SUP App 2.7 Capital resources below the level of individual capital guidance

Unless any of SUP App 2.4.1 R, SUP App 2.5.1 R, SUP App 2.5.3 R or SUP App 2.6.1 R applies, if a firm's circumstances change, such that its capital resources have fallen, or are expected to fall, below the level advised in individual capital guidance1 given to the firm by the FSA, then, consistent with PRIN 2.1.1 R Principle 11 (Relations with regulators), a firm should inform the FSA of this fact as soon as practicable, explaining why capital resources have fallen, or are expected to fall, below the level advised in individual capital guidance1, and:

1. (1)

   what action the firm intends to take to increase its capital resources; or

2. (2)

   what modification the firm considers should be made to the individual capital guidance1 which it has been given.

   1

In the circumstance set out in SUP App 2.7.1 G, the FSA may ask a firm for alternative or more detailed proposals and plans or further assessments and analyses of capital adequacy and risks faced by the firm. The FSA will seek to agree with the firm appropriate timescales and scope for any such additional work, in light of the circumstances which have arisen.

In relation to a firm carrying on with-profits insurance business, if it intends either (a) to remedy a fall in the level of capital resources advised in its individual capital guidance1, or (b) to prevent a fall in the level advised in that guidance, for example, in either case, by taking management action to de-risk a with-profits fund or by reducing non-contractual benefits for policyholders, it should explain to the FSA how such proposed actions are consistent with the firm's obligations under PRIN 2.1 Principle 6 (Customers' interests).

If a firm's capital resources fall below the level advised in individual capital guidance1 given to the firm and, at the same time, any one or more of SUP App 2.4.1 R, SUP App 2.5.1 R, SUP App 2.5.3 R or SUP App 2.6.1 R applies, the firm should first comply with those rules. Those rules are concerned with circumstances where capital resources are likely to have fallen to levels much lower than the level advised in individual capital guidance1 and are, in some cases, requirements imposed by the Insurance Directives.

If a firm has not accepted individual capital guidance1 given by the FSA it should, nevertheless, inform the FSA as soon as practicable if its capital resources have fallen below the level suggested by that individual capital guidance1. In such circumstances, the FSA may ask the firm for further explanation as to why it does not consider the individual capital guidance1 to be appropriate. The FSA may also consider using its powers under section 45 of the Act to, on its own initiative, vary a firm's Part IV permission, so as to require it to hold such capital as the FSA considers is necessary for the firm to comply with GENPRU 1.2.26 R1.