Related provisions for MCOB 4.1.3
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from which, under the terms of the partnership agreement, an amount representing capital may be withdrawn by a partner only if: |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: |
||||
(1) |
a firm must derecognise any defined benefit asset; |
|||
(2) |
a firm may substitute for a defined benefit liability the firm'sdeficit reduction amount, provided that the election is applied consistently in respect of any one financial year. |
|||
3. |
Reserves (Note 1) |
These are, subject to Note 1, 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 reserves, where appropriate: |
||||
(1) |
a firm must deduct any unrealised gains or, where applicable, add back in any unrealised losses on debt instruments held, or formerly held,3 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'sdeficit reduction amount, provided that the election is applied consistently in respect of any one financial year. |
|||
4. |
Interim net profits (Note 1) |
If a firm seeks to include interim net profits in the calculation of its capital resources, the profits have, subject to Note 1, 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/ collective provisions (Note 1) |
These are provisions that a firm carrying on home financing1or home finance administration1holds 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. Subject to Note 1, general/collective provisions must be verified by external auditors and disclosed in the firm's annual report and accounts. 1111 |
||
7. |
Subordinated loans |
Subordinated loans must be included in capital on the basis of the provisions in this chapter that apply to subordinated loans. |
||
Note: |
||||
1 |
Reserves must be audited and interim net profits, general and collective provisions must be verified by the firm's external auditor unless the firm is exempt from the provisions of Part VII of the Companies Act 1985 (section 249A (Exemptions from audit)) or, where applicable, Part 16 of the Companies Act 2006 (section 477 (Small companies: Conditions for exemption from audit))2 relating to the audit of accounts. 2 |
- (1)
This rule applies to a firm which:
- (a)
carries on:
- (i)
- (ii)
home finance mediation activity1(or both); and
1
in relation to those activities, holds client money or other client assets; or5
- (b)
carries on home financing or home finance administration connected to regulated mortgage contracts (or both) unless as at 26 April 2014 its Part IV permission was and continues to remain subject to a restriction preventing it from undertaking new home financing or home finance administration connected to regulated mortgage contracts.5
5
- (a)
- (2)
In calculating its capital resources, the firm must exclude any amount by which the aggregate amount of its subordinated loans and its redeemable preference shares exceeds the amount calculated as follows:
four times (a - b - c); |
||
where: |
||
a |
= |
items 1 to 5 in the Table of items which are eligible to contribute to a firm's capital resources (see MIPRU 4.4.2 R) |
b |
= |
|
c |
= |
the amount of its intangible assets (but not goodwill until 14 January 2008 - see transitional provision 1). |
Module |
Relevance to Credit Unions |
The Principles for Businesses (PRIN) |
The Principles for Businesses (PRIN) set out 3high-level requirements 3imposed by the FCA3. They provide a general statement of regulatory requirements. The Principles apply to all12credit unions. In applying the Principles to credit unions, the FCA3 will be mindful of proportionality. In practice, the implications are likely to vary according to the size and complexity 3of the credit union. 1212121212 |
Senior Management Arrangements, Systems and Controls (SYSC) |
SYSC 1,3SYSC 4 to 10 and SYSC 213 apply to all credit unions in respect of the carrying on of their regulated activities and unregulated activities in a prudential context. SYSC 4.5 (Management responsibilities maps for relevant authorised persons), SYSC 4.7 (Senior management responsibilities for relevant authorised persons: allocation of responsibilities), SYSC 4.9 (Handover procedures and material), SYSC 5.2 (Certification regime) and SYSC 18 apply3 to all credit unions in respect of both their regulated activities and their unregulated activities3. |
This contains rules and guidance that are directly applicable to a credit union’sSMF managers, certification employees and (from 2017) other conduct rules staff. There is also guidance for credit unions on giving their staff training about COCON. |
|
Threshold Conditions (COND) |
