Related provisions for IPRU-INV 13.1.24
1 - 20 of 181 items.
The obligation to conduct an ICAAP, includes requirements on a firm to:(1) carry out regularly assessments of the amounts, types and distribution of financial resources, capital resources and internal capital that it considers adequate to cover the nature and level of the risks to which it is or might be exposed (GENPRU 1.2.30 R to GENPRU 1.2.41 G (the overall Pillar 2 rule and related rules);(2) identify the major sources of risk to its ability to meet its liabilities as they
Where a firm is a member of a group, it should base its ICAAP on the consolidated financial position of the group. The group assessment should include information on diversification benefits and transferability of resources between members of the group and an apportionment of the capital required by the group as a whole to the firm (GENPRU 1.2.44 G to GENPRU 1.2.56 G (Application of GENPRU 1.2 on a solo and consolidated basis: Processes and tests)). A firm may, instead of preparing
The SREP is a process under which the appropriate regulator:(1) reviews the arrangements, strategies, processes and mechanisms implemented by a firm to comply with GENPRU, BIPRU and SYSC and with requirements imposed by or under the regulatory system and evaluates the risks to which the firm is or might be exposed;(2) determines whether the arrangements, strategies, processes and mechanisms implemented by the firm and the capital held by the firm ensures a sound management and
If a firm considers that the individual capital guidance4 given to it is inappropriate to its circumstances it should, consistent with Principle 11 (Relations4 with regulators), inform the appropriate regulator that it disagrees with that guidance. The appropriate regulator may reissue individual capital guidance if,4 after discussion with the firm,4 the appropriate regulator concludes that the amount or quality4 of capital that the firm should hold to meet the overall financial
4If a firm disagrees with the appropriate regulator's assessment as to the amount or quality of capital planning buffer that it should hold, it should, consistent with Principle 11 (Relations with regulators), notify the appropriate regulator of its disagreement. The appropriate regulator may reconsider its initial assessment if, after discussion with the firm, the appropriate regulator concludes that the amount or quality of capital that the firm should hold as capital planning
If, after discussion, the appropriate regulator and a firm still do not agree on an adequate level of capital, the appropriate regulator may consider using its powers under section 55J of the Act to vary on its own initiative a firm'sPart 4A permission so as to require it to hold capital in accordance with the appropriate regulator's view of the capital necessary to comply with the overall financial adequacy rule. In deciding whether it should use its powers under section 55J,
If the appropriate regulator gives individual capital guidance to a firm, the appropriate regulator will state what amount and quality of capital the appropriate regulator 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
(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.
(1) Individual capital guidance may also be given with respect to group capital resources. This paragraph explains how such guidance should be interpreted unless the individual capital guidance specifies another interpretation.(2) If BIPRU 8.2.1 R (General consolidation rule for a UK consolidation group) applies to the firm the guidance relates to its UK consolidation group. If BIPRU 8.3.1 R (General consolidation rule for a non-UK sub-group7) applies to the firm the guidance
A firm's continuing to hold capital in accordance with its individual capital guidance and its ability to carry on doing so is a fundamental part of the appropriate regulator's supervision of that firm. Therefore if a firm'scapital resources have fallen, or are expected to fall, below the level advised in individual capital guidance, then, consistent with Principle 11 (Relations with regulators), a firm should inform the appropriate regulator of this fact as soon as practicable,
(1) This paragraph applies to a small3firm whose activities are simple and primarily not credit-related.3(2) In carrying out its ICAAP it could:(a) identify and consider that firm's largest losses over the last 3 to 5 years and whether those losses are likely to recur;(b) prepare a short list of the most significant risks to which that firm is exposed;(c) consider how that firm would act, and the amount of capital that would be absorbed, in the event that each of the risks identified
In relation to a firm whose activities are moderately complex, in carrying out its ICAAP, BIPRU 2.2.25 G (3) to (4) apply. In addition, it could:(1) having consulted the management in each major business line, prepare a comprehensive list of the major risks to which the business is exposed;(2) estimate, with the aid of historical data, where available, the range and distribution of possible losses which might arise from each of those risks and consider using shock stress tests
(1) A firm may take into account factors other than those identified in the overall Pillar 2 rule when it assesses the level of capital it wishes to hold. These factors might include external rating goals, market reputation and its strategic goals. However, a firm should be able to distinguish, for the purpose of its dialogue with the appropriate regulator, between capital it holds in order to comply with the overall financial adequacy rule, capital that it holds as a capital
A firm'sCRR, being risk-sensitive, may vary as business cycles and economic conditions fluctuate over time. A deterioration in business or economic conditions could require a firm to raise capital or, alternatively, to contract its businesses, at a time when market conditions are most unfavourable to raising capital. Such an effect is known as procyclicality.
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
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-UK sub-group7; and(2) references to the capital requirements in GENPRU 2.1 (Calculation of capital resources requirements) are to the consolidated
If a firm's current available capital resources are less than the capital resources requirement indicated by the stress test that need not be a breach of BIPRU 2.2.41 R. The firm may wish to set out any countervailing effects and off-setting actions that can be demonstrated to the satisfaction of the appropriate regulator as being likely to reduce the difference referred to in the first sentence. The appropriate regulator is only likely to consider a demonstration of such actions
The countervailing factors and off-setting actions that a firm may rely on as referred to in BIPRU 2.2.44 G include, but are not limited to, projected balance sheet shrinkage, growth in capital resources resulting from retained profits between the date of the stress test and the projected start of the economic downturn, the possibility of raising new capital in a downturn, the ability to reduce dividend payments or other distributions, and the ability to allocate capital from
The appropriate regulator expects an asset manager to consider the impact of economic factors on its ability to meet its liabilities as they fall due. An asset manager should therefore develop scenarios which relate to its strategic and business plan. An asset manager might therefore consider:(1) the effect of a market downturn affecting both transaction volumes and the market values of assets in its funds; in assessing the impact of such a scenario, an asset manager may consider
(1) A securities firm may consider the impact of the situations listed in (a) to (c) on its capital levels when assessing its exposure to concentration risk:(a) the potential loss that could arise from large exposures to a single counterparty;(b) the potential loss that could arise from exposures to large transactions or to a product type; and(c) the potential loss resulting from a combination of events such as a sudden increase in volatility leaving a hitherto fully-margined
(1) A securities firm should also consider the impact of external factors on the levels of capital it needs to hold. Scenarios covering such external factors should relate to its strategy and business plan. A securities firm might wish to consider the questions in (2) to (7).(2) Whether it plans to participate in a one-off transaction that might strain temporarily or permanently its capital.(3) Whether the unevenness of its revenue suggests that it should hold a capital buffer.
