Related provisions for GENPRU 2.2.207

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To access the FCA Handbook Archive choose a date between 1 January 2001 and 31 December 2004 (From field only).

8A building society may include a deferred share at stage A of the calculation in the capital resources table if (in addition to satisfying all the other requirements in relation to tier one capital) it is permanent share capital and is otherwise equivalent to an ordinary share in terms of its capital qualities, taking into account the specific constitution of building societies under the Building Societies Act 1986.
8A BIPRU firm must not include a capital instrument that is not a share at stage B1, B2 or C of the calculation in the capital resources table unless (in addition to satisfying all the other requirements in relation to tier one capital and hybrid capital) the firm's obligations under the instrument either:(1) do not constitute a liability (actual, contingent or prospective) under section 123(2) of the Insolvency Act 1986; or(2) do constitute such a liability but the terms of the
8A BIPRU firm must not include a capital instrument at stage B1, B2 or C of the calculation in the capital resources table unless (in addition to satisfying all the other requirements in relation to tier one capital and hybrid capital) its contractual terms provide for a mechanism within the instrument which:(1) is clearly defined and legally certain;(2) is disclosed and transparent to the market;(3) makes the recapitalisation of the firm more likely by adequately reducing the
GENPRU 2.2.210GRP
For the purpose of the definition of a material holding, share capital includes preference shares. Share premium should be taken into account when determining the amount of share capital.
GENPRU 2.2.264RRP
(1) The excess trading book position is the excess of:(a) a bank or building society's aggregate net long (including notional) trading bookpositions in shares, subordinated debt or any other interest in the capital of credit institutions or financial institutions;over;(b) 25% of that firm'scapital resources calculated at stage T (Total capital after deductions) of the capital resources table (calculated before deduction of the excess trading book position).(2) Only the excess
IPRU-INV 9.5.7RRP
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

Table: Items which are eligible to contribute to the financial 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 financial resources1, 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 financial resources1, 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 financial resources1, 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/debt must be included in financial resources1 on the basis of the provisions in this chapter that apply to subordinated loans/debt.

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.

Table: Items which must be deducted in arriving at financial resources

1

Investments in own shares

2

Investments in subsidiaries (Note 1)

3

Intangible assets (Note 2)

4

Interim net losses (Note 3)

5

Excess of drawings over profits for a sole trader or a partnership (Note 3)

Notes

1. Investments in subsidiaries are the full balance sheet value.

2. Intangible assets are the full balance sheet value of goodwill, capitalised development costs, brand names, trademarks and similar rights and licences.

3. The interim net losses in row 4, and the excess of drawings in row 5, are in relation to the period following the date as at which the capital resources are being computed.

IPRU-INV 12.3.5R can be illustrated as follows:

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 IPRU-INV 12.3.5R. Therefore, total financial resources1 will be £50,000.

    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 financial resources1. Therefore, total financial resources1 will be £80,000.

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 10.3.6GRP

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]

MIPRU 4.4.2RRP

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

MIPRU 4.4.4RRP

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.

MIPRU 4.4.8RRP
  1. (1)

    This rule applies to a firm which:

    1. (a)

      carries on:

      1. (i)

        insurance distribution activity7 ; or

      2. (ii)

        home finance mediation activity1(or both); and

        1

    in relation to those activities, holds client money or other client assets; or5

    1. (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
11115
  1. (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:

  2. 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

    =

    the firm's redeemable preference shares; and

    c

    =

    the amount of its intangible assets (but not goodwill until 14 January 2008 - see transitional provision 1).

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

Companies

Sole traders: Partnerships

Paid-up share capital (excluding preference shares2 redeemable by shareholders2 within two years)

Eligible LLP members’ capital

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)

Debt capital

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

- Material current year losses

- Excess LLP members’ drawings

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.

IPRU-INV 5.8.1RRP

1A firm must calculate its own funds and liquid capital as shown below, subject to the detailed requirements set out in IPRU-INV 5.8.2R.