In order to become authorised under the Act all firms must meet the threshold conditions. The threshold conditions must be met on a continuing basis by credit unions. Failure to meet one of the conditions is sufficient grounds for the exercise by the FCA3 of its powers. 121212 |
12312 | |
The Fit and Proper test for Approved Persons (FIT) |
The purpose of FIT is to set out and describe the criteria that a firm should3 consider when assessing the fitness and propriety of a person (1)3 in respect of whom an application is being made for approval to undertake a controlled function under the approved persons regime, (2)3 who has already been approved, (3) who is a certification employee or (4) whom a firm is considering appointing to be a certification employee3. It also sets out and describes criteria that the FCA will consider when assessing the fitness and propriety of a candidate for a controlled function position and that it may consider when assessing the continuing fitness and propriety of approved persons.3 12312 |
General Provisions (GEN) |
GEN contains rules and guidance on general matters, including interpreting the Handbook, statutory status disclosure, the FCA's3 logo and insurance against financial penalties. 12 |
Fees manual (FEES) |
This manual sets out the fees applying to credit unions. |
3Prudential sourcebook for Mortgage and Home Finance Firms, and Insurance Intermediaries (MIPRU) |
MIPRU applies to any credit union carrying out insurance mediation activity or home finance mediation activity, or using these services. In particular, it sets out requirements for allocation of responsibility for the credit union’sinsurance mediation activity (MIPRU 2), for the use of home finance intermediaries (MIPRU 5) and for professional indemnity insurance (MIPRU 3). |
Conduct of Business sourcebook (COBS) |
A credit union which acts as a CTF provider or provides a cash-deposit ISA will need to be aware of the relevant requirements in COBS. COBS 4.6 (Past, simulated past and future performance), COBS 4.7.1 R (Direct offer financial promotions), COBS 4.10 (Systems and controls and approving and communicating financial promotions), COBS 13 (Preparing product information) and COBS 14 (Providing product information to clients) apply with respect to accepting deposits as set out in those provisions, COBS 4.1 and BCOBS. A credit union that communicates with clients, including in a financial promotion, in relation to the promotion of deferred shares and credit union subordinated debt will need to be aware of the requirements of COBS 4.2 (Fair, clear and not misleading communications) and COBS 4.5 (Communicating with retail clients).4 |
ICOBS applies to any credit union carrying on non-investment insurance activities, such as arranging or advising on general insurance contracts to be taken out by members. But ICOBS does not apply to a credit union taking out an insurance policy for itself, such as a policy against default by members on their loans where the credit union is the beneficiary of the policy, since in this circumstance the credit union would not be acting as an insurance intermediary, but would itself be the customer. Credit unions are reminded that they are subject to the requirements of the appropriate legislation, including the Credit Unions Act 1979, relating to activities a credit union may carry on. |
|
3Mortgages and Home Finance: Conduct of Business sourcebook (MCOB) |
MCOB applies to any credit union that engages in any home finance activity. MCOB rules cover advising and selling standards, responsible lending (including affordability assessment), charges, and the fair treatment of customers in payment difficulties. |
Banking: Conduct of Business sourcebook (BCOBS) |
BCOBS sets out rules and guidance for credit unions on how they should conduct their business with their customers. In particular there are rules and guidance relating to communications with banking customers3and financial promotions (BCOBS 2), distance communications (BCOBS 3), information to be communicated to banking customers3(BCOBS 4), post sale requirements (BCOBS 5), and cancellation (BCOBS 6). 3The rules in BCOBS 3.1 that relate to distance contracts may apply 3to a credit union. This is because the Distance Marketing Directive3applies where there is "an organised distance sales or service-provision scheme run by the supplier" (Article 2(a)), i.e. if the credit union routinely sells any of its services by post, telephone, fax or the internet3. |
Supervision manual (SUP) |
