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PRU 9.3 Capital resources for insurance and mortgage mediation activity and mortgage lending and administration

Application

PRU 9.3.1R

  1. (1)

    This section applies to a firm with Part IV permission to carry on any of the activities in (2) unless any of PRU 9.3.4 R to PRU 9.3.11 R applies.

  2. (2)

    The activities are:

    1. (a)

      insurance mediation activity;

    2. (b)

      mortgage mediation activity;

    3. (c)

      entering into a regulated mortgage contract (that is, mortgage lending);

    4. (d)

      administering a regulated mortgage contract (that is, mortgage administration).

PRU 9.3.2G

As this section applies only to a firm with Part IV permission, it does not apply to an incoming EEA firm (unless it has a top-up permission). An incoming EEA firm includes a firm which is passporting into the United Kingdom under the IMD (see AUTH 5.4.2 G, in relation to branches, and AUTH 5.5.3 G, in relation to cross border services).

PRU 9.3.3G

The definition of insurance mediation activity refers to several activities 'in relation to a contract of insurance' which includes a contract of reinsurance. This section, therefore, applies to a reinsurance intermediary in the same way as it applies to any other insurance intermediary.

Application: banks, building societies, insurers and friendly societies

PRU 9.3.4R

This section does not apply to:

  1. (1)

    a bank; or

  2. (2)

    a building society; or

  3. (3)

    a solo consolidated subsidiary of a bank or a building society; or

  4. (4)

    an insurer; or

  5. (5)

    a friendly society.

PRU 9.3.5G

The capital resources of firms within PRU 9.3.4 R are calculated in accordance with the appropriate IPRU.

Application: firms carrying on designated investment business only

PRU 9.3.6R

This section does not apply to a firm whose Part IV permission is limited to regulated activities which are designated investment business.

PRU 9.3.7G

A firm which carries on designated investment business, and no other regulated activity, may disregard this section. For example, a firm with permission limited to dealing in investments as agent in relation to securities is only carrying on designated investment business and IPRU(INV) will apply. However, if its permission is varied to enable it to arrange motor insurance as well, this activity is not designated investment business so the firm will be subject to the higher of the requirements in this section and IPRU(INV) (see PRU 9.3.24 R).

Application: credit unions

PRU 9.3.8R

This section does not apply to:

  1. (1)

    a 'small credit union', that is one with:

    1. (a)

      assets of ?5 million or less; and

    2. (b)

      a total number of members of 5,000 or less (see CRED 8.3.14 R); or

  2. (2)

    a credit union whose Part IV permission includes mortgage lending or mortgage administration (or both) and no other activities in PRU 9.3.1 R (2).

PRU 9.3.9G
  1. (1)

    For credit unions to which this section applies and which are not CTF providers, the capital requirements will be the higher of the requirements in this section and in CRED (see PRU 9.3.25 R).2

  2. (2)

    For credit unions to which this section applies and which are CTF providers with permission to carry on designated investment business, the capital requirements will be the highest of the requirements in this section, those in CRED and of IPRU(INV) Chapter 8 (see PRU 9.3.25 R).2

Application: professional firms

PRU 9.3.10R

  1. (1)

    This section does not apply to an authorised professional firm:

    1. (a)

      whose main business is the practice of its profession; and

    2. (b)

      whose regulated activities in PRU 9.3.1 R (2) are incidental to its main business.

  2. (2)

    A firm's main business is the practice of its profession if the proportion of income it derives from professional fees is, during its annual accounting period, at least 50% of the firm's total income (a temporary variation of not more than 5% may be disregarded for this purpose).

  3. (3)

    Professional fees are fees, commissions and other receipts receivable in respect of legal, accountancy or actuarial services provided to clients but excluding any items receivable in respect of regulated activities.

Application: Lloyd's managing agents

PRU 9.3.11R

This section does not apply to a managing agent.

PRU 9.3.12G

The reason for excluding managing agents from the provisions of this section is twofold: first, a member will have accepted full responsibility for those activities under the Society's managing agent agreement. Secondly, the member is itself subject to capital requirements which are equivalent to those applying to an insurer (to which this section is also disapplied - see PRU 9.3.4 R (4)).

Application: social housing firms

PRU 9.3.13G

There are special provisions for a social housing firm when it is carrying on mortgage lending or mortgage administration (see PRU 9.3.26 R).

