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GENPRU 2.1 Calculation of capital resources requirements

Application

GENPRU 2.1.1RRP

1This section applies to:

  1. (1)

    a BIPRU firm; and

  2. (2)

    an insurer, unless it is:

    1. (a)

      a non-directive friendly society; or

    2. (b)

      a Swiss general insurer; or

    3. (c)

      an EEA-deposit insurer; or

    4. (d)

      an incoming EEA firm; or

    5. (e)

      an incoming Treaty firm.

GENPRU 2.1.2G

The scope of application of this section is not restricted to firms that are subject to the relevant EC Directives.

GENPRU 2.1.3R

  1. (1)

    This section applies to a firm in relation to the whole of its business, except where a particular provision provides for a narrower scope.

  2. (2)

    Where an insurer carries on both long-term insurance business and general insurance business, except where a particular provision provides otherwise, this section applies separately to each type of business.

GENPRU 2.1.4GRP

The adequacy of a firm's capital resources needs to be assessed in relation to all the activities of the firm and the risks to which they give rise.

GENPRU 2.1.5G

The requirements in this section apply to a firm on a solo basis.

Purpose

GENPRU 2.1.6GRP

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's capital resources needs to be assessed both by that firm and the FSA. Through its rules, the FSA sets minimum capital resources requirements for firms. It also reviews a firm's own assessment of its capital needs, and the processes and systems by which that assessment is made, in order to see if the minimum capital resources requirements are appropriate (see GENPRU 1.2 (Adequacy of financial resources), BIPRU 2.2 (Internal capital adequacy standards) and INSPRU 7.1 (Individual capital assessment)).

GENPRU 2.1.7GRP

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) and, for an insurer, INSPRU and, for a BIPRU firm, BIPRU.

GENPRU 2.1.8GRP

  1. (1)

    This section implements minimum EC standards for the capital resources required to be held by an insurer undertaking business that falls within the scope of the Consolidated Life Directive (2002/83/EC), the Reinsurance Directive (2005/68/EC) or the First Non-Life Directive (1973/239/EEC) as amended.

  2. (2)

    This section also implements 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 implements (in part) Articles 9, 10 and 75 of the Banking Consolidation Directive and Articles 5, 9, 10 and 18 of the Capital Adequacy Directive.

  3. (3)

    In the case of a UCITS investment firm this section implements (in part) Article 5aof the UCITS Directive.

Monitoring requirements

GENPRU 2.1.9RRP

A firm must at all times monitor whether it is complying with GENPRU 2.1.13 R (the main capital adequacy rule for insurer) or the main BIPRU firm Pillar 1 rules and be able to demonstrate that it knows at all times whether it is complying with those rules.

GENPRU 2.1.10GRP

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 with GENPRU 2.1.13 R and the main BIPRU firm Pillar 1 rules (as applicable) 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 FSA.

GENPRU 2.1.11RRP

A firm must notify the FSA immediately of any breach, or expected breach, of GENPRU 2.1.13 R (in the case of an insurer) or the main BIPRU firm Pillar 1 rules (in the case of a BIPRU firm).

Additional capital requirements

GENPRU 2.1.12GRP

The FSA may impose a higher capital requirement than the minimum requirement set out in this section as part of the firm's Part IV permission (see GENPRU 1.2 (Adequacy of financial resources), BIPRU 2.2 (Internal capital adequacy standards) and INSPRU 7.1 (Individual capital assessment)).

Main requirement: Insurers

GENPRU 2.1.13R

  1. (1)

    Subject to (2), an insurer must maintain at all times capital resources equal to or in excess of its capital resources requirement (CRR).

  2. (2)

    An insurer which is a participating insurance undertaking and, in relation to its own group capital resources, is in compliance with INSPRU 6.1.9 R (Requirement to maintain group capital), is deemed to comply with this rule.

GENPRU 2.1.14R

An insurer must comply with GENPRU 2.1.13 R separately in respect of both its long-term insurance business and its general insurance business unless it is a pure reinsurer or a captive reinsurer which has a single MCR in respect of its entire business in accordance with GENPRU 2.1.26 R.

GENPRU 2.1.15G

In order to comply with GENPRU 2.1.14 R, an insurer carrying on both general insurance business and long-term insurance business will need to allocate its capital resources between its general insurance business and long-term insurance business so that the capital resources allocated to its general insurance business are equal to or in excess of its CRR for its general insurance business and the capital resources allocated to its long-term insurance business are equal to or in excess of its CRR for its long-term insurance business. Whereas long-term insurance assets cannot be used towards meeting a firm's CRR for its general insurance business, surplus general insurance assets may be used towards meeting the CRR for its long-term insurance business (see INSPRU 1.5.30 R to INSPRU 1.5.32 G). INSPRU 1.5 (Internal-contagion risk) sets out the detailed requirements for the separation of long-term and general insurance business.