The following provisions of SUP are relevant to credit unions: 13SUP 1A13 (The FCA’s 3 approach to supervision), SUP 2 (Information gathering by the FCA or PRA 3 on its own initiative), SUP 3.1 to SUP 3.8 (Auditors), SUP 5 (Skilled persons), SUP 6 (Applications to vary or cancel Part 4A12permission), SUP 7 (Individual requirements), SUP 8 (Waiver and modification of rules), SUP 9 (Individual guidance), 13SUP 10C (FCA senior management regime for approved persons in relevant authorised persons),3SUP 11 (Controllers and Close links), SUP 15 (Notifications to the FCA or PRA 3) and SUP 16 (Reporting Requirements). Credit unions are reminded that they are subject to the requirements of the Act and SUP 11 on close links, and are bound to notify the FCA3 of changes. It may be unlikely, in practice, that credit unions will develop such relationships. It is possible, however, that a person may acquire close links with a 3credit union3 within the meaning of the Act by reason of holding the prescribed proportion of deferred shares in the credit union. In relation to SUP 16, credit unions are exempted from the requirement to submit annual reports of 3close links. 12121212121312121212 |
CONC contains rules that apply to firms carrying on credit-related regulated activities. PERG 2.7.19IG provides guidance on relevant exemptions. Most credit union lending is therefore outside the scope of CONC. However, subject to the constraints in the Credit Unions Act 1979 or the Credit Unions (Northern Ireland) Order 1985 (as relevant), credit unions may undertake credit-related regulated activities to which CONC does apply if the activity is carried out by way of business. This could include lending under a borrower-lender-supplier agreement, or debt adjusting or debt counselling where the credit union is not the lender. A credit union carrying on such activities should consider whether it requires permission to do so. Further information can be found on the FCA’s website. |
|
Decision, Procedure and Penalties manual (DEPP) |
DEPP is relevant to credit unions because it sets out: (1) the FCA's12 decision-making procedure for giving statutory notices. These are warning notices, decision notices and supervisory notices (DEPP 1.2 to DEPP 5); and (2) the FCA's12 policy with respect to the imposition and amount of penalties under the Act (see DEPP 6). 1212 |
Dispute Resolution: Complaints (DISP) |
DISP sets out rules and guidance in relation to treating complainants fairly and the Financial Ombudsman Service. |
Compensation (COMP) |
COMP sets out rules relating to the scheme for compensating consumers when authorised firms are unable, or likely to be unable, to satisfy claims against them.12 |
The Enforcement Guide (EG) |
The Enforcement Guide (EG) describes the FCA's12 approach to exercising the main enforcement powers given to it by the Act and by other legislation.2 12 |
Financial crime: a guide for firms (FC) |
FC provides guidance on steps that a firm can take to reduce the risk that it might be used to further financial crime. |
Table: list of general guidance to be found in PERG.
Chapter: |
Applicable to: |
About: |
Authorisation and regulated activities |
|
|
Guidance on the scope of the Electronic Money Regulations8 88 |
a person who needs to know
|
|
Regulated activities connected with mortgages |
any person who needs to know whether the activities he conducts in relation to mortgages are subject to FCA regulation. This is likely to include:
|
the scope of relevant orders (in particular, the Regulated Activities Order) as respects activities concerned with mortgages |
Insurance mediation activities |
any person who needs to know whether he carries on insurance mediation activities and is, thereby, subject to FCA regulation. This is likely to include:
|
the scope of relevant orders (in particular, the Regulated Activities Order) as respects activities concerned with the sale or administration of insurance |
Identification of contracts of insurance |
any person who needs to know whether a contract with which he is involved is a contract of insurance |
the general principles and range of specific factors that the FCA regards as relevant in deciding whether any arrangement is a contract of insurance |
Periodical publications, news services and broadcasts: application for certification |
any person who needs to know whether he will be regulated for providing advice about investments through the medium of a periodical publication, a broadcast or a news service |
|
Financial promotion and related activities |
any person who needs to know
|
|
Meaning of open-ended investment company |