Purpose

PRU 9.3.14G

This section amplifies threshold condition 4 (Adequate resources) by providing that a firm must meet, on a continuing basis, a basic solvency requirement (PRU 9.3.20 R) and a minimum capital resources requirement (PRU 9.3.21 R). This section also amplifies Principle 4 which requires a firm to maintain adequate financial resources by setting out capital requirements for a firm according to the regulated activity or activities it carries on.

PRU 9.3.15G

Capital has an important role to play in protecting consumers and complements the roles played by professional indemnity insurance (see PRU 9.2 (Professional indemnity insurance)) and client money protection (see the client money rules including, in particular, those in CASS 5 (Client money and mandates: insurance mediation activity)). Capital provides a form of protection for situations not covered by a firm's professional indemnity insurance and it provides the funds for the firm's PII excess, which it has to pay out of its own finances. The relationship between the firm's capital and its excess is set out in PRU 9.2.17 R.

PRU 9.3.16G

More generally, having adequate capital gives the firm a degree of resilience and some indication to consumers of creditworthiness, substance and the commitment of its owners. It reduces the possibility of a shortfall of funds and provides a cushion against disruption if the firm ceases to trade.

PRU 9.3.17G

There is a greater risk to consumers, and a greater adverse impact on market confidence, if a firm holding client money or other client assets fails. For this reason, the capital resources rules in this section clearly distinguish between firms holding client assets and those that do not.

Purpose: social housing firms

PRU 9.3.18G

Social housing firms undertake small amounts of mortgage business even though their main business consists of activities other than regulated activities. Their mortgage lending is only done as an adjunct to their primary purpose (usually the provision of housing) and is substantially different in character to that done by commercial lenders. Furthermore, they are subsidiaries of local authorities or registered social landlords which are already subject to separate regulation. The FSA does not consider that it would be proportionate to the risks involved with such business to impose significant capital requirements for these firms. PRU 9.3.26 R therefore simply provides that, where their Part IV permission is limited to mortgage lending and mortgage administration, their net tangible assets must be greater than zero.

PRU 9.3.19G

A registered social landlord is a non-profit organisation which provides and manages homes for rent and sale for people who might not otherwise be able to rent or buy on the open market. It can be a housing association, a housing society or a non-profit making housing company. The Housing Corporation, which was set up by Parliament in 1964, funds homes built by registered social landlords from money received from central government.

Capital resources: general rules

PRU 9.3.20R

A firm must at all times ensure that it is able to meet its liabilities as they fall due.

PRU 9.3.21R

A firm must at all times maintain capital resources equal to or in excess of its relevant capital resources requirement.

Capital resources: 3relevant accounting principles3

PRU 9.3.22R

A firm must recognise an asset or liability, and measure its amount, in accordance with the relevant accounting principles applicable to it for the purpose of preparing its annual financial statements 3unless a rule requires otherwise.

3

Capital resources: client assets

PRU 9.3.23R

In this section, "client assets" includes a document only if it has value, or is capable of having value, in itself (such as a bearer instrument).

Capital resources requirement: firms carrying on regulated activities including designated investment business

PRU 9.3.24R

The capital resources requirement for a firm (other than a credit union) carrying on regulated activities, including designated investment business, is the higher of:2

  1. (1)

    the requirement which is applied by this section according to the activity or activities of the firm (treating the relevant rules as applying to the firm by disregarding its designated investment business); and

  2. (2)

    the financial resource requirement which is applied by IPRU(INV).

Capital resources requirement: credit unions

PRU 9.3.25R

The capital resources requirement for a credit union to which this section applies (see PRU 9.3.8 R) is the highest of:2

  1. (1)

    the requirement which is applied by PRU 9.3.30 R (Capital resources requirement: mediation activity only) treating that rule as applying to the credit union by disregarding activities which are not insurance mediation activity or mortgage mediation activity;2

  2. (2)

    the amount which is applied by CRED 8 (Capital requirements); and2

  3. (3)

    if the credit union is a CTF provider that has a permission to carry on designated investment business, the amount which is applied by IPRU(INV) Chapter 8.2

Capital resources requirement: social housing firms

PRU 9.3.26R

The capital resources requirement for a social housing firm whose Part IV permission is limited to carrying on the regulated activities of:

  1. (1)

    mortgage lender; or

  2. (2)

    mortgage administration (or both);

is that the firm's net tangible assets must be greater than zero.

