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IFPRU 10.4 Capital conservation measures

Combined buffer

IFPRU 10.4.1 R

A firm does not meet the combined buffer if the common equity tier 1 capital maintained by the firm which is not used to meet the own funds requirement under article 92(1)(c) of the EU CRR (Total capital ratio) does not meet the combined buffer.

[Note: articles 129(1) (part) and 130(5) (part) of CRD]

Restrictions on distributions

IFPRU 10.4.2 R

A firm that meets the combined buffer must not make a distribution in connection with common equity tier 1 capital to an extent that would decrease its common equity tier 1 capital to a level where the combined buffer is no longer met.

[Note: article 141(1) of CRD]

IFPRU 10.4.3 R
  1. (1)

    A firm that does not meet the combined buffer must:

    1. (a)

      calculate the MDA in accordance with (4); and

    2. (b)

      report the MDA to the FCA in writing no later than five business days after the firm identified that it did not meet the combined buffer.

  2. (2)

    A firm that does not meet the combined buffer must not undertake any of the following actions before it has calculated the MDA:

    1. (a)

      make a distribution in connection with common equity tier 1 capital;

    2. (b)

      create an obligation to pay variable remuneration or discretionary pension benefits or pay variable remuneration or discretionary pension benefits if the obligation to pay was created at a time when the firm did not meet the combined buffer; and

    3. (c)

      make payments on additional tier 1 instruments.

  3. (3)

    If a firm does not meet the combined buffer, it must not distribute more than the MDA, calculated in (4), through any action in (2)(a) to (c).

  4. (4)
    1. (a)

      A firm must calculate the MDA by multiplying the sum calculated in (5) by the factor determined in (6).

    2. (b)

      Any of the actions in (2)(a), (b) or (c) shall have the effect of reducing the MDA.

  5. (5)

    The sum to be multiplied in (4) shall consist of:

    1. (a)

      interim profits not included in common equity tier 1 capital under article 26(2) of the EU CRR (Common equity tier 1 items) that have been generated since the most recent decision on the distribution of profits or any of the actions in 2(a), (b) or (c);

    Plus

    1. (b)

      year-end profits not included in common equity tier 1 capital under article 26(2) of the EU CRR that have been generated since the most recent decision on the distribution of profits or any of the actions in (2) (a), (b) or (c);

    Minus

    1. (c)

      amounts which would be payable by tax if the items specified in (a) and (b) were to be retained.

  6. (6)

    The factor in (4) shall be determined as follows:

    1. (a)

      if the common equity tier 1 capital maintained by the firm which is not used to meet the own funds requirement under article 92(1)(c) of the EU CRR expressed as a percentage of the firm'stotal risk exposure amount is within the first (ie, the lowest) quartile of the combined buffer, the factor shall be 0;

    2. (b)

      if the common equity tier 1 capital maintained by the firm which is not used to meet the own funds requirement under article 92(1)(c) of the EU CRR, expressed as a percentage of the firm'stotal risk exposure amount is within the second quartile of the combined buffer, the factor shall be 0.2;

    3. (c)

      if the common equity tier 1 capital maintained by the firm which is not used to meet the own funds requirement under article 92(1)(c) of the EU CRR expressed as a percentage of the firm'stotal risk exposure amount is within the third quartile of the combined buffer, the factor shall be 0.4;

    4. (d)

      if the common equity tier 1 capital maintained by the firm which is not used to meet the own funds requirement under article 92(1)(c) of the EU CRR expressed as a percentage of the firm'stotal risk exposure amount is within the fourth (ie, the highest) quartile of the combined buffer, the factor shall be 0.6.

  7. (7)

    A firm must calculate the lower and upper bounds of each quartile of the combined buffer as follows:

    IFPRU10_4_3_20140501

    "Qn" indicates the ordinal number of the quartile concerned.

  8. (8)

    The restrictions imposed by this rule only apply to payments that result in a reduction of common equity tier 1 capital or in a reduction of profits, and where a suspension of payment or failure to pay does not constitute an event of default or a condition for the commencement of proceedings for an order for the appointment of a liquidator or administrator of the firm.

  9. (9)

    If a firm does not meet the combined buffer and intends to distribute any of its distributable profits or undertake an action in (2)(a), (b) and (c), it must give the FCA not less than one month's notice before the intended date of distribution or action. When giving notice a firm must provide the following information:

    1. (a)

      the amount of own funds maintained by the firm, subdivided as follows:

      1. (i)

        common equity tier 1 capital;

      2. (ii)

        additional tier 1 capital; and

      3. (iii)

        tier 2 capital;

    2. (b)

      the amount of its interim and year-end profits;

    3. (c)

      the MDA calculated in (4);

    4. (d)

      the amount of distributable profits it intends to allocate between the following:

      1. (i)

        dividend payments;

      2. (ii)

        share buybacks;

      3. (iii)

        payments on additional tier 1 instruments; and

      4. (iv)

        the payment of variable remuneration or discretionary pension benefits, whether by creation of a new obligation to pay, or payment pursuant to an obligation to pay created at a time when the firm did not meet its combined buffer.

[Note: article 141(2) to (9) of CRD]