IPRU-INV 9.5 CALCULATION OF OWN FUNDS

A firm's initial capital:

minus the sum of the items set out against B

plus the sum of the items set out against C

minus material holdings in credit and financial institutions and material insurance holdings

equals own funds.

Perpetual long-term subordinated loans and perpetual cumulative preference share capital may not be included in the calculation of own funds unless they meet the following requirements:

1. (1)

   it may not be reimbursed on the holder's initiative or without the prior agreement of the FCA;

2. (2)

   the instrument must provide for the firm to have the option of deferring the dividend payment on the share capital;

3. (3)

   the shareholder's claims on the firm must be wholly subordinated to those of all non-subordinated creditors;

4. (4)

   the terms of the instrument must provide for the loss-absorption capacity of the share capital and unpaid dividends, whilst enabling the firm to continue its business; and

5. (5)

   it must be fully paid-up.

A firm may include a subordinated loan in the calculation of its own funds only:

1. (a)

   if it is drawn up in accordance with the standard forms obtained from the FCA;

2. (b)

   if it is signed by authorised signatories of all the parties; and

3. (c)

   to the extent that it is fully paid up.

A long-term subordinated loan may not be included in the calculation of own funds unless it meets the following requirements:

1. (1)

   it must be fully paid-up;

2. (2)

   it has an original maturity of at least five years;

3. (3)

   the extent to which it may be used in the calculation of own funds shall be amortised on a straight line basis during at least the five years before repayment; and

4. (4)

   it must not become repayable before the agreed repayment date other than in the winding-up of the firm or unless the firm has provided the FCA with at least five years' written notice.

A firm must not (except in accordance with the terms of the loan) make any payment of interest if after such action the firm's own funds will fall below 120% of its own funds requirement.

A firm may include perpetual non-cumulative and cumulative preference share capital in its initial capital and its own funds only if there is an agreement between the firm and the shareholders which provides that redemption of the shares may not take place, if after such redemption the firm would be in breach of its own funds requirement

1. (1)

   In calculating own funds:

   1. (i)

      the total amount of revaluation reserves, perpetual cumulative preference share capital, long-term subordinated loans, perpetual long-term subordinated loans and fixed term preference share capital must not exceed 100% of initial capital minus B; and

   2. (ii)

      the total amount of fixed term preference share capital and long-term subordinated loans must not exceed 50% of initial capital minus B.