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Status: Please note you should read all Brexit changes to the FCA Handbook and BTS alongside the main FCA transitional directions. Where these directions apply the 'standstill', firms have the choice between complying with the pre-IP completion day rules, or the post-IP completion day rules. To see a full list of Handbook modules affected, please see Annex B to the main FCA transitional directions.

CHAPTER Va Own Funds Based On Fixed Overheads

Article 34b Calculation of the eligible capital of at least one quarter of the fixed overheads of the preceding year for the purposes of Article 97(1) of Regulation (EU) No 575/2013

  1. (1)

    For the purposes of this Chapter, ‘firm’ means an entity referred to in point (2)(c) of Article 4(1) of Regulation (EU) No 575/2013 that provides the investment services and activities listed in paragraphs 2 and 4 of Part 3 of Schedule 2 to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 or an investment firm

  2. (2)

    For the purposes of Article 97(1) of Regulation (EU) No 575/2013, firms shall calculate their fixed overheads of the preceding year, using figures resulting from the applicable accounting framework, by subtracting the following items from the total expenses after distribution of profits to shareholders in their most recent audited annual financial statements, or, where audited statements are not available, in annual financial statements validated by national supervisors:

    1. (a)

      fully discretionary staff bonuses;

    2. (b)

      employees', directors' and partners' shares in profits, to the extent that they are fully discretionary;

    3. (c)

      other appropriations of profits and other variable remuneration, to the extent that they are fully discretionary;

    4. (d)

      shared commission and fees payable which are directly related to commission and fees receivable, which are included within total revenue, and where the payment of the commission and fees payable is contingent upon the actual receipt of the commission and fees receivable;

    5. (e)

      fees, brokerage and other charges paid to clearing houses, exchanges and intermediate brokers for the purposes of executing, registering or clearing transactions;

    6. (f)

      fees to tied agents as defined in point 29 of Article 4 of Directive 2014/65/EU, where applicable;

    7. (g)

      interest paid to customers on client money;

    8. (h)

      non-recurring expenses from non-ordinary activities.

  3. (3)

    Where fixed expenses have been incurred on behalf of the firms by third parties other than tied agents, and these fixed expenses are not already included within the total expenses referred to in paragraph 2, firms shall take either of the following actions:

    1. (a)

      where a break-down of the expenses of those third parties is available, firms shall determine the amount of fixed expenses that those third parties have incurred on their behalf and shall add that amount to the figure resulting from paragraph 2;

    2. (b)

      where the break-down referred to in point (a) is not available, the firms shall determine the amount of expenses incurred on their behalf by those third parties according to the firms' business plans and shall add that amount to the figure resulting from paragraph 2.

  4. (4)

    Where the firm makes use of tied agents, it shall add an amount equal to 35 % of all the fees related to the tied agents to the figure resulting from paragraph 2.

  5. (5)

    Where the firm's most recent audited financial statements do not reflect a twelve month period, the firm shall divide the result of the calculation of paragraphs 2 to 4 by the number of months that are reflected in those financial statements and shall subsequently multiply the result by twelve, so as to produce an equivalent annual amount.

Article 34c Conditions for the adjustment by the competent authority of the requirement to hold eligible capital of at least one quarter of the fixed overheads of the previous year according to Article 97(2) of Regulation (EU) No 575/2013

  1. (1)

    For firms referred to in the second subparagraph, a change in the business of a firm shall be considered material where any of the following conditions is met:

    1. (a)

      the change in the business of the firm results in a change of 20 % or greater in the firm's projected fixed overheads;

    2. (b)

      the change in the business of the firm results in changes in the firm's own funds requirements based on projected fixed overheads equal to or greater than EUR 2 million.

    The firms referred to in the first subparagraph shall be those that meet either of the following conditions:

    1. (a)

      their current own funds requirements based on fixed overheads are equal to or more than EUR 125000;

    2. (b)

      their own funds requirements meet both of the following conditions:

      1. (i)

        based on current fixed overheads, they are less than EUR 125000;

      2. (ii)

        based on projected fixed overheads, they are equal to or more than EUR 150000.

  2. (2)

    For firms referred to in the second subparagraph, a change in the business of a firm shall be considered material where the change in the business of the firm results in a 100 % or greater change in the firm's projected fixed overheads.

    The firms referred to in the first subparagraph shall be those that meet both of the following conditions:

    1. (a)

      their own funds requirements based on current fixed overheads are less than EUR 125000;

    2. (b)

      their own funds requirements based on projected fixed overheads are less than EUR 150000.

Article 34d Calculation of projected fixed overheads in the case of a firm that has not completed business for one year according to Article 97(3) of Regulation (EU) No 575/2013

Where a firm has not completed business for one year from the day it starts trading, it shall use, for the calculation of items in points (a) to (h) of Article 34b(2), the projected fixed overheads included in its budget for the first twelve months' trading, as submitted with its application for authorisation.