A securities firm may also want to assess the impact of its internal credit limits on its levels of capital. For instance, a firm whose internal procedures authorise dealing without cash in the account or without pre-set dealing limits might consider more capital is required than if it operated stricter internal credit limits.
Principle 4 requires a firm to maintain adequate financial resources. GENPRU 2 sets out provisions that deal specifically with the adequacy of that part of a firm's financial resources that consists of capital resources. The adequacy of a firm'scapital resources needs to be assessed both by that firm and the appropriate regulator. Through its rules, the FCA14 sets minimum capital resources requirements for firms. It also reviews a firm's own assessment of its capital needs,
This section sets capital resources requirements for a firm. GENPRU 2.2 (Capital resources) sets out how, for the purpose of meeting capital resources requirements, the amounts or values of capital, assets and liabilities are to be determined. More detailed rules relating to capital, assets and liabilities are set out in GENPRU 1.3 (Valuation)14 and, for a BIPRU firm, BIPRU.
(1) [deleted]1212(2) This section also implements the third paragraph of article 95(2) of the UK CRR applying requirements that correspond to16 the provisions of the Capital Adequacy Directive and Banking Consolidation Directive concerning the level of capital resources which a BIPRU firm is required to hold. In particular it corresponds16 (in part) to16 article 1275 of the Banking Consolidation Directive and Articles 5, 9, 10 and 18 of the Capital Adequacy Directive.12(3) [deleted]
For the purposes of GENPRU 2.1.9 R, a firm should have systems in place to enable it to be certain whether it has adequate capital resources to comply with14 the main BIPRU firm Pillar 1 rules14 at all times. This does not necessarily mean that a firm needs to measure the precise amount of its capital resources and its CRR on a daily basis. A firm should, however, be able to demonstrate the adequacy of its capital resources at any particular time if asked to do so by the FCA1
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
This table belongs to GENPRU 2.1.47 R
Firm category |
Amount: Currency equivalent of12 |
BIPRU firm (but not a collective portfolio management investment firm)12 12 |
€50,00012 |
16In summary, a BIPRU firm: 1212(1) does not provide the ancillary service of safekeeping and administration of financial instruments for the account of clients, including custodianship and related services such as cash/collateral management, and is not authorised to do so; 12(2) is not authorised to provide the following investment services: (a) to deal in any financial instruments for its own account; (b) to underwrite issues of financial instruments on a firm commitment basis;
(1) A BIPRU firm must calculate its market risk capital requirement as the sum of:(a) the interest rate PRR (including the basic interest rate PRR for equity derivatives set out in BIPRU 7.3 (Equity PRR and basic interest rate PRR for equity derivatives));(b) the equity PRR;(c) the commodity PRR;(d) the foreign currency PRR;(e) the option PRR; and(f) the collective investment undertaking PRR.(2) Any amount calculated under BIPRU 7.1.9 R - BIPRU 7.1.13 R (Instruments for which
(1) This rule applies to a bank that meets the following conditions:(a) on 31 December 2006 it had the benefit of IPRU(BANK) rule 3.3.12 (Reduced minimum capital requirement for a bank that is a credit institution which immediately before 1 January 1993 was authorised under the Banking Act 1987);(b) the relevant amount (as referred to in IPRU(BANK) rule 3.3.12) applicable to it was below €5 million as at 31 December 2006; and(c) on 1 January 2007 it did not comply with the base
Where two or more banks merge, all of which individually have the benefit of GENPRU 2.1.60 R, the PRA 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.
3A firm must notify the appropriate regulator in writing of the intention of another member of its group which is not a firm to issue a capital instrument which the firm intends to include within its capital resources or the consolidated capital resources of its UK consolidation group or non-UK sub-group5 as soon as it becomes aware of the intention of the groupundertaking to issue the capital instrument. When giving notice, a firm must:(1) provide details of the amount of capital
3If a groupundertaking proposes to establish a debt securities program for the issue of capital instruments which the firm intends to include within its capital resources or the consolidated capital resources of its UK consolidation group or non-UK sub-group5, it must:(1) notify the appropriate regulator of the establishment of the program; and(2) provide the information required by BIPRU 8.6.1BR (1) to (4); as soon as it becomes aware of the proposed establishment. The appropriate
3The capital instruments to which BIPRU 8.6.1B R does not apply are:(1) ordinary shares issued by a groupundertaking which:(a) are the most deeply subordinated capital instrument issued by that groupundertaking;(b) meet the criteria set out in GENPRU 2.2.83R (2) and GENPRU 2.2.83R (3) and GENPRU 2.2.83A R; and(c) are the same as ordinary shares previously issued by that groupundertaking;(2) debt instruments issued from a debt securities program established by a groupundertaking,
3A firm must notify the appropriate regulator in writing, no later than the date of issue, of the intention of a groupundertaking to issue a capital instrument listed in BIPRU 8.6.1E R which the firm intends to include within its capital resources or the consolidated capital resources of its UK consolidation group or non-UK sub-group5. When giving notice a firm must:(1) provide the information set out at BIPRU 8.6.1BR (1) to (3); and(2) confirm that the terms of the capital instrument
As the various components of capital differ in the degree of protection that they offer, the capital resources gearing rules as applied on a consolidated basis place restrictions on the extent to which certain types of capital are eligible for inclusion in a UK consolidation group or non-UK sub-group’s5consolidated capital resources. GENPRU 2.2.25 R (Limits on the use of different forms of capital: Use of higher tier capital in lower tiers) also applies.
