Related provisions for GENPRU 2.2.21
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In deciding what steps are reasonable for the purposes of BIPRU 3.2.11 R, a firm may take into account complexity and cost, as well as the materiality of the impact upon its capital calculation. A firm should be able to demonstrate to the appropriate regulator that it has complied with the obligation to take reasonable steps under BIPRU 3.2.11 R in the way it takes these factors into account.
Where an exposure is denominated in a currency other than the euro, a firm may calculate the euro equivalent for purposes of BIPRU 3.2.10 R using any appropriate set of exchange rates provided its choice has no obvious bias and that the firm is consistent in its approach to choosing rates.
(1) To calculate risk weighted exposure amounts, risk weights must be applied to all exposures, unless deducted from capital resources, in accordance with the provisions of BIPRU 3.4.(2) The application of risk weights must be based on the standardised credit risk exposure class to which the exposure is assigned and, to the extent specified in BIPRU 3.4, its credit quality.(3) Credit quality may be determined by reference to:(a) the credit assessments of eligible ECAIs in accordance
(1) 2For the purpose of BIPRU 3.2.25R (1)(e), a firm must be able on an ongoing basis to demonstrate fully to the appropriate regulator the circumstances and arrangements, including legal arrangements, by virtue of which there are no material practical or legal impediments, and none are foreseen, to the prompt transfer of capital resources or repayment of liabilities from the counterparty to the firm. (2) In relation to a counterparty that is not a firm, the arrangements referred
(1) If more than one firm in the group is subject to the rules of this chapter, groupfinancial resources are defined according to the relevant rules applicable to the main firm in the group to which this chapter applies, with Tier 1 minority interests being allowed as Group Tier 1 capital and Tier 2 minority interests being allowed as Group Tier 2 capital. (2) In calculating the groupfinancial resources, deductions should be made for intangible assets, material unaudited losses
(1) The FCA interprets 'main' by reference to the share of the firm's business in the group, its contribution to the group's balance sheet (measured on the basis of total assets) or profit and loss statement (measured on the basis of gross income). (2) The form in SUP 16 Ann 19 R, together with the guidance in SUP 16 Ann 20 G, shows the mechanics of the calculation.
Except for operational risk, a firm that is permitted to use internal approaches for the calculation of risk weighted exposure amounts or own fund requirements must report annually to the FCA: (1) the results of the calculations of its internal approaches for its exposures or positions that are included in the benchmark portfolios; and(2) an explanation of the methodologies used to produce those calculations in (1).[Note: article 78(1) of CRD]
By way of derogation from 1BIPRU 1.2.14 R to BIPRU 1.2.15 R, when a firm hedges a non-trading book credit risk exposure using a credit derivative booked in its trading book (using an internal hedge), the non-trading book exposure is not deemed to be hedged for the purposes of calculating capital requirements unless the firm purchases from an eligible third party protection provider a credit derivative meeting the requirements set out in BIPRU 5.7.13 R (Additional requirements
(1) Subject to (3), a firm may calculate its capital requirements for its trading book business in accordance with the standardised approach to credit risk (or, if it has an IRB permission, the IRB approach) as it applies to the non-trading book where the size of the trading book business meets the following requirements:(a) the trading book business of the firm does not normally exceed 5% of its total business;(b) its total trading bookposition do not normally exceed €15 million;
A firm must have clearly defined policies and procedures for determining which positions to include in the trading book for the purposes of calculating its capital requirements, consistent with the criteria set out in BIPRU 1.2.3 R to BIPRU 1.2.4 R, BIPRU 1.2.10 R to BIPRU 1.2.11 R, BIPRU 1.1.13 R and BIPRU 1.2.22 R and taking into account the firm's risk management capabilities and practices. Compliance with these policies and procedures must be fully documented and subject to
Capital requirements for foreign currency risk and commodityposition risk are the same whether the risk arises in the trading book or the non-trading book. The calculation of capital requirements for foreign currency risk is set out in BIPRU 7.5. The calculation of capital requirements for commodityposition risk is set out in BIPRU 7.4.