PRU 9.3.27G

If a social housing firm is carrying on mortgage lending or mortgage administration (and no other regulated activity), its net tangible assets must be greater than zero. However, if it carries on insurance mediation activity, or mortgage mediation activity, there is no special provision and PRU 9.3.24 R or PRU 9.3.30 R applies to it as appropriate.

Capital resources requirement: application according to regulated activities

PRU 9.3.28R

Unless any of PRU 9.3.24 R to PRU 9.3.26 R applies (firms carrying on designated investment business, credit unions and social housing firms), the table in PRU 9.3.29 R specifies the provisions for calculating the capital resources requirement for a firm according to the regulated activity or activities it carries on.

PRU 9.3.29R

Capital resources requirement: mediation activity only

PRU 9.3.30R

  1. (1)

    If a firm (carrying on the activities in row 1 of the table in PRU 9.3.29 R) does not hold client money or other client assets in relation to its insurance mediation activity or mortgage mediation activity, its capital resources requirement is the higher of:

    1. (a)

      ?5,000; and

    2. (b)

      2.5% of the annual income (see PRU 9.3.42 R) from its insurance mediation activity or mortgage mediation activity (or both).

  2. (2)

    If a firm (carrying on the activities in row 1 of the table in PRU 9.3.29 R) holds client money or other client assets in relation to its insurance mediation activity or mortgage mediation activity, its capital resources requirement is the higher of:

    1. (a)

      ?10,000; and

    2. (b)

      5% of the annual income (see PRU 9.3.42 R) from its insurance mediation activity or mortgage mediation activity (or both).

Capital resources requirement: mortgage lending and administration (but not mortgage administration only)

PRU 9.3.31R

  1. (1)

    The capital resources requirement of a firm (carrying on the activities in row 2 of the table at PRU 9.3.29 R) is the higher of:

    1. (a)

      ?100,000; and

    2. (b)

      1% of:

      1. (i)

        its total assets plus total undrawn commitments; less:

      2. (ii)

        loans excluded by PRU 9.3.33 R plus intangible assets (see Note 1 in the table in PRU 9.3.53 R).

  2. (2)

    Undrawn commitments in (1)(b)(i) means the total of those amounts which a borrower has the right to draw down from the firm but which have not yet been drawn down, excluding those under an agreement:

    1. (a)

      which has an original maturity of up to one year; or

    2. (b)

      which can be unconditionally cancelled at any time by the lender.

PRU 9.3.32G

When considering what is an undrawn commitment, the FSA takes into account an amount which a borrower has the right to draw down, but which has not yet been drawn down, whether the commitment is revocable or irrevocable, conditional or unconditional.

PRU 9.3.33R

When calculating total assets for the purposes of PRU 9.3.31 R, the firm may exclude a loan which has been transferred to a third party only if it meets the following conditions:

  1. (1)

    the loan must have been transferred in a legally effective manner by one of the following means:

    1. (a)

      novation; or

    2. (b)

      legal or equitable assignment; or

    3. (c)

      sub-participation; or

    4. (d)

      declaration of trust; and

  2. (2)

    the lender:

    1. (a)

      retains no material economic interest in the loan; and

    2. (b)

      has no material exposure to losses arising from it.

PRU 9.3.34E

  1. (1)

    When seeking to rely on the condition in PRU 9.3.33 R (2), a firm should ensure that the loan qualifies for the 'linked presentation' accounting treatment under Financial Reporting Standard 5 (Reporting the substance of transactions) issued in April 1994, and amended in December 1994 and September 1998 (if applicable to the firm).

  2. (2)

    Compliance with (1) may be relied upon as tending to establish compliance with PRU 9.3.33 R (2).

PRU 9.3.35G

PRU 9.3.34 E is aimed at those firms which report according to FRS 5. Other firms which report under other standards, including International Accounting Standards, need not adopt FRS 5 in order to meet the condition in PRU 9.3.33 R (2).

PRU 9.3.36E

  1. (1)

    When seeking to rely on the condition in PRU 9.3.33 R (2), a firm should not provide material credit enhancement in respect of the loan unless it deducts the amount of the credit enhancement from its capital resources before meeting its capital resources requirement.

