PIB 3 Part 2 PIB 3 Part 2 — Basic Requirements
PIB 3.2 PIB 3.2 Requirements
In this section:
Maintaining Capital Resources
PIB 3.2.2 PIB 3.2.2
Authorised Firmthat is a Domestic Firmmust:(a) have and maintain, at all times, Capital Resourcesof the kinds and amounts specified in, and calculated in accordance with, the Rulesin PIB; and(b) ensure that it maintains capital and liquid assets in addition to the requirement in (a) which are adequate in relation to the nature, size and complexity of its business to ensure that there is no significant risk that liabilities cannot be met as they fall due.
PIB 3.2.2 Guidance1. For the purposes of PIB Rule 3.2.2, an
Authorised Firm's Governing Bodyshould assess whether the Capital Resourceswhich are required by the DFSAas set out in PIBare adequate in relation to the Authorised Firm'sspecific business. Additional resources should be maintained by the Authorised Firmwhere its Governing Bodyhas considered that the required Capital Resourcesdo not adequately reflect the nature and risks of the Authorised Firm'sbusiness.2. The liabilities referred to in PIB Rule 3.2.2(b) include an Authorised Firm'scontingent and prospective liabilities, such as liabilities arising from a change in business strategy or claims made against the Authorised Firm, but not liabilities that might arise from prospective transactions which the Authorised Firmcould avoid, for example by ceasing its operations. Liabilities from prospective transactions refers to the potential liabilities which can be avoided by either adequate risk management, risk transfer or avoiding the transaction completely. This refers to any prospective transaction, for example, lending money to a borrower or entering into a contract for the provision of services by a service provider.3. An Authorised Firmsubject to the requirements in PIB chapter 10 may be required to meet Individual Capital Requirementsunder those Rules.
PIB 3.2.3 PIB 3.2.3
Authorised Firmmust have, at all times, Capital Resourceswhich exceed the amount of its Capital Requirement.
Systems and Controls
Systems and Controls Guidance
For the purposes of PIB section 3.2, an
Authorised Firmis required to have systems and controls in place to enable it to be certain that it has adequate Capital Resourcesto comply with PIB Rule 3.2.3 at all times. An Authorised Firm'ssystems and controls should be such as to allow it to demonstrate its capital adequacy at any particular time if required to do so by the DFSA. Where through the operation of those systems and controls an Authorised Firmforms the view that it may not be able to satisfy the requirements of PIB Rule 3.2.3 in the future, that Authorised Firmis required to immediately inform the DFSAin accordance with PIB Rule 3.2.5.
Authorised Firmthat is a Branchmust:(a) ensure that it has and maintains, at all times, liquid assets and access to financial resources which are adequate in relation to the nature, size and complexity of its business to ensure that there is no significant risk that liabilities cannot be met as they fall due;(b) ensure that it complies with its home state Financial Services Regulator'sprudential requirements;(c) submit to the DFSAa copy of every capital adequacy summary report and leverage ratio report submitted to its home state Financial Services Regulatorwithin ten business days of the due date for submission to that regulator; and(d) in the event of any anticipated or actual breach of any prudential requirements set by its home state Financial Services Regulator, notify the DFSAforthwith with any relevant documents.
PIB 3.2.5 PIB 3.2.5(1) An
Authorised Firmmust have systems and controls to enable it to determine and monitor:(a) its Capital Requirement; and(b) whether the amount of its Capital Resourcesis, and is likely to remain, greater than the amount of its Capital Requirement.(2) Such systems and controls must include an analysis of:(a) realistic scenarios which are relevant to the circumstances of the Authorised Firm; and(b) the effects on the Capital Requirementof the Authorised Firmand on its Capital Resourcesif those scenarios occurred.(3) An Authorised Firmmust notify the DFSAimmediately and confirm in writing any breach, or expected breach, of any of the provisions of this chapter by the Authorised Firm.
PIB 3.2.5 Guidance1. PIB App3 provides
Guidanceon the nature and type of stress and scenario testing that Authorised Firmsshould be undertaking to support their view that they have adequate financial resources to meet their obligations.2. The requirements in this chapter apply to Authorised Firmson a solo basis. An Authorised Firmmay also be subject to Capital Resourcesrequirements at a Grouplevel. Grouprequirements are addressed in PIB chapter 8.
Notifications to the DFSA
PIB 3.2.6(1) This
Ruleapplies to an Authorised Firmin Category3B, 3C, 3D or 4.(2) An Authorised Firmmust notify the DFSAimmediately and confirm in writing if its Capital Resourcesfall below 120% of its Capital Requirement.
Requirements as to Composition of Capital
PIB 3.2.7 PIB 3.2.7(1) This
Ruleapplies to an Authorised Firmin Category1, 2, 3A or 5.(2) Subject to PIB Rule 3.6.3 and (3), an Authorised Firmmust at all times maintain the following components of capital:(a) where the Risk Capital Requirementforms part of the Capital Requirement of the firm under section PIB 3.3 or PIB 3.4:(i) CET1 Capital equating to at least 6.0% of the firm's Risk Weighted Assets; and(ii) T1 Capital equating to at least 8.0% of the firm's Risk Weighted Assets; or(b) where the Expenditure Based Capital Minimumforms the Capital Requirementof the firm under PIB section 3.4:(i) CET1 Capital equating to at least 60% of the firm's Expenditure Based Capital Minimum; and(ii) T1 Capital equating to at least 80% of the firm's Expenditure Based Capital Minimum.(3) The CET1 Capital used to meet the requirement in (2)(a) must not also be used as a component of a Capital Buffer.
PIB 3.2.7 Guidance1. It follows from Rule 3.2.7(2)(a) and Rule 3.2.3 that an
Authorised Firmcannot use T2 Capital of more than 2% of its >Risk Weighted Assets to meet its Risk Capital Requirement.2. It follows from Rule 3.2.7(2)(b) and Rule 3.2.3 that an Authorised Firmcannot use T2 Capital to meet more than 20% of its Expenditure Based Capital Minimum.3. In accordance with Rules 3.9.5, PIB 3.9 A.3 and PIB 3.9B4 the CET1 Capital used for a Capital Buffer cannot constitute CET1 Capital for meeting the Risk Capital Requirement.