Table: Items which are eligible to contribute to the prudential resources of a firmItemAdditional explanation1Share capitalThis 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).2Capital 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
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 - bwhere: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
CONC 10.3.5 R can be illustrated by the examples set out below:(1) Share Capital£20,000Reserves£30,000Subordinated loans/debts£10,000Intangible assets£10,000As 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£20,000Reserves£30,000Subordinated loans/debts£60,000Intangible
When calculating initial capital, a firm may include its audited retained earnings only after making the following adjustments: (1) a firm must not recognise the fair value reserves related to gains or losses on cash flow hedges of financial instruments measured at amortised cost;(2) in respect of a defined benefit occupational pension scheme, a firm must derecognise any defined benefit asset; (3) a firm must not include any unrealised gains from investment
When calculating initial capital, a firm may include its partners' capital only after making the following adjustments: (1) a firm must not recognise the fair value reserves related to gains or losses on cash flow hedges of financial instruments measured at amortised cost;(2) in respect of a defined benefit occupational pension scheme, a firm must derecognise any defined benefit asset; (3) where applicable, a firm must deduct any asset in respect of deferred
(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.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)Exempt CAD firm5%(2)Category
(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
(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.RequirementCalculationAmountThe
1A firm whose permission includes establishing, operating or winding up a personal pension scheme must calculate its capital resources requirement as the sum of:(1) the capital resources requirement that is applied under IPRU-INV 13.13.2R(2) or IPRU-INV 13.13.3R(2); and(2) the financial resources requirement calculated in accordance with IPRU-INV 5 (Investment Management Firms).
A firm must calculate the consolidated capital resources of its UK consolidation group or its non-EEA sub-group by applying GENPRU 2.2 (Capital resources) to its UK consolidation group or non-EEA sub-group on an accounting consolidation basis, treating the UK consolidation group or non-EEA sub-group as a single undertaking. The firm must adjust GENPRU 2.2 in accordance with this section for this purpose.
The capital resources gearing rules apply for the purposes of calculating consolidated capital resources. They apply to the UK consolidation group or non-EEA sub-group on an accounting consolidation basis, treating the UK consolidation group or non-EEA sub-group as a single undertaking.
A firm must calculate the consolidated capital resources of its UK consolidation group or non-EEA sub-group4 using the calculation of capital resources in GENPRU 2 Annex 4 (Capital resources table for a BIPRU firm deducting material holdings) or GENPRU 2 Annex 5 (Capital resources table for a BIPRU firm deducting illiquid assets).444
(1) This rule sets out how to determine whether minority interests in an undertaking in a UK consolidation group or non-EEA sub-group may be included in tier one capital, tier two capital or tier three capital for the purpose of calculating consolidated capital resources (each referred to as a "tier" of capital in this rule).(2) A firm must identify the item of capital of the undertaking in question that gives rise to that minority interest.(3) A firm must include the minority
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) The purpose of the rule on annual income that applies to insurance intermediaries and mortgage intermediaries 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.(2) 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.(3) A firm'sannual income does not,
For the purposes of the calculation of the capital resources of a firm carrying on home finance administration1only with all the assets it administers off balance sheet, annual income is the sum of:11(1) revenue (that is, commissions, fees, net interest income, dividends, royalties and rent); and(2) gains;(3) arising in the course of the ordinary activities of the firm, less profit:(a) on the sale or termination of an operation;(b) arising from a fundamental reorganisation or
(1) A firm must calculate its capital resources only from the items which are eligible to contribute to a firm's capital resources from which it must deduct certain items (see MIPRU 4.4.4 R).(2) If the firm is subject to the Interim Prudential sourcebook for investment businesses, the Prudential sourcebook for Investment Firms and the EU CRR, the General Prudential sourcebook6, the Prudential sourcebook for Banks, Building Societies and Investment Firms or the Credit Unions sourcebook,
Table: Items which are eligible to contribute to the capital resources of a firmItemAdditional explanation1.Share capitalThis 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
A firm should keep a record of and be ready to explain to its supervisory contacts in the appropriate regulator 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.
Table: Items which must be deducted from capital resources 1Investments in own shares2Intangible assets (Note 1)3Interim net losses (Note 2)4Excess of drawings over profits for a sole trader or a partnership (Note 2)NotesNotes 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
(1) This rule applies to a firm which:(a) carries on:(i) insurance distribution activity7 ; or(ii) home finance mediation activity1(or both); and1in 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
The capital conservation plan must include the following(1) the MDA; (2) estimates of income and expenditure and a forecast balance sheet;(3) measures to increase the capital ratios of the firm; and(4) a plan and timeframe for the increase of own funds with the objective of meeting the combined buffer. [Note: article 142(2) of CRD]
Handbook reference Matter to be notified Contents of notification Trigger event Time allowed IPRU-INV 12.2.10RA change or likely change, in a firm’sfinancial resources requirement 1The 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
Where a credit derivative included in the trading book forms part of an internal hedge and the credit protection is recognised under the BCD3, there is deemed to be no counterparty risk arising from the position in the credit derivative. Alternatively, a firm may consistently include for the purposes of calculating capital requirements for counterparty credit risk all credit derivatives included in the trading book forming part of internal hedges or purchased as protection against
In assessing the adequacy of liquidity resources, a firm should have regard to the overall character of the resources available to it, which enable it to meet its liabilities as they fall due. A firm should ensure that:(1) it holds sufficient assets which are marketable, or otherwise realisable;(2) it is able to generate funds from those assets in a timely manner; and(3) it maintains a prudent funding profile in which its assets are of appropriate maturities, taking into account
For the purpose of MIPRU 4.2D.10 R a review should take into account:(1) changes in market conditions;(2) changes in funding sources and inflows;(3) changes in the nature, scale or complexity of the firm's business model and activities; and(4) the firm's practical experience in periods of stress.
