Entire Section

  • PIB 3 Part 3 PIB 3 Part 3 — Calculating the Capital Requirement

    • PIB 3.3 PIB 3.3 Capital Requirements for Categories 1 and 5

      • PIB 3.3.1

        This section applies to an Authorised Firm in Category 1 or 5.

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 3.3.2 PIB 3.3.2

        (1) The Capital Requirement for an Authorised Firm is calculated, subject to (2), as the higher of:
        (a) the applicable Base Capital Requirement; or
        (b) its Risk Capital Requirement plus applicable Capital Buffer Requirements.
        (2) Where the Authorised Firm has an ICR imposed on it then the Capital Requirement is its ICR plus Risk Capital Requirement plus applicable Capital Buffer Requirements.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
        [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

        • PIB 3.3.2 Guidance

          1. An Authorised Firm should refer to chapters PIB 4, PIB 5 and PIB 6 to determine whether it is required to calculate a Credit Risk Capital Requirement (also referred to in this module as CRCOM), a Market Risk Capital Requirement or an Operational Risk Capital Requirement, respectively.
          2. The Displaced Commercial Risk Capital Requirement will only apply to an Authorised Firm Managing a PSIAu.
          3. An Authorised Firm will also need to consider the relevant provisions in IFR chapter 5 when calculating its Credit Risk and Market Risk for Islamic Contracts.
          4. If an Individual Capital Requirement is imposed on an Authorised Firm under PIB Chapter 10, such a requirement is additional to the Risk Capital Requirement and is, therefore, a component of the Authorised Firms Capital Requirement.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
          [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

    • PIB 3.4 PIB 3.4 Capital Requirements for Categories 2 and 3A

      • PIB 3.4.1

        This section applies to an Authorised Firm in Category 2 or 3A.

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 3.4.2 PIB 3.4.2

        (1) The Capital Requirement for an Authorised Firm is calculated, subject to (2), as the highest of:
        (a) the applicable Base Capital Requirement;
        (b) the Expenditure Based Capital Minimum; or
        (c) its Risk Capital Requirement plus applicable Capital Buffer Requirements.
        (2) Where the Authorised Firm has an ICR imposed on it then the Capital Requirement is its ICR plus Risk Capital Requirement plus applicable Capital Buffer Requirements.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
        [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

        • PIB 3.4.2 Guidance

          1. An Authorised Firm should refer to chapters 4, 5 and 6 to determine whether it is required to calculate a Credit Risk Capital Requirement (also referred to in this module as CRCOM), a Market Risk Capital Requirement or an Operational Risk Capital Requirement, respectively.
          2. An Authorised Firm will also need to consider the relevant provisions in IFR chapter 5 when calculating its Credit Risk and Market Risk for Islamic Contracts.
          3. If the DFSA imposes an Individual Capital Requirement on an Authorised Firm under PIB Chapter 10, such a requirement is additional to the Risk Capital Requirement and is, therefore, a component of the Authorised Firms Capital Requirement.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
          [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

    • PIB 3.5 PIB 3.5 Capital Requirements for Categories 3B, 3C, 3D and 4

      • PIB 3.5.1

        (1) This section applies to an Authorised Firm in Category 3B, 3C, 3D or 4.
        (2) PIB Rules 3.5.2 and 3.5.3(1) do not apply to an Authorised Firm if the only Financial Service it carries on is Managing a Venture Capital Fund,
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
        [Added] DFSA RMI270/2020 (Made 26th February 2020). [VER36/04-20]
        [Added] DFSA RMI281/2020 (Made 28th October 2020). [VER37/11-20]

      • PIB 3.5.2

        The Capital Requirement for such an Authorised Firm is calculated as the highest of:

        (a) the applicable Base Capital Requirement as set out in PIB section 3.6
        (b) the Expenditure Based Capital Minimum as set out in PIB section 3.7; or
        (c) in the case of a Money Services Provider:
        (i) the Stored Value Capital Requirement, if it issues Stored Value;
        (ii) the Transaction Based Capital Requirement, if it provides Payment Services; or
        (iii) the aggregate of the sums referred to in (i) and (ii), if it carries on both activities.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
        [Amended] DFSA RMI270/2020 (Made 26th February 2020). [VER36/04-20]

      • PIB 3.5.3

        (1) An Authorised Firm to which this section applies must, at all times, maintain an amount which exceeds its Expenditure Based Capital Minimum in the form of liquid assets.
        (2) For the purpose of this Rule and PIB 3.5.4, and subject to (3), liquid assets comprise any of the following:
        (a) cash in hand;
        (b) money deposited with a regulated bank or deposit-taker which has a short-term credit rating of A1 or P1 (or equivalent) and above from an ECAI;
        (c) demand deposits with a tenor of 1 year or less with a bank or deposit-taker in (b);
        (d) time deposits with a tenor of 1 year or less which have an option to redeem the deposit at any time. In such cases, the deposit amount eligible to be included as liquid assets must be calculated as net of any costs associated with such early redemption;
        (e) cash receivable from a regulated clearing house and cash deposits with such clearing houses, other than any fees or contributions to guarantee or reserve funds of such clearing houses; or
        (f) any other asset which may be approved by the DFSA as comprising a liquid asset for the purpose of this Rule.
        (3) For the purpose of this Rule and PIB 3.5.4, liquid assets do not include:
        (a) any investment, asset or deposit which has been pledged as security or Collateral for any obligations or liabilities assumed by it or by any other third party; or
        (b) cash held in Client Money or Insurance Money accounts.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
        [Added] DFSA RMI281/2020 (Made 28th October 2020). [VER37/11-20]

      • PIB 3.5.4

        (1) This Rule applies to an Authorised Firm if the only Financial Service it carries on is Managing a Venture Capital Fund.
        (2) The Authorised Firm must 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 its liabilities cannot be met as they fall due.
        Derived from DFSA RMI281/2020 (Made 28th October 2020). [VER37/11-20]

    • PIB 3.6 PIB 3.6 Base Capital Requirement

      • PIB 3.6.1 PIB 3.6.1

        This section applies to an Authorised Firm in any Category.

