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IPRU-INV 5.4 Financial resources requirement

Determination of requirement

IPRU-INV 5.4.1 R

1The financial resources requirement for a firm is a liquid capital requirement, determined in accordance with IPRU-INV 5.4.10R:

  1. (i)

    unless the firm falls within any of the exceptions in IPRU-INV 5.4.2R; or

  2. (ii)

    the firm is an incoming EEA firm with a top-up permission of acting as trustee or depositary of a UCITS.

Exceptions from the liquid capital requirement

IPRU-INV 5.4.2 R

The financial resources requirement is an own funds requirement determined in accordance with IPRU-INV 5.4.3R for a firm if its permitted business does not include establishing, operating or winding up a personal pension scheme and which:

  1. (i)

    is an exempt CAD firm which is also a residual CIS operator or a small authorised UK AIFM and that scheme or AIF only invests in venture capital investments for non-retail clients; or

  2. (ii)

    is not an exempt CAD firm if:

    1. (a)

      the firm's permitted business does not include the holding of customers' monies or assets and it neither executes transactions (or otherwise arranges deals) in investments nor has such transactions executed for itself or its customers; or

    2. (b)

      the firm's permitted business includes the activities as in (a) above, but only in respect of venture capital investments for non-retail clients; or

    3. (c)

      the firm is a trustee of an authorised unit trust scheme whose permitted business consists only of trustee activities and does not include any other activity constituting specified trustee business or the firm is a depositary of an ICVC or ACS or a depositary appointed in line with FUND 3.11.12R (Eligible depositaries for UK AIFs) or a UK depositary of a non-EEA AIF whose permitted business consists only of depositary activities.

    4. (d)

      the firm's permitted business limits it to acting a residual CIS operator or a small authorised UK AIFM where the main purpose of the collective investment scheme or AIF (as applicable) is to invest in permitted immovables whether in the UK or abroad.

Own funds requirement

IPRU-INV 5.4.3 R

The own funds requirement for a firm subject to IPRU-INV 5.4.2R is the higher of:

  1. (i)

    £4 million for a firm which is a depositary of an authorised fund, if the authorised fund is an AIF;

  2. (ia)

    €125,000 for a firm which is a depositary appointed in line with FUND 3.11.12R (Eligible depositaries for UK AIFs) or a UK depositary of a non-EEA AIF;

  3. (ib)

    for a firm which is a depositary of a UCITS scheme, the higher of:

    1. (A)

      the requirement calculated depending on the selected approach in accordance with articles 315 or 317 of the EU CRR; and

    2. (B)

      £4million; and

  4. (ii)

    £5,000 for any other firm.

IPRU-INV 5.4.4 R

The financial resources requirement for an incoming EEA firm with a top-up permission for acting as trustee or depositary of a UCITS is the own funds requirement in IPRU-INV 5.4.3R(ib).

IPRU-INV 5.4.5 G

In accordance with IPRU-INV 5.4.3R(ib)(A) and IPRU-INV 5.4.4R, a firm which is a depositary of a UCITS scheme has a choice between:

  1. (a)

    the basic indicator approach in article 315 of the EU CRR; and

  2. (b)

    the standardised approach in article 317 of the EU CRR.

IPRU-INV 5.4.6 G

If a firm that is the depositary of a UCITS scheme is seeking to determine its own funds requirement on the basis of the standardised approach in article 317 EU CRR, it should notify the FCA in advance.

IPRU-INV 5.4.7 G

The effect of IPRU-INV 5.4.4R is to apply the financial resources requirement to an incoming EEA firm with a top-up permission for acting as trustee or depositary of a UCITS in relation to its activity in the UK of acting as trustee or depositary of a UCITS.

IPRU-INV 5.4.8 R

A firm which is the depositary of a UCITS scheme must comply with the rules in IFPRU 2 as if it were an IFPRU investment firm that is not a significant IFPRU investment firm.

IPRU-INV 5.4.9 G

A firm to which IPRU-INV 5.4.8R applies is, in particular, reminded of the rules in IFPRU 2 that determine whether a firm must apply the ICAAP rules on an individual basis or comply with them on a consolidated basis or sub-consolidated basis (see IFPRU 2.2.45R to IFPRU 2.2.49R).

Liquid capital requirement

IPRU-INV 5.4.10 R

The liquid capital requirement for a firm subject to IPRU-INV 5.4.1R is:

  1. (i)

    for a firm whose permitted business includes establishing, operating or winding up a personal pension scheme, the higher of (A) £20,000, and (B) the calculation from IPRU-INV 5.9.1R;

  2. (ii)

    for any other firm, the higher of (A) £5,000 and (B), its total capital requirement calculated in accordance with IPRU-INV 5.4.12R.

IPRU-INV 5.4.11 G
  1. (1)

    This guidance applies to a firm whose permitted business includes establishing, operating or winding up a personal pension scheme for the purpose of IPRU-INV 5.9.1R.

  2. (2)

    A firm should:

    1. (a)

      value each asset in accordance with generally accepted standards used in the relevant sector for the asset, taking into account its individual characteristics and using all the information reasonably available;

    2. (b)

      on a consistent basis across all clients who hold the same type of assets, apply the following:

      1. (i)

        a prudent valuation approach; and

      2. (ii)

        a reasonable valuation methodology;

    3. (c)

      when determining whether an asset is capable of being readily realised within 30 days, consider whether:

      1. (i)

        the transaction can be concluded within that time limit in the ordinary course of business. For example, if the transaction can be concluded within 30 days but, in practice, takes longer due to factors such as delays in receiving information or permissions from third parties, then the asset can be categorised as a Standard Asset;

      2. (ii)

        a Standard Asset can be realised for a value close to the most recent valuation if no material change to the underlying economic conditions has occurred.

Total capital requirement

IPRU-INV 5.4.12 R

A firm's total capital requirement is the sum of its:

  1. (a)

    position risk requirement calculated in accordance with IPRU-INV 5.11;

  2. (b)

    position risk requirement calculated in accordance with IPRU-INV 5.11;

  3. (c)

    counterparty risk requirement calculated in accordance with IPRU-INV 5.12 to 5.15;

  4. (d)

    foreign exchange requirement calculated in accordance with IPRU-INV 5.16; and

  5. (e)

    other assets requirement calculated in accordance with IPRU-INV 5.17.

IPRU-INV 5.4.13 G

A firm which discloses clients' money or assets on its balance sheet need not calculate the requirements under IPRU-INV 5.11 to 5.17 on such items where these do not represent assets or liabilities of the firm itself.