R01/01/2007

BIPRU 5.6.5 R to BIPRU 5.6.11 R set out the calculation of the fully adjusted exposure value under the supervisory volatility adjustments approach and the own estimates of volatility adjustments approach.

BIPRU 5.6.5R01/01/2007

In calculating the ‘fully adjusted exposure value’ (E*) for the exposures subject to an eligible master netting agreement covering repurchase transactions and/or securities or commodities lending or borrowing transactions and/or other capital market-driven transactions, a firm must calculate the volatility adjustments to be applied in the manner set out in BIPRU 5.6.6 R to BIPRU 5.6.11 R either using the supervisory volatility adjustments approach or the own estimates of volatility

BIPRU 5.6.11R01/01/2007

E* must be calculated according to the following formula:E* = max {0, [(∑(E) -∑ (C)) + ∑ (|net position in each security| x Hsec) + (∑|Efx| x Hfx)]}where:(1) (where risk weighted exposure amounts are calculated under the standardised approach) E is the exposure value for each separate exposure under the agreement that would apply in the absence of the credit protection;(2) C is the value of the securities or commodities borrowed, purchased or received or the cash borrowed or received

BIPRU 5.6.16R01/01/2007

The master netting agreement internal models approach1 is an alternative to using the supervisory volatility adjustments approach or the own estimates of volatility adjustments approach in calculating volatility adjustments for the purpose of calculating the ‘fully adjusted exposure value’ (E*) resulting from the application of an eligible master netting agreement covering repurchase transactions, securities or commodities lending or borrowing transactions and/or other capital

BIPRU 5.6.18R01/01/2007

A firm may use the master netting agreement internal models approach independently of the choice it has made between the standardised approach and the IRB approach for the calculation of risk weighted exposure amounts. However, if a firm uses the master netting agreement internal models approach, it must do so for all counterparties and securities, excluding immaterial portfolios where it may use the supervisory volatility adjustments approach or the own estimates of volatility

BIPRU 5.6.24R01/01/2007

The fully adjusted exposure value (E*) for a firm using the master netting agreement internal models approach must be calculated according to the following formula:E* = max {0, [(∑E -∑C) + (VaR output of the internal models)]}where(1) (where risk weighted exposure amounts are calculated under the standardised approach) E is the exposure value for each separate exposure under the agreement that would apply in the absence of the credit protection;(2) C is the value of the securities

BIPRU 7.5.4R01/01/2007

(1) The following are excluded from a firm'sforeign currency PRR calculation:(a) foreign currency assets which have been deducted in full from the firm'scapital resources under the calculations under the capital resources table;(b) positions hedging (a);(c) positions that a firm has deliberately taken in order to hedge against the adverse effect of the exchange rate on the ratio of its capital resources to its capital resources requirement; and(d) transactions to the extent that

BIPRU 7.5.15R01/01/2007

Where included in BIPRU 7.5's PRR calculation (see the table in BIPRU 7.5.5R), a foreign currencyoption or warrant must be treated as a foreign currencyforward.

BIPRU 7.5.18R06/04/2007

(1) This rule deals with positions in CIUs.(2) The actual foreign currencypositions of a CIU must be included in a firm'sforeign currency PRR calculation under BIPRU 7.5.1 R1.(3) A firm may rely on third party reporting of the foreign currencypositions in the CIU, where the correctness of this report is adequately ensured.(4) If a firm is not aware of the foreign currencypositions in a CIU, the firm must assume that the CIU is invested up to the maximum extent allowed under the

BIPRU 7.5.19R01/01/2007

A firm must calculate its open currency position by:(1) calculating the net position in each foreign currency;(2) converting each such net position into its base currency equivalent at current spot rates;(3) summing all short net positions and summing all long net positions calculated under (1) and (2); and(4) selecting the larger sum (ignoring the sign) from (3).

BIPRU 7.5.20R01/01/2007

A firm must calculate its net gold position by:(1) valuing all gold positions using the prevailing spot price for gold (regardless of the maturity of the positions);(2) offsetting long and short positions; and(3) converting the resulting net position into the base currency equivalent using the current spot foreign currency rate.