GENPRU 2.1.16G

Insurers commonly use different terminology for the various GENPRU requirements. For example, the MCR is traditionally known as the required minimum margin.

Calculation of the CRR for an insurer

GENPRU 2.1.17R
GENPRU 2.1.18R

The CRR for any insurer to which this rule applies (see GENPRU 2.1.19 R and GENPRU 2.1.20 R) is the higher of:

  1. (1)

    the MCR in GENPRU 2.1.24A R2; and

  2. (2)

    the ECR in GENPRU 2.1.38 R.

GENPRU 2.1.19R

Subject to GENPRU 2.1.20 R, GENPRU 2.1.18 R applies to an insurer carrying on long-term insurance business, other than:

  1. (1)

    a non-directive mutual;

  2. (2)

    an insurer which has no with-profits insurance liabilities; and

  3. (3)

    an insurer which has with-profits insurance liabilities that are, and at all times since 31 December 2004 (the coming into force of GENPRU 2.1.18 R) have remained, less than £500 million.

GENPRU 2.1.20R

GENPRU 2.1.18 R also applies to an insurer of a type listed in GENPRU 2.1.19R (3) if:

  1. (1)

    the insurer makes an election that GENPRU 2.1.18 R is to apply to it; and

  2. (2)

    that election is made by written notice given to the FSA in a way that complies with the requirements for written notice in SUP 15.7 (Form and method of notification).

GENPRU 2.1.21G

The effect of GENPRU 2.1.19R (3) is that an insurer to which GENPRU 2.1.18 R applies because it has with-profits insurance liabilities of £500 million or more, will continue to be subject to GENPRU 2.1.18 R even if its with-profits insurance liabilities fall below £500 million. However, if that happens, it may apply for a waiver from GENPRU 2.1.18 R under section 148 of the Act. In exercising its discretion under section 148 of the Act, the FSA will have regard (among other factors) to whether there has been a material and permanent change to the insurer's business and to the prospects of it continuing to have with-profits insurance liabilities of less than £500 million.

GENPRU 2.1.22G

An insurer that has always had with-profits insurance liabilities of less than £500 million since GENPRU 2.1.18 R came into force may wish to "opt in" to GENPRU 2.1.18 R and therefore become a realistic basis life firm. By doing so, it becomes obliged to calculate a with-profits insurance capital component (see GENPRU 2.1.38 R and INSPRU 1.3 (With-profits insurance capital component)), but it also becomes entitled to certain modifications to the way that a firm is required to calculate its mathematical reserves (see INSPRU 1.2.46 R (Future net premiums: adjustment for deferred acquisition costs) and INSPRU 1.2.76 R (Persistency assumptions)). The firm is also then required to report its liabilities on a realistic basis (see IPRU(INS) rule 9.31R(b)). In order to "opt in", the insurer must make an election under GENPRU 2.1.20 R that GENPRU 2.1.18 R is to apply to it. If an insurer that has elected to calculate and report its with-profits insurance liabilities on a realistic basis subsequently decides that it no longer wishes to do so, it may seek to "opt out" by applying for a waiver from GENPRU 2.1.18 R under section 148 of the Act. In exercising its discretion under section 148 of the Act, the FSA will have regard (among other factors) to whether there has been a material and permanent change to the firm's business and to whether it continues to have with-profits insurance liabilities of less than £500 million.

GENPRU 2.1.23R

The CRR for an insurer carrying on long-term insurance business, but to which GENPRU 2.1.18 R does not apply, is equal to the MCR in GENPRU 2.1.25 R or, for a pure reinsurer or a captive reinsurer carrying on both general insurance business and long-term insurance business, in GENPRU 2.1.26 R.

Calculation of the MCR (Insurer only)

GENPRU 2.1.24R

Subject to GENPRU 2.1.26 R, for an insurer carrying on general insurance business the MCR in respect of that business is the higher of:

  1. (1)

    the base capital resources requirement for general insurance business applicable to that firm; and

  2. (2)

    the general insurance capital requirement.

GENPRU 2.1.24AR

2Subject to GENPRU 2.1.26 R, for an insurer carrying on long-term insurance business to which GENPRU 2.1.18 R applies the MCR in respect of that business is the higher of:

  1. (1)

    the base capital resources requirement for long-term insurance business applicable to that firm; and

  2. (2)

    the long-term insurance capital requirement.

