Related provisions for IFPRU 4.11.6
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(1) This rule relates to the assessment of the amounts, types and distribution of financial resources, own funds and internal capital (referred to in this rule as "resources") under the overall Pillar 2 rule as applied on a consolidated basis and to the assessment of diversification effects as referred to in IFPRU 2.2.14 R (3)(b) as applied on a consolidated basis.(2) A firm must be able to explain how it has aggregated the risks referred to in the overall Pillar 2 rule and the
(1) A firm must allocate the total amount of financial resources, own funds and internal capital identified as necessary under the overall Pillar 2 rule (as applied on a consolidated basis) between different parts of the FCA consolidation group. IFPRU 2.2.11 R (Identifying different tiers of capital) does not apply to this allocation(2) The firm must carry out the allocation in (1) in a way that adequately reflects the nature, level and distribution of the risks to which the group
(1) In identifying an appropriate range of adverse circumstances and events in accordance with IFPRU 2.2.37 R (2):(a) a firm will need to consider the cycles it is most exposed to and whether these are general economic cycles or specific to particular markets, sectors or industries;(b) for the purposes of IFPRU 2.2.37 R (2)(a), the amplitude and duration of the relevant cycle should include a severe downturn scenario based on forward-looking hypothetical events, calibrated against
In determining whether a UK recognised body has financial resources sufficient for the proper performance of its relevant functions, the FCA5 may have regard to:5(1) the operational and other risks to which the UK recognised body is exposed;(2) if the UK recognised body guarantees the performance of transactions in specified investments, the counterparty and market risks to which it is exposed in that capacity; 5(3) the amount and composition of the UK recognised body's capital;(4)
In assessing whether a UK recognised body has sufficient financial resources in relation to operational and other risks, the FCA5 may have regard to the extent to which, after allowing for the financial resources necessary to cover counterparty and market risks, the UK recognised body's financial resources are sufficient and sufficiently liquid:5(1) to enable the UK recognised body to continue carrying on properly the regulated activities that it expects to carry on; and(2) to
4(1) 4The FCA5 considers that a UK RIE which at any time holds:5(a) eligible financial resources not less than the greater of:(i) the amount calculated under the standard approach; and (ii) the amount calculated under the risk-based approach; and (b) net capital not less than the amount of eligible financial resources determined under (1)(a);will, at that time, have sufficient financial resources to meet the recognition requirement in respect of operational and other risks unless
4The FCA5 would expect to provide a UK recognised body with individual guidance on the amount of eligible financial resources which it considers would be sufficient for the UK recognised body to hold in respect of operational and other risks in order to satisfy the recognition requirements. In formulating its individual guidance, the FCA5 will ordinarily apply the approach described in REC 2.3.9 G for UK RIEs.5555
A firm seeking to achieve capital relief by deducting or applying a 1250% risk weight where permitted under articles 243 or 244 of the EU CRR does not need to make the notification in IFPRU 4.12.1 R.1 However, in such cases, a firm should consider whether the characteristics of the transaction are such that the FCA would reasonably expect prior notice of it.1
The information the FCA expects a firm to provide in a permission application includes the following:(1) details of the firm's governance processes for significant risk transfer, including details of any relevant committees and the seniority and expertise of key persons involved in sign-off;(2) a copy of the firm's significant risk transfer policy, including details of the significant risk transfer calculation policies, methodologies and any models used to assess risk transfer
The FCA will seek to ensure that the securitisation framework is not used to undermine or arbitrage other parts of the prudential framework. For other similar credit protection arrangements (eg, those subject credit risk mitigation or trading book requirements), the impact of certain features (such as significant premiums or call options) may cast doubt on the extent of risk transferred and the resulting capital assessment. Features which result in inadequate own funds requirements
The FCA also expects that a firm will be compliant with the validation requirements only where1it can demonstrate that:11(1) appropriate stability metrics should be considered across a range of economic environments (ie, longest period possible including most recent data);(2) the tolerances for the degree of divergence, and associated actions for what should happen when they are not met, is pre-defined; and(3) subsections of portfolios by characteristics affecting risk profile,
When demonstrating how article 113(6)(e) of the EU CRR is met, the FCA considers that, for a counterparty which is not a firm, the application should include a legally binding agreement between the firm and the counterparty. This agreement will be to promptly, on demand, by the firm increase the firm'sown funds by an amount required to ensure that the firm complies with the provisions contained in Part Two of the EU CRR (Own funds) and any other requirements relating to capital
If a firm intends either (a) to remedy a fall in capital resources, or (b) to prevent such a fall, for example, by taking management action to reduce the risks to which a with-profits fund is exposed or by reducing non-contractual benefits for policyholders, it should explain to the FCA how such proposed actions are consistent with the firm's obligations under Principle 6 (Customers' interests).