Related provisions for GENPRU 2.2.155
Table: Items which are eligible to contribute to the prudential resources of a firm
Item |
Additional explanation |
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1 |
Share capital |
This must be fully paid and may include: |
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(1) |
ordinary share capital; or |
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(2) |
preference share capital (excluding preference shares redeemable by shareholders within two years). |
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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': |
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(1) |
capital account, that is the account: |
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(a) |
into which capital contributed by the partners is paid; and |
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(b) |
from which, under the terms of the partnership agreement, an amount representing capital may be withdrawn by a partner only if: |
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(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 |
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(ii) 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 |
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(iii) the partnership is otherwise dissolved or wound up; and |
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(2) |
current accounts according to the most recent financial statement. |
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For the purpose of the calculation of capital resources in respect of a defined benefit occupational pension scheme: |
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(1) |
a firm must derecognise any defined benefit asset; |
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(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. |
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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. |
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For the purposes of calculating capital resources, a firm must make the following adjustments to its reserves, where appropriate: |
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(1) |
a firm must deduct any unrealised gains or, where applicable, add back in any unrealised losses on debt instruments held, or formerly held, in the available-for-sale financial assets category; |
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(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; |
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(3) |
in respect of a defined benefit occupational pension scheme: |
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(a) |
a firm must derecognise any defined benefit asset; |
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(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. |
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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. |
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5 |
Revaluation reserves |
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6 |
Subordinated loans/debt |
Subordinated loans/debts must be included in capital on the basis of the provisions in this chapter that apply to subordinated loans/debts. |
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Note: |
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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)) relating to the audit of accounts. |
When calculating its prudential resources, the firm must exclude any amount by which the aggregate amount of its subordinated loans/debts exceeds the amount calculated as follows:
a - b |
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where: |
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a |
= |
Items 1 - 5 in the Table of items which are eligible to contribute to a firm's prudential resources (see CONC 10.3.2 R) |
b |
= |
Items 1 - 5 in the Table of items which must be deducted in arriving at a firm's prudential resources (see CONC 10.3.3 R) |
[Note: Until 31 March 2017, transitional provisions apply to CONC 10.3.5 R: see CONC TP 5.2]
CONC 10.3.5 R can be illustrated by the examples set out below:
- (1)
Share Capital
£20,000
Reserves
£30,000
Subordinated loans/debts
£10,000
Intangible assets
£10,000
As subordinated loans/debts (£10,000) are less than the total of share capital + reserves - intangible assets (£40,000) the firm need not exclude any of its subordinated loans/debts pursuant to CONC 10.3.5 R. Therefore total prudential resources will be £50,000.
- (2)
Share Capital
£20,000
Reserves
£30,000
Subordinated loans/debts
£60,000
Intangible assets
£10,000
As subordinated loans/debts (£60,000) exceed the total of share capital + reserves - intangible assets (£40,000) by £20,000, the firm should exclude £20,000 of its subordinated loans/debts when calculating its prudential resources. Therefore total prudential resources will be £80,000.
[Note: Until 31 March 2017, transitional provisions apply to CONC 10.3.6 G: see CONC TP 5.3]
- (1)
A firm to which MIPRU does not apply must calculate its capital resources requirement as in (2).
- (2)
The firm must calculate its capital resources requirement as the higher of:
- (a)
£20,000; and
- (b)
the amount equivalent to the applicable percentage of its annual income specified in table 13.13.2(2)(b), depending on the type of firm.
- (a)
Table 13.13.2(2)(b)
This table forms part of IPRU-INV 13.13.2R.
(A) |
(B) Type of firm |
(C) Applicable percentage of annual income |
(1) |
5% |
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(2) |
10% |
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(3) |
10% |
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(4) |
Category B3 firm which is permitted to carry on the activity of managing investments in respect of portfolios containing only life policies or to delegate such activity to an investment firm |
10% |
(5) |
Category B3 firm not in (4) |
5% |
- (1)
A firm to which MIPRU also applies must calculate its capital resources requirement as in (2).
- (2)
The firm must calculate its capital resources requirement as the higher of:
- (a)
£20,000; and
- (b)
the sum of:
- (i)
the amount that would have applied to it under IPRU-INV 13.13.2R(2)(b) if it were a firm of the type in column (B) of table 13.13.2(2)(b); and
- (ii)
the capital resources requirement in MIPRU 4.2. (Capital resources requirements), after excluding the fixed amounts specified in table 13.13.3(2)(b)(ii).
- (i)
- (a)
Table 13.13.3(2)(b)(ii)
This table forms part of IPRU-INV 13.13.3R.