  2. (2)

    Credit enhancement includes:

    1. (a)

      any holding of subordinated loans or notes in a transferee that is a special purpose vehicle; or

    2. (b)

      over collateralisation by transferring loans to a larger aggregate value than the securities to be issued; or

    3. (c)

      any other arrangement with the transferee to cover a part of any subsequent losses arising from the transferred loan.

  3. (3)

    Contravention of (1) may be relied upon as tending to establish contravention of PRU 9.3.33 R (2).

Capital resources requirement: mortgage administration only

PRU 9.3.37R

The capital resources requirement of a firm (carrying on the activities in row 3 of the table in PRU 9.3.29 R), which has all or part of the regulated mortgage contracts that it administers on its balance sheet, is the amount which is applied to a firm by PRU 9.3.31 R.

PRU 9.3.38R

The capital resources requirement of a firm (carrying on the activities in row 3 of the table in PRU 9.3.29 R), which has all the regulated mortgage contracts that it administers off its balance sheet, is the higher of:

  1. (1)

    £100,000; and

  2. (2)

    10% of its annual income (see PRU 9.3.42 R and PRU 9.3.48 R).

Capital resources requirement: insurance mediation activity and mortgage lending or mortgage administration

PRU 9.3.39R

The capital resources requirement for a firm (carrying on the activities in row 4 of the table in PRU 9.3.29 R) is the sum of the requirements which are applied to the firm by:

  1. (1)

    PRU 9.3.30 R; and

  2. (2)
    1. (a)

      PRU 9.3.31 R; or

    2. (b)

      if, in addition to its insurance mediation activity, the firm carries on only mortgage administration and has all the assets that it administers off balance sheet, PRU 9.3.38 R.

Capital resources requirement: mortgage mediation activity and mortgage lending or mortgage administration

PRU 9.3.40R

  1. (1)

    If a firm (carrying on the activities in row 5 of the table in PRU 9.3.29 R) does not hold client money or other client assets in relation to its mortgage mediation activity, the capital requirement is the amount applied to a firm, according to the activities carried on by the firm, by:

    1. (a)

      PRU 9.3.31 R; or

    2. (b)

      if, in addition to its mortgage mediation activity, the firm carries on only mortgage administration and has all the assets that it administers off balance sheet, PRU 9.3.38 R.

  2. (2)

    If a firm (carrying on the activities in row 5 of the table in PRU 9.3.29 R) holds client money or other client assets in relation to its mortgage mediation activity, the capital resources requirement is:

    1. (a)

      the amount calculated under (1); plus

    2. (b)

      the amount which is applied to a firm by PRU 9.3.30 R (2).

Capital resources requirement: other combinations of activities

PRU 9.3.41R

The capital resources requirement for a firm (carrying on the activities in row 6 of the table in PRU 9.3.29 R) is the amount which is applied to a firm by PRU 9.3.39 R.

Annual income

PRU 9.3.42R

PRU 9.3.43 R to PRU 9.3.50 R contain provisions relating to the calculation of annual income for the purposes of:

  1. (1)

    PRU 9.2.13 R (2), PRU 9.2.15 R, PRU 9.2.17 R (2) and PRU 9.2.18 R (2) (all concerning the limits of indemnity for professional indemnity insurance); and

  2. (2)

    PRU 9.3.30 R (1)(b) and PRU 9.3.30 R (2)(b), and PRU 9.3.38 R (2).

PRU 9.3.43R

'Annual income' is the annual income given in the firm's most recent annual financial statement from the relevant regulated activity or activities.

PRU 9.3.44R

For a firm which carries on insurance mediation activity or mortgage mediation activity, annual income in PRU 9.3.43 R is the amount of all brokerage, fees, commissions and other related income (for example, administration charges, overriders, profit shares) due to the firm in respect of or in relation to those activities.

PRU 9.3.45G
1
  1. (1)

    The purpose of PRU 9.3.44 R is to ensure that the capital resources requirement is calculated on the basis only of brokerage and other amounts earned by a firm which are its own income.1

  2. (2)

    For the purposes of PRU 9.3.43 R and PRU 9.3.44 R, a firm's annual income includes commissions and other amounts the firm may have agreed to pay to other persons involved in a transaction, such as sub-agents or other intermediaries.1

  3. (3)

    A firm's annual income does not, however, include any amounts due to another person (for example, the product provider) which the firm has collected on behalf of that other person.1

PRU 9.3.46R

If a firm is a principal, its annual income includes amounts due to its appointed representative in respect of activities for which the firm has accepted responsibility.