Financial resources

Category

IPRU-INV 5.8.2R paragraph

Tier 1

(1)

Paid-up share capital (excluding preference shares)

A

(1A)

Eligible LLP members' capital

(2)

Share premium account

(3)

Reserves

2A

(4)

Non-cumulative preference shares

Less:

(5)

Investments in own shares

B

(6)

Intangible assets

(7)

Material current year losses

4

(8)

Material holdings in credit and financial institutions and, for exempt CAD firms only, material insurance holdings.

5 and 5A

(8A)

Excess LLP members' drawings

Tier 1 capital = (A-B)

C

Plus: TIER 2

1

(9)

Revaluation reserves

D

(10)

Fixed term cumulative preference share capital

1(a)

(11)

Long-term Qualifying Subordinated Loans

1(a); 6

(12)

Other cumulative preference share capital and debt capital but, for exempt CAD firms, only perpetual cumulative preference share capital and qualifying capital instruments

6A

(13)

Qualifying arrangements

7

"Own Funds" = (C+D)

E

Plus: TIER 3

(14)

Net trading book profits

F

1(b)(i); 8

(15)

Short-term Qualifying Subordinated Loans and excess Tier 2 capital

1(b)(ii); 1(c); 9

(16)

Illiquid assets

G

10

(17)

Qualifying Property

11

"Liquid Capital" = (E+F+G)

Glossary of defined terms for Chapter 9

Note: If a defined term does not appear in the glossary below, the definition appearing in the HandbookGlossary applies.

approved exchange

means an investment exchange listed as such in Appendix 33 to IPRU-INV 3.

exchange

means a recognised investment exchange or designated investment exchange.

initial capital

means the initial capital of a firm calculated in accordance with section 9.3.

intangible assets

the full balance sheet value of a firm's intangible assets including goodwill, capitalised development costs, licences, trademark and similar rights etc.

intermediate broker

in relation to a margined transaction, means any person through whom the firm undertakes that transaction.

material current year losses

means losses of an amount equal to 10% or more of initial capital minus B (with B calculated in accordance with Table 9.5.2R).

material holding

means a firm's holdings of shares and any other interest in the capital of a credit institution or financial institution:

(a) which exceeds 10% of the capital of the issuer, and, where this is the case, any holdings of subordinated debt of the same issuer, the full amount is a material holding; or

(b) holdings not deducted under (a) if the total amount of such holdings exceeds 10% of that firm'sown funds, in which case only the excess amount is a material holding.

material insurance holdings

(a) means the holdings of an exempt CAD firm of items of the type set out in (b) in any:

(i) insurance undertaking; or

(ii) insurance holding company that fulfils one of the following conditions:

(iii) it is a subsidiary undertaking of that firm; or

(iv) that firm holds a participation in it.

(b) An item falls into this provision for the purpose of (a) if it is:

(i) an ownership share; or

(ii) subordinated debt or another item of capital that forms part of the tier two capital resources that1 falls into GENPRU 2 or, as the case may be, INSPRU 7, or is an item of “basic own funds” defined in the PRA Rulebook: Glossary.

own funds

means the own funds of a firm calculated in accordance with 9.2.9R(2) and The Interim Prudential Sourcebook for Investment Businesses Chapter 9: Financial resources requirements for an exempt CAD firm Page 2 of 2 Version: November 2007 9.2.8R(b).

own funds requirement

means the requirement set out in 9.2.9R(1) and 9.2.8R(b).

verified

means checked by an external auditor who has undertaken at least to:

(a) satisfy himself that the figures forming the basis of the interim profits have been properly extracted from the underlying accounting records;

(b) review the accounting policies used in calculating the interim profits so as to obtain comfort that they are consistent with those normally adopted by the firm in drawing up its annual financial statements and are in accordance with the relevant accounting principles;

(c) perform analytical procedures on the result to date, including comparisons of actual performance to date with budget and with the results of prior period(s);

(d) discuss with management the overall performance and financial position of the firm;

(e) obtain adequate comfort that the implications of current and prospective litigation, all known claims and commitments, changes in business activities and provisioning for bad and doubtful debts have been properly taken into account in arriving at the interim profits; and

(f) follow up problem areas of which he is already aware in the course of auditing the firm's financial statements.