The prohibition in GENPRU 2.2 (Capital resources) on including innovative tier one capital in tier one capital for the purposes of meeting capital resources requirements applies under this section. However GENPRU 2.2.27 R (innovative tier one capital may be included in lower stages of capital when excluded from tier one capital) also applies. So, for example, a firm should not include consolidated indirectly issued capital in tier one capital but should generally include it as
For the purposes of this chapter, GENPRU 2.2.123 R to GENPRU 2.2.137 R (Indirectly issued tier one capital (BIPRU firm only)) do not apply. A firm may only include consolidated indirectly issued capital in consolidated capital resources (whether as a minority interest or otherwise) in accordance with this section.
Consolidated indirectly issued capital means any capital instrument issued by a member of the UK consolidation group or non-UK sub-group5 where:(1) some or all of the following conditions are satisfied:(a) that capital is issued to an SPV; or(b) that capital is issued by an SPV; or(c) the subscription for the capital issued by the member of the group in question is funded directly or indirectly by an SPV; and(2) any of the SPVs referred to in (1) is a member of the UK consolidation
A firm may only include consolidated indirectly issued capital in the consolidated capital resources of its UK consolidation group or non-UK sub-group5 if:(1) it is issued by an SPV that is a member of the UK consolidation group or non-UK sub-group5 to persons who are not members of the UK consolidation group or non-UK sub-group5; and(2) the conditions in BIPRU 8.6.16 R to BIPRU 8.6.18 R are satisfied.
Consolidated indirectly issued capital that is eligible for inclusion in the consolidated capital resources of a UK consolidation group or non-UK sub-group5 may only be included as a minority interest created by the capital instrument issued by the SPV referred to in BIPRU 8.6.13 R. If it is eligible, it is innovative tier one capital.
The SPV referred to in BIPRU 8.6.13 R must satisfy the conditions in GENPRU 2.2.127 R (Conditions that an SPV has to satisfy if indirectly issued capital is to be included in capital resources on a solo basis) as modified by the following:(1) references in GENPRU 2.2.127R (1) to being controlled by the firm are to being controlled by a member of the firm'sUK consolidation group or non-UK sub-group5 as the case may be; and(2) references to the firm'sgroup are to the firm'sUK consolidation
The capital issued by the SPV referred to in BIPRU 8.6.13 R must satisfy the conditions in GENPRU 2.2.129 R (Conditions that capital issued by an SPV has to satisfy if indirectly issued capital is to be included in capital resources on a solo basis) as modified by the following:(1) references to the firm'sgroup are to the firm'sUK consolidation group or non-UK sub-group5 as the case may be;(2) the substitution obligation in GENPRU 2.2.129R (2) need not be the firm's but may apply
The SPV referred to in BIPRU 8.6.13 R must invest the funds raised from the issue of capital by the SPV by subscribing for capital resources issued by an undertaking that is a member of the UK consolidation group or non-UK sub-group5. Those capital resources must satisfy the following conditions:(1) those capital resources must at least comply with the requirements for lower tier two capital; and(2) the first call date or fixed maturity date (if any) of those capital resources
A firm must comply with the requirements set out in GENPRU 2.2.135R (Notifying the appropriate regulator of unusual transactions in relation to indirectly issued capital) and GENPRU 2.2.137 R (Contents of marketing documents in relation to indirectly issued capital) in relation to consolidated indirectly issued capital included in consolidated capital resources.
Schedule to the Recognition Requirements Regulations, Paragraph 1
2(1) The [UK RIE] must have financial resources sufficient for the proper performance of its [ relevant functions] as a [UK RIE]. |
(2) In considering whether this requirement is satisfied, the [FCA]5must (without prejudice to the generality of regulation 6(1)) take into account all the circumstances, including the [UK RIE's] connection with any person , and any activity carried on by the [UK RIE], whether or not it is anexempt activity. 5 |
In determining whether a UK recognised body has financial resources sufficient for the proper performance of its relevant functions, the FCA5 may have regard to:5(1) the operational and other risks to which the UK recognised body is exposed;(2) if the UK recognised body guarantees the performance of transactions in specified investments, the counterparty and market risks to which it is exposed in that capacity; 5(3) the amount and composition of the UK recognised body's capital;(4)
In assessing whether a UK recognised body has sufficient financial resources in relation to counterparty and market risks, the FCA5 may have regard to:5(1) the amount and liquidity of its financial assets and the likely availability of liquid financial resources to the UK recognised body during periods of major market turbulence or other periods of major stress for the UK financial system;3 and(2) the nature and scale of the UK recognised body's exposures to counterparty and market
In assessing whether a UK recognised body has sufficient financial resources in relation to operational and other risks, the FCA5 may have regard to the extent to which, after allowing for the financial resources necessary to cover counterparty and market risks, the UK recognised body's financial resources are sufficient and sufficiently liquid:5(1) to enable the UK recognised body to continue carrying on properly the regulated activities that it expects to carry on; and(2) to
4(1) 4The FCA5 considers that a UK RIE which at any time holds:5(a) eligible financial resources not less than the greater of:(i) the amount calculated under the standard approach; and (ii) the amount calculated under the risk-based approach; and (b) net capital not less than the amount of eligible financial resources determined under (1)(a);will, at that time, have sufficient financial resources to meet the recognition requirement in respect of operational and other risks unless
4The FCA5 would expect to provide a UK recognised body with individual guidance, issued with a frequency determined in accordance with the usual prudential cycle for such bodies, communicated from time to time,6 on the amount of eligible financial resources which it considers would be sufficient for the UK recognised body to hold in respect of operational and other risks6 to satisfy the recognition requirements. In formulating its individual guidance, the FCA5 will ordinarily
4For the purposes of REC 2.3, "eligible financial resources" should consist of liquid financial assets held on the balance sheet of a UK recognised body, including cash and liquid financial instruments where the financial instruments have minimal market and credit risk and are capable of being liquidated with minimal adverse price effect.