Activity |
Provision |
Fixed amount |
Insurance distribution activity2 or home finance mediation activity |
MIPRU 4.2.11R(1)(a) (firm not holding client money or assets) |
£5,000 |
MIPRU 4.2.11R(2)(a) (firm holding client money or assets) |
£10,000 |
|
Home financing and home finance administration (not connected to regulated mortgage contracts) |
£100,000 |
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Home finance administration (with all assets off balance sheet) |
£100,000 |
|
Home financing and home finance administration (connected to regulated mortgage contracts) |
£100,000 |
- (1)
IPRU-INV 13.13.4G(2) illustrates how a firm that is subject to this section and MIPRU calculates its capital resources requirement under IPRU-INV 13.13.3R.
- (2)
Example: A category B3 firm with annual income of £300,000 under this section and £100,000 from its home finance mediation activity (without holding client money) should calculate capital resources requirement as specified in table 13.13.4G(2).
Table 13.13.4G(2)
This table forms part of IPRU-INV 13.13.4G.
Requirement |
Calculation |
Amount |
The capital resources requirement is the higher of: |
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(1) £20,000; and |
£20,000 |
£20,000 |
(2) The sum of: |
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(a) the amount that would have applied to it under IPRU-INV 13.13.2R(2)(b) if it were a firm of the type in column (B) of table 13.13.2(2)(b); and |
As this is a category B3 firm, the applicable calculation is 5% of £300,000. |
£15,000 |
(b) the capital resources requirement in MIPRU 4.2. (Capital resources requirements), after excluding the fixed amounts specified in table 13.13.3(2)(b)(ii). |
For a firm carrying on home finance mediation activity without holding client money, MIPRU 4.2.11R(1) specifies a requirement of 2.5% of £100,000 (excluding the amount of £5,000 in MIPRU 4.2.11R(1)(a)). |
£2,500 |
Total of part (2) of the capital resources requirement, which is £15,000 plus £2,500. |
£17,500 |
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The capital resources requirement is the higher of part (1), which is £20,000, and part (2), which is £17,500. |
£20,000 |
Table: Items which are eligible to contribute to the capital resources of a firm
Item |
Additional explanation |
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1. |
Share capital |
This must be fully paid and may include: |
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(1) |
ordinary share capital; or |
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(2) |
preference share capital (excluding preference shares redeemable by shareholders within two years). |
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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': |
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(1) |
capital account, that is the account: |
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(a) |
into which capital contributed by the partners is paid; and |
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(b) |
from which, under the terms of the partnership agreement, an amount representing capital may be withdrawn by a partner only if: |
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(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 |
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(ii) the partnership is otherwise dissolved or wound up; and |
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(2) |
current accounts according to the most recent financial statement. |
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For the purpose of the calculation of capital resources, in respect of a defined benefit occupational pension scheme: |
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(1) |
a firm must derecognise any defined benefit asset; |
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(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. |
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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. |
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For the purposes of calculating capital resources, a firm must make the following adjustments to its reserves, where appropriate: |
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(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; |
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(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; |
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(3) |
in respect of a defined benefit occupational pension scheme: |
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(a) |
a firm must derecognise any defined benefit asset; |
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(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. |
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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. |
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5. |
Revaluation reserves |
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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 |
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7. |
Subordinated loans |
Subordinated loans must be included in capital on the basis of the provisions in this chapter that apply to subordinated loans. |
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Note: |
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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 |
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 |
Notes 1. Intangible assets are the full balance sheet value of goodwill (but not until 14 January 2008 - see transitional provision 1), 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. |
- (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); |
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where: |
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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 |
= |
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c |
= |
the amount of its intangible assets (but not goodwill until 14 January 2008 - see transitional provision 1). |
Handbook reference |
Matter to be notified |
Contents of notification |
Trigger event |
Time allowed |
IPRU-INV 12.2.10R |
A change or likely change, in a firm’sfinancial resources requirement 1 |
The financial resources requirement 1 as recalculated |
A greater than 25% increase in the firm’s total value of the amount of loaned funds outstanding compared to the value used in its last financial resources requirement 1 calculation |
Within 14 days of the trigger event |
A firm must calculate its capital resources in accordance with table 13.15.3(1).
Table 13.15.3(1)
This table forms part of IPRU-INV 13.15.3R.
Capital resources |
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Companies |
Sole traders: Partnerships |
Paid-up share capital (excluding preference shares2 redeemable by shareholders2 within two years) Share premium account Retained profits (see IPRU-INV 13.15.4R) and interim net profits (Note 1) Revaluation reserves Subordinated loans (see IPRU-INV 13.15.7R) |
Balances on proprietor’s or partners’ - capital accounts2 - current accounts2 (see IPRU-INV 13.15.4R) Revaluation reserves Subordinated loans (see IPRU-INV 13.15.7R) |
less - Intangible assets |
less - Intangible assets - Material current year losses - Excess of current year drawings over current year profits2 |
Note 1 Retained profits must be audited and interim net profits must be verified by the firm's external auditor, unless the firm is exempt from the provisions of Part 16 of the Companies Act 2006 (section 477 (Small companies: Conditions for exemption from audit)) relating to the audit of accounts. |