GENPRU 2.1.25R

Subject to GENPRU 2.1.26 R, for an insurer carrying on long-term insurance business, but to which GENPRU 2.1.18 R does not apply,2 the MCR in respect of that business is the higher of:

  1. (1)

    the base capital resources requirement for long-term insurance business applicable to that firm; and

  2. (2)

    the sum of:

    1. (a)

      the long-term insurance capital requirement; and

    2. (b)

      the resilience capital requirement.

GENPRU 2.1.26R

For a pure reinsurer or a captive reinsurer carrying on both general insurance business and long-term insurance business:

  1. (1)

    the MCR in respect of its general insurance business is the general insurance capital requirement; and

  2. (2)

    the MCR in respect of its long-term insurance business is the sum of:

    1. (a)

      the long-term insurance capital requirement; and

    2. (b)

      the resilience capital requirement;

unless the sum of:

  1. (3)

    the general insurance capital requirement; and

  2. (4)

    the sum of:

    1. (a)

      the long-term insurance capital requirement; and

    2. (b)

      the resilience capital requirement;

is lower than the base capital resources requirement, in which case the firm has a single MCR in respect of its entire business equal to the base capital resources requirement.

GENPRU 2.1.27G

The MCR gives effect to the EC Directive minimum requirements. For general insurance business, the EC Directive minimum is the higher of the general insurance capital requirement and the relevant base capital resources requirement. For long-term insurance business, the EC Directive minimum is the higher of the long-term insurance capital requirement and the base capital resources requirement. For pure reinsurers and captive reinsurers carrying on both general insurance business and long-term insurance business, however, the base capital resources requirement is the EC Directive required minimum only when it is higher than the sum of the general insurance capital requirement and the long-term insurance capital requirement. The base capital resources requirement is the minimum guarantee fund for the purposes of article 29(2) of the Consolidated Life Directive (2002/83/EC),3 article 17(2) of the First Non-Life Directive (1973/239/EEC)3 as amended and article 40(2) of the Reinsurance Directive (2005/68/EC). The resilience capital requirement is an FSA minimum3 requirement for long-term insurance business for3 regulatory basis only life firms2 that is additional to the EC minimum requirement for long-term insurance business.

GENPRU 2.1.28G

The calculation of the resilience capital requirement is set out in INSPRU 3.1 (Market Risk in insurance).

Calculation of the base capital resources requirement for an insurer

GENPRU 2.1.29R

The amount of an insurer's base capital resources requirement is set out in the table in GENPRU 2.1.30 R. If an insurer falls within one or more of the descriptions of type of firm set out in GENPRU 2.1.30 R, its base capital resources requirement is the highest amount set out against the different types of firm within whose description it falls.

Table: Base capital resources requirement for an insurer

GENPRU 2.1.30R

This table belongs to GENPRU 2.1.29 R

Firm category

Amount: Currency equivalent of

General insurance business

Liability insurer (classes 10-15)

Directive mutual

€2.4 million

Non-directive insurer

€300,000

Other (including mixed insurer but excluding pure reinsurer and captive reinsurer)

€3.2 million

Other insurer

Directive mutual

€1.655 million

Non-directive insurer (classes 1 to 8, 16 or 18)

€225,000

Non-directive insurer (classes 9 or 17)

€150,000

Mixed insurer

€3.2 million

Other (excluding pure reinsurer and captive reinsurer)

€2.2 million

Long-term insurance business

Mutual

Directive

€2.4 million

Non-directive mutual

€600,000

Any other insurer (including mixed insurer but excluding pure reinsurer and captive reinsurer)

€3.2 million

All business (general insurance business and long-term insurance business)

Pure reinsurer excluding captive reinsurer4

€3.2 million

Captive reinsurer

€1 million

GENPRU 2.1.31G

  1. (1)

    Under the Insurance Directives the amount of the base capital resources requirement specified in the last column of the table in GENPRU 2.1.30 R for an insurer which is not a Non-directive insurer is subject to annual review. The relevant amounts will be increased by the percentage change in the European index of consumer prices (comprising all EU member states, as published by Eurostat) from 20 March 2002, to the relevant review date, rounded up to a multiple of €100,000, provided that where the percentage change since the last increase is less than 5%, no increase will take place.

  2. (2)

    Similar provisions for the index-linking of the base capital resources requirement are included in the Reinsurance Directive, although in that case the index-linking starts from 10 December 2005. However, to ensure consistency as between all firms affected by the index-linking of the base capital resources requirement under the Insurance Directives and the Reinsurance Directive, the FSA intends, so far as possible, to amend the amounts in GENPRU 2.1.30 R for all such firms (and GENPRU 2.3.9 R for the base capital resources requirements applying to Lloyd's) when an index-linked increase is required by the Insurance Directives. The FSA may, however, have to depart from this approach where the result would be that the base capital resources requirement required for any type of firm under GENPRU 2.1.30 R is less than the increased amount resulting from the operation of an index-linking provision to which it is subject.