GENPRU 1.3.4R06/06/2008

Subject to GENPRU 1.3.9 R to GENPRU 1.3.10 R and GENPRU 1.3.36 R, except where a rule in GENPRU, BIPRU or INSPRU provides for a different method of recognition or valuation, whenever a rule in GENPRU, BIPRU or INSPRU refers to an asset, liability, exposure, equity or income statement item, a firm must, for the purpose of that rule, recognise the asset, liability, exposure, equity or income statement item and measure its value in accordance with whichever of the following are applicable:(1)

GENPRU 1.3.5G31/12/2006

Except where a rule in GENPRU, BIPRU or INSPRU makes different provision, GENPRU 1.3.4 R applies whenever a rule in GENPRU, BIPRU or INSPRU refers to the value or amount of an asset, liability, exposure, equity or income statement item, including:(1) whether, and when, to recognise or de-recognise an asset or liability;(2) the amount at which to value an asset, liability, exposure, equity or income statement item; and(3) which description to place on an asset, liability, exposure,

GENPRU 1.3.9R31/12/2006

For the purposes of GENPRU, BIPRU or INSPRU, except where a rule in GENPRU, BIPRU or INSPRU provides for a different method of recognition or valuation:(1) when a firm, upon initial recognition, designates its liabilities as at fair value through profit or loss, it must always adjust any value calculated in accordance with GENPRU 1.3.4 R by subtracting any unrealised gains or adding back in any unrealised losses which are not attributable to changes in a benchmark interest rate;(2)

GENPRU 1.3.14R31/12/2006

Wherever possible, a firm must use mark to market in order to measure the value of the investments and positions to which this rule applies under GENPRU 1.3.13 R and GENPRU 1.3.38 R to GENPRU 1.3.41 R. Marking to market is valuation (on at least a daily basis in the case of the trading book positions of a BIPRU firm) at readily available close out prices from independent sources.

GENPRU 1.3.16R14/12/2007

(1) 4When marking to market, a firm must use the more prudent side of bid/offer unless the firm is a significant market maker in a particular position type and it can close out at the mid-market price.(2) 4When calculating the current exposure value of a credit risk exposure for counterparty credit risk purposes:(a) a firm must use the more prudent side of bid/offer or the mid-market price and the firm must be consistent in the basis it chooses; and4(b) where the difference between

GENPRU 1.3.29R31/12/2006

The recognition of any gains or losses arising from valuations subject to GENPRU 1.3.13 R and GENPRU 1.3.38 R to GENPRU 1.3.41 R must be recognised for the purpose of calculating capital resources in accordance with GENPRU 1.3.14 R to GENPRU 1.3.34 R (Marking to market, Marking to model, Independent price verification, Adjustments or reserves). However if GENPRU, BIPRU or INSPRU provide for another treatment of such gains or losses, that other treatment must be applied.

BIPRU 8.4.4G01/01/2007

The FSA will not grant an investment firm consolidation waiver unless:(1) the UK consolidation group or non-EEA sub-group meets the conditions for being a CAD Article 22 group;(2) the FSA is satisfied that each BIPRU firm in the UK consolidation group or non-EEA sub-group will be able to meet its capital requirements using the calculation of capital resources in GENPRU 2 Annex 6 (Capital resources table for a BIPRU investment firm with a waiver from consolidated supervision);

BIPRU 8.4.10G01/01/2007

GENPRU 2.2 (Capital resources) says that a BIPRU investment firm with an investment firm consolidation waiver should calculate its capital resources on a solo basis using GENPRU 2 Annex 6 (Capital resources table for a BIPRU investment firm with a waiver from consolidated supervision). GENPRU 2 Annex 6 requires a BIPRU investment firm to deduct contingent liabilities in favour of other members of the UK consolidation group or non-EEA sub-group. Therefore BIPRU 8.4.9R (5)(b) only

BIPRU 8.4.11R01/01/2007

If a firm has an investment firm consolidation waiver, it must ensure that any financial holding company in the UK consolidation group or the non-EEA sub-group that is the UKparent financial holding company in a Member State of a CAD investment firm in the UK consolidation group or non-EEA sub-group has capital resources, calculated under BIPRU 8.4.12 R, in excess of the sum of the following (or any higher amount specified in the investment firm consolidation waiver):(1) the sum

BIPRU 8.4.12R01/01/2007

A firm must calculate the capital resources of the parent financial holding company in a Member State for the purpose of BIPRU 8.4.11 R as follows:(1) the capital resources are the sum of capital resources calculated at stages D (Total tier one capital before deductions) and I (Total tier two capital) of the version of the capital resources table in GENPRU 2 Annex 4 (Capital resources table for a BIPRU investment firm deducting material holdings) as adjusted in accordance with

BIPRU 8.4.13R01/01/2007

The solo notional capital resources requirement as referred to in BIPRU 8.4.11R (1) is calculated in the same way as:(1) (if each CAD investment firm in the UK consolidation group or non-EEA sub-group is a limited licence firm) the capital resources requirement for a BIPRU limited licence firm; or(2) (in any other case) the capital resources requirement for a BIPRU limited activity firm.

BIPRU 8.4.15G01/01/2007

The notional capital resources requirement calculated under BIPRU 8.4.13 R need not include a credit charge for material holdings. However it should include one for illiquid assets.