any person who needs to know whether a body corporate is an open-ended investment company as defined in section 236 of the Act (Open-ended investment companies) and is therefore a collective investment scheme. |
the circumstances in which a body corporate will be an open-ended investment company |
Activities related to pension schemes |
Any person who needs to know whether his activities in relation to pension schemes will amount to regulated activities or whether the restriction in section 21 of the Act will apply to any financial promotions he may make.1 1 |
|
Property investment clubs and land investment schemes |
Any person who needs to know whether his activities in relation to property investment clubs and land investment schemes will amount to regulated activities or whether the restriction in section 21 of the Act will apply to any financial promotions he may make. |
|
Running or advising on personal pension schemes |
any person who needs to know whether his activities in relation to establishing, running, advising on or marketing personal pension schemes will amount to regulated activities |
the regulated activities that arise in connection with establishing, running, advising on or marketing personal pension schemes and any exclusions that may be relevant |
Guidance on the scope of MiFID and CRD IV12 9125 |
Any UK person who needs to know whether MiFID or the CRD and EUCRR (which allow the recast CAD to continue to apply to certain firms)9as implemented in the UK apply to him5 9 |
the scope of MiFID and the CRD and EUCRR.5 9 |
Home reversion,7 home finance and regulated sale and rent back 7activities 7 |
Any person who needs to know whether his activities in relation to home reversion plans,7home purchase plans or regulated sale and rent back agreements7will amount to regulated activities or whether the restriction in section 21 of the Act will apply to any financial promotions he may make. 7 |
|
6PERG 15: Guidance on the scope of the Payment Services Regulations 2009 |
Any person with an establishment in the UK who needs to know whether the Payment Services Directive, as transposed in UK legislation by the Payment Services Regulations 2009, applies to him. Q46 applies specifically to persons providing payment services from an establishment outside the EEA to persons located in the UK. |
the scope of the PSD Regulations 2009.11 |
11PERG 16: Scope of the Alternative Investment Fund Managers Directive |
any person who needs to know whether a collective investment undertaking is an AIF. |
the scope of the regulated activities of managing an AIF and acting as trustee or depositary of an AIF.10 |
Any person who needs to know whether his activities in relation to debts will amount to debt counselling. |
The scope of the regulated activities relating to consumer credit debt counselling. |
1This table belongs to COBS 2.3.14 G.
Gifts, Hospitality and Promotional Competition Prizes |
|||
1 |
A retail investment product provider5 giving and a firm receiving gifts, hospitality and promotional competition prizes of a reasonable value. 5 |
||
Promotion |
|||
2 |
A retail investment product provider5 assisting another firm to promote its retail investment products5 so that the quality of its service to clients is enhanced. Such assistance should not be of a kind or value that is likely to impair the recipient firm's ability to pay due regard to the interests of its clients, and to give advice on, and recommend, retail investment products5 available from the recipient firm's whole range or ranges. 555 |
||
Joint marketing exercises |
|||
3 |
A retail investment product provider5 providing generic product literature (that is, letter heading, leaflets, forms and envelopes) that is suitable for use and distribution by or on behalf of another firm if: 5 |
||
(a) |
the literature enhances the quality of the service to the client and is not primarily of promotional benefit to the retail investment product provider;5 and 5 |
||
(b) |
the total costs (for example, packaging, posting, mailing lists) of distributing such literature to its client are borne by the recipient firm. |
||
4 |
A retail investment product provider5 supplying another firm with 'freepost' envelopes, for forwarding such items as completed applications, medical reports or copy client agreements. 5 |
||
5 |
A retail investment product provider5 supplying product specific literature (for example, key features documents, minimum information) to another firm if: 5 |
||
(a) |
the literature does not contain the name of any other firm; or |
||