GENPRU 2.1.32G

Any increases in the base capital resources requirement referred to in GENPRU 2.1.31 G will be published on the FSA website.

GENPRU 2.1.33R

In the case of an insurer and for the purposes of the base capital resources requirement, the exchange rate from the Euro to the pound sterling for each year beginning on 31 December is the rate applicable on the last day of the preceding October for which the exchange rates for the currencies of all the European Union member states were published in the Official Journal of the European Union.

Calculation of the general insurance capital requirement (Insurer only)

GENPRU 2.1.34R

An insurer must calculate its general insurance capital requirement as the highest of:

  1. (1)

    the premiums amount;

  2. (2)

    the claims amount; and

  3. (3)

    the brought forward amount.

GENPRU 2.1.35G

The calculation of each of the premiums amount, claims amount and brought forward amount is set out in INSPRU 1.1 (Capital resources requirement and technical provisions for insurance business).

Calculation of the long-term insurance capital requirement (Insurer only)

GENPRU 2.1.37G

The calculation of each of the capital components is set out in INSPRU 1.1 (Capital resources requirement and technical provisions for insurance business).

Calculation of the ECR (Insurer only)

GENPRU 2.1.38R

For an insurer carrying on long-term insurance business the ECR in respect of that business is the sum of:

  1. (1)

    the long-term insurance capital requirement; and2

  2. (2)

    the with-profits insurance capital component.2

GENPRU 2.1.39G

Details of the resilience capital requirement and the with-profits insurance capital component are set out in INSPRU 3.1 (Market Risk in insurance) and INSPRU 1.3 (With-profits insurance capital component) respectively.

Main requirement: BIPRU firms

GENPRU 2.1.40RRP

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 2.1.41RRP

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 2.1.42RRP

At the time that it first becomes a bank, building society or BIPRU investment firm, a firm must hold initial capital of not less than the base capital resources requirement applicable to that firm.

GENPRU 2.1.43GRP

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 rather than an additional requirement, GENPRU 2.2.60 R allows a BIPRU firm to meet the base capital resources requirement with capital that is also used to meet the variable capital requirements in GENPRU 2.1.40 R.

GENPRU 2.1.44GRP

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.

Calculation of the variable capital requirement for a BIPRU firm

GENPRU 2.1.45RRP

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.

Adjustment of the variable capital requirement calculation for UCITS investment firms

GENPRU 2.1.46RRP

When a3 UCITS 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

Calculation of the base capital resources requirement for a BIPRU firm

GENPRU 2.1.47RRP

The amount of a BIPRU firm's base capital resources requirement is set out in the table in GENPRU 2.1.48 R.

Table: Base capital resources requirement for a BIPRU firm

GENPRU 2.1.48RRP

This table belongs to GENPRU 2.1.47 R

Firm category

Amount: Currency equivalent of

Bank

€5 million

Building society

The higher of €1 million and £1 million

BIPRU 730K firm

€730,000

BIPRU 125K firm

€125,000

BIPRU 50K firm

€50,000

UCITS investment firm

€125,000 plus, if the funds under management exceed €250,000,000, 0.02% of the excess, subject to a maximum of €10,000,000.3

Definition of BIPRU 730K firm, BIPRU 125K firm and BIPRU 50K firm

GENPRU 2.1.49GRP

The terms BIPRU 730K firm, BIPRU 125K firm and BIPRU 50K firm are defined in BIPRU 1.1 (Application and purpose). However for convenience the table in GENPRU 2.1.50 G briefly summarises them.

Table: Definition of BIPRU 730K firm, BIPRU 125K firm and BIPRU 50K firm

GENPRU 2.1.50G

This table belongs to GENPRU 2.1.49 G

Category of BIPRU investment firm

Definition

BIPRU 50K firm

(1)

it does not deal in any financial instruments for its own account or underwrite issues of financial instruments on a firm commitment basis;

(2)

it offers one or more of the following services:

(a)

reception and transmission of investors' orders for financial instruments; or

(b)

the execution of investors' orders for financial instruments; or

(c)

the management of individual portfolios of investments in financial instruments; and

(3)

it does not hold clients' money and/or securities and it is not authorised to do so (it should have a limitation or requirement prohibiting the holding of client money and its permission should not include safeguarding and administering investments).