MIPRU 4.4.1R01/01/2007

(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) If the firm is subject to the Interim Prudential sourcebook for investment businesses, the Prudential sourcebook for Banks, Building Societies and Investment Firms or the Credit Unions sourcebook, the capital resources are the higher of:(a) the amount calculated under (1); and(b) the financial

MIPRU 4.4.2R06/08/2009

Table: Items which are eligible to contribute to the capital resources of a firm

	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 two years).
2.	Capital other than share capital (for example, the capital of a sole trader, partnership or limited liability partnership)	The capital of a sole trader is the net balance on the firm's capital account and current account. The capital of a partnership is the capital made up of the partners':
		(1)	capital account, that is the account:
			(a)	into which capital contributed by the partners is paid; and
			(b)	from which, under the terms of the partnership agreement, an amount representing capital may be withdrawn by a partner only if:
				(i) he ceases to be a partner and an equal amount is transferred to another such account by his former partners or any person replacing him as their partner; or
				(ii) the partnership is otherwise dissolved or wound up; and
		(2)	current accounts according to the most recent financial statement.
		For the purpose of the calculation of capital resources, in respect of a defined benefit occupational pension scheme:
		(1)	a firm must derecognise any defined benefit asset;
		(2)	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 Note 1, 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.
		For the purposes of calculating capital resources, a firm must make the following adjustments to its reserves, where appropriate:
		(1)	a firm must deduct any unrealised gains or, where applicable, add back in any unrealised losses on debt instruments held, or formerly held,3 in the available-for-sale financial assets category;
		(2)	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;
		(3)	in respect of a defined benefit occupational pension scheme:
			(a)	a firm must derecognise any defined benefit asset;
			(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.
4.	Interim net profits (Note 1)	If a firm seeks to include interim net profits in the calculation of its capital resources, the profits have, subject to Note 1, to be verified by the firm's external auditor, net of tax, anticipated dividends or proprietors' drawings and other appropriations.
5.	Revaluation reserves
6.	General/ collective provisions (Note 1)	These are provisions that a firm carrying on home financing 1or home finance administration 1holds against potential losses that have not yet been identified but which experience indicates are present in the firm's portfolio of assets. Such provisions must be freely available to meet these unidentified losses wherever they arise. Subject to Note 1, general/collective provisions must be verified by external auditors and disclosed in the firm's annual report and accounts. 1 1 1 1
7.	Subordinated loans	Subordinated loans must be included in capital on the basis of the provisions in this chapter that apply to subordinated loans.
Note:
1	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 VII of the Companies Act 1985 (section 249A (Exemptions from audit)) or, where applicable, Part 16 of the Companies Act 2006 (section 477 (Small companies: Conditions for exemption from audit))2 relating to the audit of accounts. 2

MIPRU 4.4.3G01/01/2007

A firm should keep a record of and be ready to explain to its supervisory contacts in the FSA 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.

MIPRU 4.4.4R01/01/2007

Table: Items which must be deducted from capital resources

1	Investments in own shares
2	Intangible assets (Note 1)
3	Interim net losses (Note 2)
4	Excess of drawings over profits for a sole trader or a partnership (Note 2)
Notes	Notes 1. Intangible assets are the full balance sheet value of goodwill (but not until 14 January 2008 - see transitional provision 1), capitalised development costs, brand names, trademarks and similar rights and licences. 2. The interim net losses in row 3, and the excess of drawings in row 4, are in relation to the period following the date as at which the capital resources are being computed.

MIPRU 4.4.8R06/08/2008

(1)
This rule applies to a firm which:
1. (a)
  carries on:
  1. (i)
    insurance mediation activity; or
  2. (ii)
    home finance mediation activity 1(or both); and
    1
1. (b)
  in relation to those activities, holds client money or other client assets;

but is not carrying on home financing 1orhome finance administration 1.

1 1 1 1

(2)
In calculating its capital resources, the firm must exclude any amount by which the aggregate amount of its subordinated loans and its redeemable preference shares exceeds the amount calculated as follows:

four times (a - b - c);
where:
a	=	items 1 to 5 in the Table of items which are eligible to contribute to a firm's capital resources (see MIPRU 4.4.2 R)
b	=	the firm's redeemable preference shares; and
c	=	the amount of its intangible assets (but not goodwill until 14 January 2008 - see transitional provision 1).