(b) |
if the name of the recipient firm is included, the literature enhances the quality of the service to the client and is not primarily of promotional benefit to the recipient firm. |
||
6 |
A retail investment product provider5 supplying draft articles, news items and financial promotions for publication in another firm's magazine, only if in each case any costs paid by the product provider for placing the articles and financial promotions are not more than market rate, and exclude distribution costs. 5 |
||
Seminars and conferences |
|||
7 |
A retail investment product provider5 taking part in a seminar organised by another firm or a third party and paying toward the cost of the seminar, if: 5 |
||
(a) |
its participation is for a genuine business purpose; and |
||
(b) |
the contribution is reasonable and proportionate to its participation and by reference to the time and sessions at the seminar when its staff play an active role. |
||
Technical services and information technology |
|||
8 |
A retail investment product provider5 supplying a 'freephone' link to which it is connected. 5 |
||
9 |
A retail investment product provider5 supplying another firm with any of the following: 5 |
||
(a) |
quotations and projections relating to its retail investment products5 and, in relation to specific investment transactions (or for the purpose of any scheme for review of past business), advice on the completion of forms or other documents; 5 |
||
(b) |
access to data processing facilities, or access to data, that is related to the retail investment product provider’s5 business; 5 |
||
(c) |
access to third party electronic dealing or quotation systems that are related to the retail investment product provider's5 business; and 5 |
||
(d) |
software that gives information about the retail investment product provider's retail investment products5 or which is appropriate to its business (for example, for use in a scheme for review of past business or for producing projections or technical product information). 5 |
||
10 |
A retail investment product provider5 paying cash amounts or giving other assistance to a firm not in the same immediate group for the development of software or other computer facilities necessary to operate software supplied by the retail investment product provider,5 but only to the extent that by doing so it will generate equivalent cost savings to itself or clients. 55 |
||
11 |
A retail investment product provider5 supplying another firm with information about sources of mortgage finance. 5 |
||
12 |
A retail investment product provider5 supplying another firm with generic technical information in writing, not necessarily related to the product provider's business, when this information states clearly and prominently that it is produced by the product provider or (if different) supplying firm. 5 |
||
Training |
|||
13 |
A retail investment product provider5 providing another firm with training facilities of any kind (for example, lectures, venue, written material and software). 5 |
||
Travel and accommodation expenses |
|||
14 |
A retail investment product provider5 reimbursing another firm's reasonable travel and accommodation expenses when the other firm: 5 |
||
(a) |
participates in market research conducted by or for the retail investment product provider;5 5 |
||
(b) |
attends an annual national event of a United Kingdom trade association, hosted or co-hosted by the retail investment product provider;5 5 |
||
(c) |
participates in the retail investment product provider’s5 training facilities (see 13); 5 |
||
(d) |
visits the retail investment product provider’s5United Kingdom office in order to: 5 |
||
(i) |
receive information about the retail investment product provider's5 administrative systems; or 5 |
||
(ii) |
attend a meeting with the retail investment product provider5 and an existing or prospective client of the receiving firm. 5 |
1Activity |
Products/Sectors |
Is there an appropriate qualification4requirement? 4 |
|
Designated investment business carried on for a retail client |
|||
Providing basic advice |
1. |
Stakeholder products excluding a deposit-based stakeholder product |
No |
Advising |
2. |
Securities which are not stakeholder pension schemes, personal pension schemes7 or broker funds |
Yes |
3. |
Yes2 |
||
4. |
Packaged products6Retail investment products6 which are not broker funds |
Yes2 |
|
5. |
Friendly Societylife policies where the employee is not reasonably expected to receive a remuneration of greater than £1000 a year in respect of such sales |
No2 |
|
6. |