BIPRU 125K firm

(1)

it does not deal in any financial instruments for its own account or underwrite issues of financial instruments on a firm commitment basis;

(2)

it offers one or more of the following services:

(a)

reception and transmission of investors' orders for financial instruments; or

(b)

the execution of investors' orders for financial instruments; or

(c)

the management of individual portfolios of investments in financial instruments; and

(3)

it holds clients' money and/or securities or it is authorised to do so.

BIPRU 730K firm

is subject to the Capital Adequacy Directive and is neither a BIPRU 50K firm nor a BIPRU 125K firm.

Calculation of the credit risk capital requirement (BIPRU firm only)

GENPRU 2.1.51RRP

Calculation of the market risk capital requirement (BIPRU firm only)

GENPRU 2.1.52RRP

  1. (1)

    A BIPRU firm must calculate its market risk capital requirement as the sum of:

    1. (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));

    2. (b)

      the equity PRR;

    3. (c)

      the commodity PRR;

    4. (d)

      the foreign currency PRR;

    5. (e)

      the option PRR; and

    6. (f)

      the collective investment undertaking PRR.

  2. (2)

    Any amount calculated under BIPRU 7.1.9 R - BIPRU 7.1.13 R (Instruments for which no PRR treatment has been specified) must be allocated between the PRR charges in (1) in the most appropriate manner.

Calculation of the fixed overheads requirement (BIPRU investment firm only)

GENPRU 2.1.53RRP

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 2.1.54RRP

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. (1)

    staff bonuses, except to the extent that they are guaranteed;

  2. (2)

    employees' and directors' shares in profits, except to the extent that they are guaranteed;

  3. (3)

    other appropriations of profits;

  4. (4)

    shared commission and fees payable which are directly related to commission and fees receivable, which are included within total revenue;

  5. (5)

    interest charges in respect of borrowings made to finance the acquisition of the firm's readily realisable investments;

  6. (6)

    interest paid to customers on client money;

  7. (7)

    interest paid to counterparties;

  8. (8)

    fees, brokerage and other charges paid to clearing houses, exchanges and intermediate brokers for the purposes of executing, registering or clearing transactions;

  9. (9)

    foreign exchange losses; and

  10. (10)

    other variable expenditure.

GENPRU 2.1.55RRP

The relevant fixed expenditure of a firm in the following circumstances is:

  1. (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. (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 for authorisation.

GENPRU 2.1.56RRP

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. (1)

    its level of fixed expenditure changes materially; or

  2. (2)

    its regulated activities comprised within its permission change.

GENPRU 2.1.57RRP

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 2.1.58GRP

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 2.1.59GRP

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 list of such expenditure and a firm will itself need to identify (taking appropriate advice where necessary) which costs amount to fixed expenditure.

Calculation of base capital resources requirement for banks authorised before 1993

GENPRU 2.1.60RRP

  1. (1)

    This rule applies to a bank that meets the following conditions:

    1. (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);

    2. (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

    3. (c)

      on 1 January 2007 it did not comply with the base capital resources requirement as set out in the table in GENPRU 2.1.48 R (€5 million requirement).

  2. (2)

    Subject to (3), the applicable base capital resources requirement as at any time (the "relevant time") is the higher of:

    1. (a)

      the relevant amount applicable to it under IPRU(BANK) rule 3.3.12 as at 31 December 2006 as adjusted under GENPRU 2.1.62R (2); and

    2. (b)

      the highest amount of eligible capital resources which that bank has held between 1 January 2007 and the relevant time.

  3. (3)

    This rule ceases to apply when:

    1. (a)

      that bank's eligible capital resources at any time since 1 January 2007 equal or exceed €5 million; or

    2. (b)

      a person (other than an existing controller) becomes the parent undertaking of that bank.

  4. (4)

    If this rule ceases to apply under (3)(a) it continues not to apply if the bank's eligible capital resources later fall below €5 million.

GENPRU 2.1.61GRP

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 2.1.62RRP

For the purpose of GENPRU 2.1.60 R:

  1. (1)

    an existing controller of a bank means:

    1. (a)

      a person who has been a parent undertaking of that bank since 31 December 2006 or earlier; or

    2. (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. (2)

    the relevant amount of capital as referred to in GENPRU 2.1.60R (2)(a) is adjusted by identifying the time as of which the amount of capital it was obliged to hold under IPRU(BANK) rule 3.3.12 as referred to in GENPRU 2.1.60R (2)(a) was fixed and then recalculating the capital resources it held at that time in accordance with the definition of eligible capital resources (as defined in (3)); and

  3. (3)

    eligible capital resources mean capital resources eligible under GENPRU 2.2 (Capital resources) to be used to meet the base capital resources requirement.