(1) 4Under the standard approach, the amount of eligible financial resources is equal to six months of operating costs.(2) Under the standard approach, the FCA5 assumes liquid financial assets are needed to cover the costs that would be incurred during an orderly wind-down of the UK recognised body'sexempt activities, while continuing to satisfy all the recognition requirements and complying with any other obligations under the Act (including the obligations to pay periodic fees
(1) 4The risk-based approach is intended to ensure that sufficient financial resources are maintained at all times such that a UK RIE would not be prevented from implementing an orderly wind-down as a result of the financial impacts of stress events affecting its business or the markets in which it operates.(2) Under the risk-based approach the amount of eligible financial resources is calculated by adding together:(a) the amount estimated by the UK RIE to absorb the potential
4The FCA5 would normally expect to use the most recent6 financial risk assessment prepared by the UK RIE in the course of preparing individual guidance, issued in accordance with the usual prudential cycle for such bodies,6 on the amount of financial resources that it considers is sufficient for a UK RIE to hold6 to satisfy the recognition requirements. The financial risk assessment would provide the basis for calculating the amount of eligible financial resources that should
4The FCA5 would expect to consider the relevant annual6 financial risk assessment, any proposal with respect to an operational risk buffer and, if applicable, the consolidated balance sheet, in formulating, in accordance with the usual prudential cycle for UK RIEs,6 its guidance on the amount of eligible financial resources it considers to be sufficient for the UK RIE to hold for6 the recognition requirements. In formulating its guidance, the FCA5 would, where relevant, consider
4The FCA5 would normally consider a UK recognised body to be failing the recognition requirements if it held financial resources less than the amount calculated under REC 2.3.9G (1)(a)(i) (in respect of UK RIEs). The FCA5 therefore expects a UK recognised body to hold an operational risk buffer of a sufficient amount in excess of this minimum, to ensure that it is at all times able to comply with its regulatory obligations.555
(1) [deleted]55(2) The FCA5 would normally expect a UK RIE to hold, in addition to the minimum amount determined under REC 2.3.9G (1)(a)(i), an operational risk buffer consistent with a risk-based approach.5(a) Where the amount of eligible financial resources calculated by a UK RIE under REC 2.3.17G (5) (the risk-based approach) is greater than the amount of eligible financial resources calculated under REC 2.3.13 G (the standard approach), and the difference is of an amount sufficient
There are two main aims in this section:(1) to enable firms to understand the issues which the appropriate regulator would expect to see assessed and the systems and processes which the appropriate regulator would expect to see in operation for ICAs by firms to be regarded as thorough, objective and prudent; and(2) to enable firms to understand the appropriate regulator's approach to assessing whether the minimum capital resources requirements of GENPRU 2.1 are appropriate and
Based upon this information and other information available to it, the appropriate regulator will consider whether the capital resources requirement applicable to the firm is appropriate. Where relevant, the firm'sECR will be a key input to the appropriate regulator's assessment of the adequacy of the firm'scapital resources. For firms carrying on general insurance business, the ECR is calculated in accordance with INSPRU 1.1.72C R.5
Firms that are required to calculate an ECR may wish to note that the ECR as calculated is based upon the assumptions that a firm's business is well diversified, well managed with assets matching its liabilities and good controls, and stable with no large, unusual, or high risk transactions. Firms may find it helpful to assess the extent to which their actual business differs from these assumptions and therefore what adjustments it might be reasonable to make to the CRR or ECR
Where a firm is carrying out an assessment in accordance with GENPRU 1.22 of the adequacy of its overall financial resources to cover the risk in the overall financial adequacy rule, that is, the risk of its being unable to meet its liabilities as they fall due2, the assessment of the adequacy of the firm's capital resources must:(1) reflect the firm's assets, liabilities, intra-group arrangements and future plans; (2) be consistent with the firm's management practice, systems
Where including new business would increase the capital resources by more than any increase in the capital required, or reduce the capital required by more than any reduction in available capital, new business should be excluded. To the extent that including new business increases the required capital, a firm should consider whether it is appropriate to include the additional amount within the ICA.
In assessing the adequacy of a firm'scapital resources, the appropriate regulator draws on more than just a review of the submitted ICA. Use is made of wider supervisory knowledge of a firm and of wider market developments and practices. When forming a view of any individual capital guidance to be given to a firm, the review of the firm'sICA along with the regulator’s risk assessment and any other issues arising from day-to-day supervision will be considered.
A firm should not expect the appropriate regulator to accept as adequate any particular model that the firm develops or that the results from the model are automatically reflected in any individual capital guidance given to the firm for the purpose of determining adequate capital resources. However, the appropriate regulator will take into account the results of any sound and prudent model when giving individual capital guidance or considering applications for a waiver under sections
Where the appropriate regulator considers that a firm will not comply with GENPRU 1.2.26 R (adequate financial resources, including capital resources) by holding the capital resources required by GENPRU 2.1, the appropriate regulator may give the firmindividual capital guidance advising it of the amount and quality of capital resources which the appropriate regulator considers it needs to hold in order to meet that rule.
