Related provisions for CONC 10.3.1

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CONC 10.2.8RRP
The prudential resources requirement for a firm to which this chapter applies is the higher of:(1) £5,000; or(2) the sum calculated in accordance with CONC 10.2.5 R (2); for the period until (subject to CONC 10.2.13 R) its next accounting reference date.
CONC 10.2.9RRP
To determine a firm's prudential resources requirement for the period beginning on the date on which it obtains Part 4A permission and ending on the day before its next accounting reference date, the firm must carry out the calculation in CONC 10.2.5 R (2) on the basis of the total value of relevant debts under management the firm projects will be outstanding on the day before its next accounting reference date.
CONC 10.3.2RRP

Table: Items which are eligible to contribute to the prudential 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from which, under the terms of the partnership agreement, an amount representing capital may be withdrawn by a partner only if: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) 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

(iii) 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, 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

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.

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)) relating to the audit of accounts.

CONC 10.3.5RRP

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

where:

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 10.3.6GRP

CONC 10.3.5 R can be illustrated by the examples set out below:

  1. (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. (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]