PRU 9.3.47G

If a firm is a network, it should include the relevant income due to all of its appointed representatives in its annual income.

Annual income for mortgage administration

PRU 9.3.48R

For the purposes of PRU 9.3.38 R (2) (Mortgage administration only) annual income is the sum of:

  1. (1)

    revenue (that is, commissions, fees, net interest income, dividends, royalties and rent); and

  2. (2)

    gains;

  3. (3)

    arising in the course of the ordinary activities of the firm, less profit:

    1. (a)

      on the sale or termination of an operation;

    2. (b)

      arising from a fundamental reorganisation or restructuring having a material effect on the nature and focus of the firm's operation; and

    3. (c)

      on the disposal of fixed assets, including investments held in a long-term portfolio.

Annual income: periods of less than 12 months

PRU 9.3.49R

If the firm's most recent annual financial statement does not cover a 12 month period, the annual income is taken to be the amount in the statement converted, proportionally, to a 12 month period.

Annual income: no financial statement

PRU 9.3.50R

If the firm does not have an annual financial statement, the annual income is to be taken from the forecast or other appropriate accounts which the firm has submitted to the FSA.

The calculation of a firm's capital resources

PRU 9.3.51R

  1. (1)

    A firm must calculate its capital resources only from the items in PRU 9.3.52 R from which it must deduct the items in PRU 9.3.53 R.

  2. (2)

    If the firm is subject to IPRU(INV) or CRED, the capital resources are the higher of:

    1. (a)

      the amount calculated under (1); and

    2. (b)

      the financial resources calculated under IPRU(INV) or the capital calculated under CRED 8(Capital requirements).

PRU 9.3.52R

Table: Items which are eligible to contribute to the capital resources of a firm

Item

Additional explanation

1.

Share capital

This must be fully paid and may include:

(1)

ordinary share capital; or

(2)

preference share capital (excluding preference shares redeemable by shareholders within two years).

2.

Capital other than share capital (for example, the capital of a sole trader, partnership or limited liability partnership)

The capital of a sole trader is the net balance on the firm's capital account and current account.

The capital of a partnership is the capital made up of the partners':

(1)

capital account, that is the account:

(a)

into which capital contributed by the partners is paid; and

(b)

from which, under the terms of the partnership agreement, an amount representing capital may be withdrawn by a partner only if:

(i)

he ceases to be a partner and an equal amount is transferred to another such account by his former partners or any person replacing him as their partner; or

(ii)

the partnership is otherwise dissolved or wound up; and

(2)

current accounts according to the most recent financial statement.

For the purpose of the calculation of capital resources, in respect of a defined benefit occupational pension scheme:3

(1)

a firm must derecognise any defined benefit asset;

(2)

a firm may substitute for a defined benefit liability the firm's deficit reduction amount, provided that the election is applied consistently in respect of any one financial year.

3.

Audited reserves

These are the audited accumulated profits retained by the firm (after deduction of tax, dividends and proprietors' or partners' drawings) and other reserves created by appropriations of share premiums and similar realised appropriations. Reserves also include gifts of capital, for example, from a parent undertaking.

For the purposes of calculating capital resources, a firm must make the following adjustments to its audited reserves, where appropriate:3

(1)

a firm must deduct any unrealised gains or, where applicable, add back in any unrealised losses on debt instruments held in the available-for-sale financial assets category;

(2)

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;

(3)

in respect of a defined benefit occupational pension scheme:

(a)

a firm must derecognise any defined benefit asset;

(b)

a firm may substitute for a defined benefit liability the firm's deficit reduction amount, provided that the election is applied consistently in respect of any one financial year.

4.

Interim net profits

If a firm seeks to include interim net profits in the calculation of its capital resources, the profits have to be verified by the firm's external auditor, net of tax, anticipated dividends or proprietors' drawings and other appropriations.

5.

Revaluation reserves

6.

General/collective3 provisions

These are provisions that a firm carrying on mortgage lending or mortgage administration holds against potential losses that have not yet been identified but which experience indicates are present in the firm's portfolio of assets. Such provisions must be freely available to meet these unidentified losses wherever they arise. General/collective3 provisions must be verified by external auditors and disclosed in the firm's annual report and accounts.

7.

Subordinated loans

Subordinated loans must be included in capital on the basis of the provisions in PRU 9.3.56 R and PRU 9.3.57 R.