The prudential resources requirement for a firm carrying on a regulated activity or activities in addition to those covered by this chapter, is the higher of:(1) the requirement which is applied by this chapter; and(2) the prudential resources requirement which is applied by another rule or requirement to the firm.
The definition of relevant debts under management refers to a debt due under a credit agreement or a consumer hire agreement in relation to which the firm is carrying on debt adjusting or an activity connected to that activity. The reference to "debt due" covers not only amounts that are payable at the time the prudential resources requirement is calculated but also amounts the borrower or hirer1 is presently obliged to pay under the credit agreement or the consumer hire agreement1
To determine a firm's prudential resources requirement for the period beginning on the date on which it obtains Part 4A permission and ending on the day before its next accounting reference date, the firm must carry out the calculation in CONC 10.2.5 R (2) on the basis of the total value of relevant debts under management the firm projects will be outstanding on the day before its next accounting reference date.
If a firm has 1000 relevant debts under management and each of those debts is £10,000, the total value of the firm'srelevant debts under management is £10,000,000. If the firm does not carry on any other regulated activity to which another higher prudential resources requirement applies, its prudential resources requirement is £20,000. This is calculated as follows:(1) 0.25% x £5,000,000 = £12,500; and(2) 0.15% x £5,000,000 = £7,500.
If during the following year 20% (£200) of each relevant debt under management is paid off by the borrower or hirer leaving an outstanding balance of £800 on each relevant debt under management,and during that year the firm does not carry on debt adjusting in relation to any further debts due under credit agreements or consumer hire agreements, the total value of the firm'srelevant debt under management is £8,000,000. If the firm does not carry on any other regulated activity
If a firm experiences a greater than 15% increase in the total value of its relevant debts under management compared to the value used in its last prudential resources requirement calculation, it must recalculate its prudential resources requirement using the new total value of its relevant debts under management.
Although financial resources and appropriate systems and controls can generally mitigate operational risk, professional indemnity insurance has a role in mitigating the risks a firm faces in its day-to-day operations, including those arising from not meeting the legally required standard of care when advising on investments. The purpose of the rules in this section is also to ensure that a firm has in place the type, and level, of professional indemnity insurance necessary to
The policy must not: (1) exclude any type of business or activity that has been carried out by the firm in the past or will be carried out by the firm during the time for which the policy is in force; or(2) exclude liabilities which are identified or crystallised as a result of regulatory action against the firm (either individually or as a member of a class of authorised persons); unless the firm holds additional capital resources, in accordance with 13.1.23R.
The amount of additional capital resources that a firm must hold as a result of an exclusion under IPRU-INV 13.1.21R1 must1 be calculated by referring to the firm's relevant income in the following table:
Relevant income £000s |
Minimum additional capital resources |
|
more than |
up to |
£000s |
(Notes 1 and 2) |
||
0 |
100 |
5 |
100 |
200 |
12 |
200 |
300 |
18 |
300 |
400 |
21 |
400 |
500 |
23 |
500 |
600 |
25 |
600 |
700 |
27 |
700 |
800 |
28 |
800 |
900 |
30 |
900 |
1,000 |
31 |
1,000 |
1,500 |
37 |
1,500 |
2,000 |
42 |
2,000 |
2,500 |
46 |
2,500 |
3,000 |
51 |
3,000 |
3,500 |
55 |
3,500 |
4,000 |
59 |
4,000 |
4,500 |
63 |
4,500 |
5,000 |
67 |
5,000 |
6,000 |
73 |
6,000 |
7,000 |
79 |
7,000 |
8,000 |
85 |
8,000 |
9,000 |
90 |
9,000 |
10,000 |
95 |
10,000 |
100,000 |
95y |
100,000 |
n/a |
950 |
Note 1 - For firms with relevant income of more than £10m but up to £100m value y is calculated by relevant income/ £10m. |
||
Note 2 - The calculation of a firm's capital resources is set out in sections IPRU-INV 13.13 to 13.158. 111 |
||
The amount of additional capital resources that a firm must hold where the policy's excess on any claim is more than £5,000 must be calculated by referring to the firm's relevant income and excess obtained in the following table:
All amounts are shown in £000s (Notes 1 and 2)
Relevant income is |
Excess obtained, up to and including |
||||||||||||
more than |
up to |
5 |
10 |
15 |
20 |
25 |
30 |
40 |
50 |
75 |
100 |
150 |
200+ |
0 |
100 |
0 |
4 |
7 |
9 |
12 |
14 |
18 |
21 |
28 |
34 |
45 |
54 |
100 |
200 |
0 |
7 |
11 |
14 |
17 |
20 |
25 |
29 |
38 |
46 |
59 |
70 |
200 |
300 |
0 |
9 |
14 |
18 |
21 |
24 |
30 |
35 |
45 |
54 |
69 |
82 |
300 |
400 |
0 |
11 |
16 |
21 |
24 |
28 |
34 |
39 |
50 |
60 |
77 |
91 |
400 |
500 |
0 |
13 |
18 |
23 |
27 |
30 |
37 |
43 |
55 |
66 |
83 |
98 |
500 |
600 |
0 |
14 |
20 |
25 |
29 |
33 |
40 |
46 |
59 |
70 |
89 |
105 |