Friendly Society tax-exempt policies (other than Holloway sickness policies where the Holloway policy special application conditions are met)5 |
Yes2 |
|
7. |
Yes2 |
||
8. |
Investments in the course of corporate finance business |
Yes2 |
|
9. |
Yes2 |
||
129A. |
Yes |
||
Undertaking the activity in column 2 |
10. |
Yes |
|
11. |
Yes2 |
||
Advising and dealing |
12. |
Securities which are not stakeholder pension schemes, personal pension schemes7 or broker funds |
Yes |
13. |
Yes2 |
||
4Dealing |
13A.8 |
Securities which are not stakeholder pension schemes, personal pension schemes7 or broker funds |
No |
No |
|||
13C. |
No |
||
Managing |
14. |
Yes |
|
Overseeing on a day-to-day basis |
15. |
Operating a collective investment scheme or undertaking the activities of a trustee or depositary of a collective investment scheme |
Yes |
16. |
Safeguarding and administering investments or holding client money |
Yes2 |
|
17. |
Administrative functions in relation to managing investments |
Yes2 |
|
18. |
Administrative functions in relation to effecting or carrying out contracts of insurance which are life policies |
Yes2 |
|
19. |
Administrative functions in relation to the operation of stakeholder pension schemes |
Yes2 |
|
Mortgage Activity10 and reversion activity carried on for a customer 10 |
|||
910Advising; arranging (bringing about) an execution-only sale, excluding variations to an existing home finance transaction except where the effect is to change all or part of the home finance transaction from one interest rate to another. See Note 3, which for the avoidance of doubt forms part of this rule. |
20 |
Regulated mortgage contracts for a non-business purpose |
Yes |
20A |
Regulated mortgage contracts for a business purpose |
No |
|
21 |
Yes |
||
9Designing scripted questions for execution-only sales |
21A |
Regulated mortgage contracts for a non-business purpose |
Yes |
21B |
Regulated mortgage contracts for a business purpose |
No |
|
22 |
Yes |
||
Overseeing execution-only sales on a day-to-day basis9 9 |
23. |
Yes |
|
11MCD credit agreement activities carried on for consumers |
|||
11manufacturing |
23A |
No |
|
11entering into a regulated mortgage contract or entering into a regulated credit agreement as lender |
23B |
No |
|
11arranging (bringing about) regulated mortgage contracts or acting as an MCD credit broker |
23C |
No |
|
11advising on a regulated mortgage contract or advising on a regulated credit agreement for the acquisition of land |
23D |
No |
|
11directly managing or supervising employees who carry on any of the MCD credit agreement activities 23A to 23D |
23E |
No |
|
Non-investment insurance business carried on for a consumer |
|||
Advising |
24. |
No |
|
3Regulated sale and rent back activity carried on for a customer |
|||
Advising |
25. |
No |
|
Overseeing an execution-only sale10 on a day-to-day basis 10 |
26. |
No |
|
Notes: |
|||
1. |
In the Appendix the heading and types of business specified in the headings are to be read in conjunction with the paragraphs appearing beneath them. |
||
2. |
Thus, for example, paragraph 24consistent with the heading above it3, refers only to advice on non-investment insurance contracts given to a consumer.10 3 |
||
122A. |
In relation to activity number 9A, see TC 2.1.5HR and TC 2.1.6R(2). There is no qualification for this activity in the list of qualifications set out in TC Appendix 4E. However, the effect of TC 2.1.5HR is that an employeeadvising on P2P agreements must be qualified to the same standard as if that employee were providing investment advice to retail clients on retail investment products. |
||
103. |
For the purpose of product numbers 20, 20A and 21 the activity of arranging (bringing about) referred to in the activity column: (a) includes activity which would be arranging (bringing about) but for the exclusion in article 28A of the Regulated Activities Order; and (b) does not include activities which taken on their own would not fall within the definition of that activity. For these purposes no account should be taken of the fact that for an activity to be a regulated activity it must be carried on by way of business (see PERG 4.3). |
||
4. |
In this Appendix, paragraphs 23A, 23B, 23C, 23D and 23E relate to the implementation of article 9(1) of the MCD. The specified activities do not, in and of themselves, attract a qualification requirement. However, where those activities overlap with those specified under the heading "mortgage activity and reversion activity carried on for a customer", qualification requirements may apply. |