PRU 9.3.52AG

A firm should keep a record of and be ready to explain to its supervisory contacts in the FSA the reasons for any difference between the deficit reduction amount and any commitment the firm has made in any public document to provide funding in respect of a defined benefit occupational pension scheme.3

PRU 9.3.53R

Table: Items which must be deducted from capital resources

1

Investments in own shares

2

Intangible assets (Note 1)

3

Interim net losses (Note 2)

4

Excess of drawings over profits for a sole trader or a partnership (Note 2)

Notes

1. Intangible assets are the full balance sheet value of goodwill (but not until 14 January 2008 - see transitional provision 2), capitalised development costs, brand names, trademarks and similar rights and licences.

2. The interim net losses in row 3, and the excess of drawings in row 4, are in relation to the period following the date as at which the capital resources are being computed.

Personal assets

PRU 9.3.54R

In relation to a sole trader's firm or a firm which is a partnership, the sole trader or a partner in the firm may use personal assets to meet the requirements of PRU 9.3.20 R or PRU 9.3.21 R, or both, to the extent necessary to make up any shortfall in meeting those requirements, unless:

  1. (1)

    those assets are needed to meet other liabilities arising from:

    1. (a)

      personal activities; or

    2. (b)

      another business activity not regulated by the FSA; or

  2. (2)

    the firm holds client money or other client assets.

PRU 9.3.55G

The purpose of PRU 9.3.54 R is to enable a sole trader or a partner to use any personal assets, including property, to meet the capital requirements of this section, but only to the extent necessary to make up a shortfall. The requirements are the solvency requirement (PRU 9.3.20 R) and the capital resources requirement (PRU 9.3.21 R).

Subordinated loans

PRU 9.3.56R

In row 7 in the table at PRU 9.3.52 R, subordinated debt must not form part of the capital resources of the firm unless it meets the following conditions:

  1. (1)

    (for a firm which carries on insurance mediation activity or mortgage mediation activity (or both) but not mortgage lending or mortgage administration) it has an original maturity of:

    1. (a)

      at least two years; or

    2. (b)

      it is subject to two years' notice of repayment;

  2. (2)

    (for all other firms) it has an original maturity of:

    1. (a)

      at least five years; or

    2. (b)

      it is subject to five years' notice of repayment;

  3. (3)

    the claims of the subordinated creditors must rank behind those of all unsubordinated creditors;

  4. (4)

    the only events of default must be non-payment of any interest or principal under the debt agreement or the winding up of the firm;

  5. (5)

    the remedies available to the subordinated creditor in the event of non-payment or other default in respect of the subordinated debt must be limited to petitioning for the winding up of the firm or proving the debt and claiming in the liquidation of the firm;

  6. (6)

    the subordinated debt must not become due and payable before its stated final maturity date except on an event of default complying with (4);

  7. (7)

    the agreement and the debt are governed by the law of England and Wales, or of Scotland or of Northern Ireland;

  8. (8)

    to the fullest extent permitted under the rules of the relevant jurisdiction, creditors must waive their right to set off amounts they owe the firm against subordinated amounts owed to them by the firm;

  9. (9)

    the terms of the subordinated debt must be set out in a written agreement or instrument that contains terms that provide for the conditions set out in (1) to (8); and

  10. (10)

    the debt must be unsecured and fully paid up.

PRU 9.3.57R

  1. (1)

    This rule applies to a firm which:

    1. (a)

      carries on:

      1. (i)

        insurance mediation activity; or

      2. (ii)

        mortgage mediation activity (or both); and

    2. (b)

      in relation to those activities, holds client money or other client assets;

but is not carrying on mortgage lending or mortgage administration.

  1. (2)

    In calculating its capital resources under PRU 9.3.51 R (1), the firm must exclude any amount by which the aggregate amount of its subordinated loans and its redeemable preference shares exceeds the amount calculated under (3).

  2. (3)

    The calculation for (2) is:

    four times (a - b - c);

    where:

    a

    =

    items 1 to 5 in the Table at PRU 9.3.52 R

    b

    =

    the firm's redeemable preference shares; and

    c

    =

    the amount of its intangible assets (but not goodwill until 14 January 2008 - see transitional provision 2).

PRU 9.3.58G

If a firm wishes to see an example of a subordinated loan agreement which would meet the conditions in PRU 9.3.56 R, it should refer to the Forms page.