600 |
700 |
0 |
16 |
22 |
27 |
31 |
35 |
42 |
49 |
63 |
74 |
94 |
111 |
700 |
800 |
0 |
17 |
23 |
28 |
33 |
37 |
45 |
52 |
66 |
78 |
99 |
117 |
800 |
900 |
0 |
18 |
24 |
30 |
35 |
39 |
47 |
54 |
69 |
82 |
103 |
122 |
900 |
1,000 |
0 |
19 |
26 |
31 |
36 |
41 |
49 |
56 |
72 |
85 |
107 |
126 |
1,000 |
1,500 |
0 |
23 |
31 |
37 |
43 |
48 |
57 |
66 |
83 |
99 |
124 |
146 |
1,500 |
2,000 |
0 |
26 |
35 |
42 |
48 |
54 |
64 |
73 |
93 |
109 |
138 |
161 |
2,000 |
2,500 |
0 |
29 |
38 |
46 |
53 |
59 |
71 |
81 |
102 |
121 |
152 |
179 |
2,500 |
3,000 |
0 |
32 |
42 |
51 |
58 |
65 |
78 |
89 |
112 |
132 |
166 |
195 |
3,000 |
3,500 |
0 |
35 |
46 |
55 |
63 |
71 |
84 |
96 |
121 |
142 |
179 |
210 |
3,500 |
4,000 |
0 |
38 |
50 |
59 |
68 |
76 |
90 |
102 |
129 |
152 |
191 |
223 |
4,000 |
4,500 |
0 |
41 |
53 |
63 |
72 |
80 |
95 |
108 |
137 |
161 |
202 |
236 |
4,500 |
5,000 |
0 |
43 |
56 |
67 |
76 |
85 |
100 |
114 |
144 |
169 |
212 |
248 |
5,000 |
6,000 |
0 |
48 |
62 |
73 |
84 |
93 |
110 |
125 |
157 |
185 |
231 |
271 |
6,000 |
7,000 |
0 |
52 |
67 |
79 |
90 |
101 |
119 |
135 |
169 |
199 |
249 |
291 |
7,000 |
8,000 |
0 |
56 |
72 |
85 |
97 |
107 |
127 |
144 |
181 |
212 |
265 |
310 |
8,000 |
9,000 |
0 |
59 |
76 |
90 |
103 |
114 |
134 |
152 |
191 |
224 |
280 |
328 |
9,000 |
10,000 |
0 |
63 |
80 |
95 |
108 |
120 |
141 |
160 |
201 |
236 |
294 |
344 |
10,000 |
100,000 |
0 |
63y |
80y |
95y |
108y |
120y |
141y |
160y |
201y |
236y |
294y |
344y |
100,000 |
n/a |
0 |
630 |
800 |
950 |
1080 |
1200 |
1410 |
1600 |
2010 |
2360 |
2940 |
3440 |
Note 1 - For firms with relevant income more of £10m but up to £100m value y is calculated by relevant income/ £10m. |
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Note 2 - The calculation of a firm's capital resources is set out in section IPRU-INV 13.13 to 13.158. 11 |
|||||||||||||
(1) 1For the purposes of the provisions relating to professional indemnity
insurance, “additional capital resources” means readily realisable own
funds or capital resources under IPRU-INV 13.15.3R, depending on
the type of firm1.(2) 1The FCA1 expects items included in own funds or capital
resources under IPRU-INV 13.15.3R, depending on the type of firm,1
to be regarded as “readily realisable” only if they can be realised, at
any given time, within 90 days.
Each of the capital charges in BIPRU 8.7.1 G, as applied on a consolidated basis, is called a consolidated requirement component. The name of each consolidated requirement component reflects the solo capital charge on which it is based. Solo capital charges are called risk capital requirements. Thus for example the consolidated requirement component for market risk is called the consolidated market risk requirement. The calculation of the consolidated market risk requirement is
In general a firm should calculate each consolidated requirement component using the appropriate regulator'srules, even in the case of group members who are subject to the capital requirements of an overseas regulator. However this section sets out certain circumstances in which a firm may use the capital requirements of an overseas regulator.
A firm has a choice about how it should apply a risk capital requirement to the group. It may do this by treating the whole of the group as a single entity and applying the risk capital requirement to the group (a line by line approach), calculating a separate risk capital requirement for each group member (an aggregation approach) or a mixture of the two.
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-UK sub-group5 in accordance with BIPRU 8.7.13 R. The5risk capital requirement must be calculated in accordance with the appropriate regulator'srules. The risk capital requirement applicable to a consolidated requirement component is the one specified in the second column of the table in BIPRU
Table: Capital charges relating to consolidated requirement components
This table belongs to BIPRU 8.7.11 R
Rules on which the consolidated requirement component are based (the applicable risk capital requirement) |
|
(1) A firm must calculate a consolidated requirement component by using one of the methods in this rule.(2) Under the first method a firm must:(a) apply the risk capital requirement set out in BIPRU 8.7.12 R to each undertaking in the UK consolidation group or non-UK sub-group5; and(b) add the risk capital requirements together.(3) Under the second method a firm must:(a) treat the whole UK consolidation group or non-UK sub-group5 as a single undertaking; and(b) apply the risk
The credit risk capital requirement (on which the consolidated credit risk requirement is based) is split into two3capital charges. One relates to credit risk in the non-trading book (the credit risk capital component). One relates to credit risk in the trading book (the counterparty risk capital component). 3131
In accordance with BIPRU 8.2.1 R and BIPRU 8.3.1 R (The basic consolidation rules for a UK consolidation group or non-UK sub-groups5), a firm may exclude that part of the risk capital requirement that arises as a result of:(1) (in respect of the consolidated credit risk requirement) intra-group balances; or(2) (in respect of the4consolidated fixed overheads requirement) intra-group transactions;with other undertakings in the UK consolidation group or non-UK sub-groups5.