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 resourcesCompaniesSole traders: PartnershipsPaid-up share capital (excluding preference shares2 redeemable by shareholders2 within two years)Eligible LLP members’ capitalShare premium accountRetained profits (see IPRU-INV 13.15.4R) and interim net profits (Note 1)Revaluation reservesSubordinated loans (see IPRU-INV 13.15.7R)Debt capitalBalances
When calculating a firm’s capital resources, the following adjustments apply to retained profits or (for sole traders or partnerships) current accounts figures:(1) 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;(2) a firm must de-recognise any defined benefit asset; (3) a firm may substitute for a defined benefit liability its deficit reduction amount
A firm may only make use of the non-core large exposure group exemption where the following conditions are met: (1) the total amount of the non-trading book exposures from the firm to its non-core large exposures group does not exceed 100% of the firm'seligible capital; or (if the firm has a core UK grouppermission) the total amount of non-trading book exposures from its core UK group (including the firm) to its non-core large exposures group does not exceed 100% of the core
(1) Core UK groupeligible capital is equal to the sum of the following amounts for each member of the core UK group and the firm (the sub-group):(a) for ultimate parent undertaking of the sub-group, the amount calculated in line with article 6 of the EUCRR (or other prudential requirements that apply);(b) for any other member of the sub-group, the amount calculated in line with article 6 of the EUCRR (or other prudential requirements that apply) less the book value of the sub-group's
The credit risk capital requirement3of a firm is 8% of the total of its risk weighted exposure amounts for exposures that:3(1) are on its balance sheet; and(2) derive from: (a) a loan entered into; or(b) a securitisation position originated; or(c) a fund3position entered into;3on or after 26 April 2014; and (3) have not been deducted from the firm'scapital resources under MIPRU 4.4.4 R or MIPRU 4.2BA;calculated in accordance with MIPRU 4.2A.
A firm's documentation relating to data should include clear identification of responsibility for data quality. A firm should set standards for data quality and aim to improve them over time. A firm should measure its performance against those standards. A firm should ensure that its data is of high enough quality to support its risk management processes and the calculation of its capital requirements.
Where a firm is able to demonstrate that the effect is immaterial in accordance with BIPRU 4.1.25 R (Compliance), it may exclude defaultedexposures that have been cured (as referred to in BIPRU 4.3.67 G (1)) or restructured (as referred to in BIPRU 4.3.63 R (5)) from the data about default and loss experience on which LGDs are calculated provided it can demonstrate that its calculation of capital requirements (including capital requirements resulting from the application of capital
(1) A firm may comply with BIPRU 4.3.118 R by reducing the amount of the collateral taken into account for the purposes of calculating LGD (applying a haircut to the collateral), basing that reduction on validated realisation experience and using conservatism to reflect the uncertainties.(2) If collateral is used to reduce the LGD, a firm should be able to demonstrate how the risk in BIPRU 4.3.118 R has been accounted for. To the extent that it is adequately accounted for in that
If a firm disagrees with the FCA's assessment as to the amount or quality of capital planning buffer that it should hold, it should, consistent with Principle 11 (Relations with regulators), notify the FCA of its disagreement. The FCA may reconsider its initial assessment if, after discussion with the firm, the FCA concludes that the amount or quality of capital that the firm should hold as capital planning buffer is different from the amount or quality initially suggested.
(1) This paragraph applies to a firm that is not a significant IFPRU firm (see IFPRU 1.2.3 R) whose activities are simple and primarily not credit-related.(2) In carrying out its ICAAP it could: (a) identify and consider that firm's largest losses over the last three to five years and whether those losses are likely to recur;(b) prepare a short list of the most significant risks to which that firm is exposed;(c) consider how that firm would act, and the amount of capital that
(1) This paragraph applies to a proportional ICAAP in the case of a firm that is a significant IFPRU firm (see IFPRU 1.2.3 R) whose activities are complex.(2) A proportional approach to that firm'sICAAP should cover the matters identified in IFPRU 2.3.34 G and IFPRU 2.3.35 G, but is likely also to involve the use of models, most of which will be integrated into its day-to-day management and operation.(3) Models of the kind referred to in (2) may be linked to generate an overall
To assess its expected capital requirements over the economic and business cycles, a firm may wish to project forward its financial position taking account of its business strategy and expected growth, according to a range of assumptions regarding the economic or business environment which it faces. For example, an ICAAP should include an analysis of the impact that the actions of a firm's competitors might have on its performance, in order to see what changes in its environment