BIPRU 1.2.16R31/12/2010

By way of derogation from 1BIPRU 1.2.14 R to BIPRU 1.2.15 R, when a firm hedges a non-trading book credit risk exposure using a credit derivative booked in its trading book (using an internal hedge), the non-trading book exposure is not deemed to be hedged for the purposes of calculating capital requirements unless the firm purchases from an eligible third party protection provider a credit derivative meeting the requirements set out in BIPRU 5.7.13 R (Additional requirements

BIPRU 1.2.17R01/01/2007

(1) Subject to (3), a firm may calculate its capital requirements for its trading book business in accordance with the standardised approach to credit risk (or, if it has an IRB permission, the IRB approach) as it applies to the non-trading book where the size of the trading book business meets the following requirements:(a) the trading book business of the firm does not normally exceed 5% of its total business;(b) its total trading bookposition do not normally exceed €15 million;

BIPRU 1.2.26R01/01/2007

A firm must have clearly defined policies and procedures for determining which positions to include in the trading book for the purposes of calculating its capital requirements, consistent with the criteria set out in BIPRU 1.2.3 R to BIPRU 1.2.4 R, BIPRU 1.2.10 R to BIPRU 1.2.11 R, BIPRU 1.1.13 R and BIPRU 1.2.22 R and taking into account the firm's risk management capabilities and practices. Compliance with these policies and procedures must be fully documented and subject to

BIPRU 1.2.34G01/01/2007

Capital requirements for foreign currency risk and commodityposition risk are the same whether the risk arises in the trading book or the non-trading book. The calculation of capital requirements for foreign currency risk is set out in BIPRU 7.5. The calculation of capital requirements for commodityposition risk is set out in BIPRU 7.4.

BIPRU 1.2.36G01/01/2007

All positions that are not in a firm'strading book are included in its non-trading book and subject capital requirements for the non-trading book unless they are deducted from capital resources under GENPRU 2.2 (Capital resources).

BIPRU 8.6.1R01/01/2007

A firm must calculate the consolidated capital resources of its UK consolidation group or its non-EEA sub-group by applying GENPRU 2.2 (Capital resources) to its UK consolidation group or non-EEA sub-group on an accounting consolidation basis, treating the UK consolidation group or non-EEA sub-group as a single undertaking. The firm must adjust GENPRU 2.2 in accordance with this section for this purpose.

BIPRU 8.6.2R01/01/2007

The capital resources gearing rules apply for the purposes of calculating consolidated capital resources. They apply to the UK consolidation group or non-EEA sub-group on an accounting consolidation basis, treating the UK consolidation group or non-EEA sub-group as a single undertaking.

BIPRU 8.6.8R01/01/2007

Where a firm's UK consolidation group or non-EEA sub-group does not include a bank, building society or credit institution, the firm must calculate that group's consolidated capital resources using the calculation of capital resources in GENPRU 2 Annex 4 (Capital resources table for a BIPRU investment firm deducting material holdings) or GENPRU 2 Annex 5 (Capital resources table for a BIPRU investment firm deducting illiquid assets).

BIPRU 8.6.10R01/01/2007

(1) This rule sets out how to determine whether minority interests in an undertaking in a UK consolidation group or non-EEA sub-group may be included in tier one capital, tier two capital or tier three capital for the purpose of calculating consolidated capital resources (each referred to as a "tier" of capital in this rule).(2) A firm must identify the item of capital of the undertaking in question that gives rise to that minority interest.(3) A firm must include the minority

MIPRU 4.3.4G01/01/2007

(1) The purpose of the rule on annual income that applies to insurance intermediaries and mortgage intermediaries is to ensure that the capital resources requirement is calculated on the basis only of brokerage and other amounts earned by a firm which are its own income.(2) Annual income includes commissions and other amounts the firm may have agreed to pay to other persons involved in a transaction, such as sub-agents or other intermediaries.(3) A firm'sannual income does not,

MIPRU 4.3.7R06/08/2008

For the purposes of the calculation of the capital resources of a firm carrying on home finance administration1only with all the assets it administers off balance sheet, annual income is the sum of:11(1) revenue (that is, commissions, fees, net interest income, dividends, royalties and rent); and(2) gains;(3) arising in the course of the ordinary activities of the firm, less profit:(a) on the sale or termination of an operation;(b) arising from a fundamental reorganisation or

BIPRU 14.2.1R01/01/2007

A firm must calculate the counterparty risk capital component as the sum of:(1) the capital requirement calculated under BIPRU 14.2.13 R; and(2) the amount calculated under BIPRU 14.3.

BIPRU 14.2.10R31/12/2010

Where a credit derivative included in the trading book forms part of an internal hedge and the credit protection is recognised under the BCD3, there is deemed to be no counterparty risk arising from the position in the credit derivative. Alternatively, a firm may consistently include for the purposes of calculating capital requirements for counterparty credit risk all credit derivatives included in the trading book forming part of internal hedges or purchased as protection against

BIPRU 14.2.13R01/01/2007

A firm must calculate the capital requirement for the purposes of BIPRU 14.2.2 R as 8% of the total risk weighted exposure amounts.[Note: CAD Annex II point 12]

Related provisions for GENPRU 2.2.157

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