Since transactions may be structured in many different ways, the capital treatment of a position should be determined on the basis of its economic substance rather than merely its legal form. A firm should look to the economic substance of a transaction to determine whether the securitisation framework is applicable for purposes of determining regulatory capital. A firm should consult the appropriate regulator when there is uncertainty about whether a given transaction should
The appropriate regulator expects an originator to continue to monitor any risks that it may be subject to when it has excluded the securitised exposures from its calculation of risk weighted exposure amounts. The originator should consider capital planning implications where risks may return and the impact that securitisation has on the quality of the remaining exposures held by the originator.
BIPRU 9 deals with:(1) requirements for investors,3originators and sponsors of securitisations of non-trading bookexposures;3(2) the calculation of risk weighted exposure amount for securitisation positions for the purposes of calculating either the credit risk capital component or the counterparty risk capital component; and3(3) the requirements that investors, originators and sponsors of securitisations in the trading book will have to meet (BIPRU 9.3.1AR, BIPRU 9.3.15R to BIPRU
The Society must maintain appropriate and effective arrangements to require members’ agents1 to meet and continue to meet financial resource requirements at least equivalent to the requirements set out in Lloyd's Capital and Solvency Requirements 2001, as they are in force immediately before commencement.
The report referred to in IPRU-INV 4.4.2D must reach the FCA1 within two months of the end of the relevant quarter and must state: (1) whether the Society has any information indicating or tending to indicate that, during the quarter to which the report relates, the members’ agents1 failed to meet the financial resource requirements referred to in IPRU-INV 4.4.1D; (2) whether, at the end of the quarter to which the report relates, the members’ agents1 failed to meet the financial
The report in IPRU-INV 4.4.4D must reach the FCA1 within seven months of that members’ agent's1 accounting reference date and must: (1) confirm that: (a) the Society has received from that members’ agent1 in respect of the financial year to which the report relates, all relevant attachments to the Annual Financial Return that the members’ agent1 is required to make to the Society under the requirements identified in IPRU-INV 4.4.1D; (b) that members’ agent1 met the applicable
(1) If more than one firm in the group is subject to the rules of this chapter, groupfinancial resources are defined according to the relevant rules applicable to the main firm in the group to which this chapter applies, with Tier 1 minority interests being allowed as Group Tier 1 capital and Tier 2 minority interests being allowed as Group Tier 2 capital. (2) In calculating the groupfinancial resources, deductions should be made for intangible assets, material unaudited losses
Action which a firm takes either to restore its capital resources to the levels set by the intervention points in PRA2 Rulebook: Solvency II Firms: Undertakings in Difficulty or PRA Rulebook: Non-Solvency II firms: Run Off Operations2, or to prevent its capital resources falling below those points, should be consistent with Principle 6 of the FCA's Principles for Businesses. Principle 6 requires a firm to pay due regard to the interests of its customers and treat them fairly.
If a firm intends either (a) to remedy a fall in capital resources, or (b) to prevent such a fall, for example, by taking management action to reduce the risks to which a with-profits fund is exposed or by reducing non-contractual benefits for policyholders, it should explain to the FCA how such proposed actions are consistent with the firm's obligations under Principle 6 (Customers' interests).
Where a firm submits a plan for restoration under2 PRA Rulebook: Solvency II Firms: Undertakings in Difficulty or PRA Rulebook: Non-Solvency II firms: Run Off Operations2, the FCA would expect an explanation of how any actions it plans to take to restore its capital resources are consistent with the firm's obligations under Principle 6 (Customers' interests).
When calculating a firm’s capital resources, the following adjustments apply to retained profits or (for sole traders or partnerships) current accounts figures:(1) 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;(2) a firm must de-recognise any defined benefit asset; (3) a firm may substitute for a defined benefit liability its deficit reduction amount
Where a firm is a sole trader or a partnership:(1) it can use (to the extent necessary to make up any shortfall in the required resources) any of its personal assets (not being needed to meet liabilities arising from its personal activities and any business activities not regulated by the FCA);(2) the firm's total financial resources, from whatever source, must at all times be sufficient to cover its total liabilities.
A firm3 must calculate:(1) the aggregate amount of its short-term subordinated loans and its preference shares which are not redeemable within two years; (2) the amount of the firm's total capital and reserves excluding preference share capital, less the amount of its intangible assets, multiplied by 400%.
A circular relating to a resolution proposing to reduce the company's capital, other than a reduction of capital pursuant to section 626 of the Companies Act 2006 (Reduction of capital in connection with redenomination),4 must include a statement of the reasons for, and the effects of, the proposal.
A circular to shareholders about the approval of an employee's share scheme or long-term incentive scheme must:(1) include either the full text of the scheme or a description of its principal terms;(2) include, if directors of the listed company are trustees of the scheme, or have a direct or indirect interest in the trustees, details of the trusteeship or interest;(3) state that the provisions (if any) relating to:(a) the persons to whom, or for whom, securities, cash or other
(1) A circular to holders of listed securities convertible into shares reminding them of the times when conversion rights are exercisable must include:(a) the date of the last day for lodging conversion forms and the date of the expected sending of the certificates;(b) a statement of the market values for the securities on the first dealing day in each of the six months before the date of the circular and on the latest practicable date before sending the circular;(c) the basis
Term trading-related repo-style transactions that a firm accounts for in its non-trading book may be included in the trading book for capital requirement purposes so long as all such repo-style transactions are included. For this purpose, trading-related repo-style transactions are defined as those that meet the requirements of BIPRU 1.2.4 R, BIPRU 1.2.10 R and BIPRU 1.2.12 R, and both legs are in the form of either cash or securities includable in the trading book. Regardless
(1) An internal hedge is a position that materially or completely offsets the component risk element of a non-trading bookposition or a set of position. Positions arising from internal hedges are eligible for trading book capital treatment, provided that they are held with trading intent and that the general criteria on trading intent and prudent valuation specified in BIPRU 1.2.12 R and the trading book systems and controls rules. In particular:(a) internal hedges must not be
(1) 8The resources of A must be appropriate in relation to the regulated activities that A carries on or seeks to carry on.(2) The matters which are relevant in determining whether A has appropriate resources include-(a) the nature and scale of the business carried on, or to be carried on, by A;(b) the risks to the continuity of the services provided by, or to be provided by, A; and(c) A’s membership of a group and any effect which that membership may have.(3) Except in a case
8Firms carrying on, or seeking to carry on, a PRA-regulated activity, should note that the PRA is responsible for assessing their financial resources. Paragraphs 4D and 5D of Schedule 6 to the Act contain the threshold conditions relating to financial resources which are relevant to the discharge by the PRA of its functions under the Act in relation to firms carrying on, or seeking to carry on, a PRA-regulated activity (in addition to additional non-financial resources threshold
(1) CASS
5.4 permits a firm, which
has adequate resources, systems and controls, to declare a trust on terms
which expressly authorise it, in its capacity as trustee, to make advances
of credit to the firm'sclients. The client
money trust required by CASS
5.4 extends to such debt obligations
which will arise if the firm,
as trustee, makes credit advances, to enable a client's3premium obligations
to be met before the premium is
remitted to the firm and similarly
if it allows claims
A firm may
not handle client money in accordance
with the rules in this section
unless each of the following conditions is satisfied:(1) the firm must have and maintain systems and controls
which are adequate to ensure that the firm is
able to monitor and manage its client money transactions
and any credit risk arising from the operation of the trust arrangement and,
if in accordance with CASS 5.4.2 R a firm complies
with both the rules in CASS
5.3 and CASS
5.4, such systems and
The deed (or equivalent formal document)
referred to in CASS 5.4.6 R may provide that:(1) the firm, acting as trustee (or, in Scotland,
as agent), has power to make advances or give credit to clients or insurance undertakings from client money, provided that it also provides
that any debt or other obligation of a client or
resulting obligation of an insurance undertaking,
in relation to an advance or credit, is held on the same terms as CASS 5.4.7 R;(2) the
benefit of a letter
A firm that benefits from exceptional government intervention must ensure that:(1) variable remuneration is strictly limited as a percentage of net revenues when it is inconsistent with the maintenance of a sound capital base and timely exit from government support;(2) it restructures remuneration in a manner aligned with sound risk management and long-term growth, including (when appropriate) establishing limits to the remuneration of members of its management body; and(2) no
(1) A firm must ensure that any measurement of performance used to calculate variable remuneration components or pools of variable remuneration components: (a) includes adjustments for all types of current and future risks and takes into account the cost and quantity of the capital and the liquidity required; and (b) takes into account the need for consistency with the timing and likelihood of the firm receiving potential future revenues incorporated into current earnings. (2)
(1) A firm must ensure that guaranteed variable remuneration is not part of prospective remuneration plans.(2) A firm must not award, pay or provide guaranteed variable remuneration unless:(a) it is exceptional;(b) it occurs in the context of hiring new dual-regulated firms Remuneration Code staff;(c) the firm has a sound and strong capital base; and(d) it is limited to the first year of service.[Note: article 94(1)(d) and (e) of the CRD and Standard 11 of the FSB Compensation
(1) A firm must ensure that a substantial portion, which is at least 50%, of any variable remuneration consists of an appropriate balance of:(a) subject to the legal structure of the firm concerned: shares or equivalent ownership interests; or share-linked instruments or equivalent non-cash instruments2; and (b) where possible, other instruments that in each case adequately reflect the credit quality of the firm as a going concern and are appropriate for use as variable remuneration,
(1) Deferred remuneration paid in:(a) shares or share-linked instruments should be made under a scheme which meets appropriate criteria, including risk adjustment of the performance measure used to determine the initial allocation of shares;(b) cash should also be subject to performance criteria.(2) The FCA would generally expect a firm to have a firm-wide policy (and group-wide policy, where appropriate) on deferral. The proportion deferred should generally rise with the ratio
When assessing for the purposes of MCOB 11.6.2 R whether a customer will be able to pay the sums due, a firm: (1) must not base its assessment of affordability on the equity in the property which is used as security under the regulated mortgage contract, or take account of an expected increase in property prices;(2) must:(a) where the repayments will be made from the resources of the customer:(i) take full account of the income, net of income tax and national insurance, or net
In taking account (in accordance with MCOB 11.6.26R (2)) of the customer's income or net assets (or both) and the resources of the business for the purposes of its assessment of whether the customer will be able to pay the sums due: (1) a firm must obtain evidence of the income or net assets (or both) of the customer and the resources of the business, as declared by the customer for the purpose of the customer's application for the regulated mortgage contract (or variation); and
The information which a firm should consider when taking account, for the purposes of MCOB 11.6.26R (2)(b), of the strength of the financial resources of the business will vary according to the characteristics of the business, but may include factors such as the cash flow, assets and liabilities of the business.
If a firm is, or should reasonably be aware from information obtained during the application process, that there will, or are likely to, be future changes to the income and expenditure of the customer, or the resources of the business, during the term of the regulated mortgage contract, the firm must take them into account when assessing whether the customer will be able to pay the sums due for the purposes of MCOB 11.6.2 R.
Where a firm chooses, in accordance with MCOB 11.6.25 R, to apply the provisions of MCOB 11.6.26 R to MCOB 11.6.31 R in place of MCOB 11.6.5 R to MCOB 11.6.19 G: (1) its policy in MCOB 11.6.20R (1) need not address each of the matters prescribed in sub-paragraphs (a) to (e) of that rule;(2) MCOB 11.6.23 G does not apply; and (3) in each case the record-keeping requirements in MCOB 11.6.60R (2)(a) to (d) apply only to the extent relevant, but the record in MCOB 11.6.60R (1) must