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • PIB 3.6.1 Guidance

          1. The Base Capital Requirement is a component of the calculation of the Capital Requirement under PIB sections 3.3, 3.4 and 3.5.
          2. As the Base Capital Requirement in PIB Rule 3.5.2 does not apply to an Authorised Firm that only manages Venture Capital Funds, this section also does not apply to such a firm.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
          [Added] DFSA RMI281/2020 (Made 28th October 2020). [VER37/11-20]

      • PIB 3.6.2

        The table below sets out the Base Capital Requirement for each Category of an Authorised Firm.

        Category Base Capital Requirement
        Category 1 US $10 million
        Category 2 US $2 million
        Category 3A

        US $500,000

        Category 3B

        US $4 million

        Category 3C

        US $500,000

        Except if the only Financial Service referred to in PIB Rule 1.3.5(a) that the Authorised Firm is authorised to carry on is Managing a Collective Investment Fund in which case its Base Capital Requirement is:
        (a) US $140,000 if it manages any Public Fund; or
        (b) US $70,000 otherwise.
        Category 3D

        US $200,000

        Category 4

        US $ 10,000

        Except if the Authorised Firm:
        (a) is authorised to Operate a Crowdfunding Platform and it holds Client Assets; or
        (b) provides Money Transmission,
        in which case its Base Capital Requirement is US $140,000.
        Category 5 US $10 million
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
        [Amended] DFSA RM188/2016 (Made 7th December 2016). [VER26/02-17]
        [Amended] DSFA RM203/2017 (Made 14th June 2017). [VER28/08-17]
        [Amended] DFSA RMI263/2019 Made 18th December 2019). [VER35/01-20]
        [Amended] DFSA RMI270/2020 (Made 26th February 2020). [VER36/04-20]

      • PIB 3.6.3

        An Authorised Firm must have Common Equity Tier 1 Capital (CET1 Capital), as defined in PIB section 3.13, of not less than its relevant Base Capital Requirement at the time that it obtains authorisation and at all times thereafter.

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • PIB 3.7 PIB 3.7 Expenditure Based Capital Minimum

      • PIB 3.7 Guidance

        As the Expenditure Based Capital Minimum requirements in PIB Rules 3.5.2 and 3.5.3(1) do not apply to an Authorised Firm that only Manages Venture Capital Funds, this section also does not apply to such a firm.

        Derived from DFSA RMI281/2020 (Made 28th October 2020). [VER37/11-20]

      • PIB 3.7.1 PIB 3.7.1

        This section applies to an Authorised Firm in Category 2, 3A, 3B, 3C, 3D or 4.

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
        [Added] DFSA RMI270/2020 (Made 26th February 2020). [VER36/04-20]

        • PIB 3.7.1 Guidance

          The Expenditure Based Capital Minimum is a component of the calculation of the Capital Requirement under sections PIB 3.4 and PIB 3.5 and is a key factor in the calculation of the capital components under PIB Rule 3.2.7.

          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 3.7.2

        An Authorised Firm must calculate its Expenditure Based Capital Minimum as:

        (a) subject to (b), in the case of an Authorised Firm that holds Client Assets or Insurance Monies or Acts as the Administrator of an Employee Money Purchase Scheme, 18/52;
        (b) in the case of an Insurance Intermediary which holds Insurance Monies but not Client Assets, 9/52;
        (c) in the case of an Authorised Firm in Category 2, 3A, 3B or 3C (unless it holds Client Assets or Insurance Monies or Acts as the Administrator of an Employee Money Purchase Scheme), 13/52;
        (d) in the case of an Authorised Firm in Category 3D, 9/52; or
        (e) in the case of an Authorised Firm in Category 4, (unless it holds Insurance Monies), 6/52;

        of the Annual Audited Expenditure, calculated in accordance with PIB Rule 3.7.3.

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
        [Amended] DFSA RM183/2016 (Made 19 June 2016). [PIB/VER25/08-16]
        [Amended] DFSA RMI263/2019 Made 18th December 2019). [VER35/01-20]
        [Amended] DFSA RMI270/2020 (Made 26th February 2020). [VER36/04-20]

      • Annual Audited Expenditure

        • PIB 3.7.3

          (1) Subject to PIB Rules 3.7.3A and Rule 3.7.4, Annual Audited Expenditure constitutes all expenses and losses that arise in the Authorised Firm's normal course of business in a twelve month accounting period (excluding exceptional items) which are recorded in the Authorised Firm's audited profit and loss account, less the following items (if they are included in the Authorised Firm's audited profit and loss account):
          (a) staff bonuses, except to the extent that they are non-discretionary;
          (b) employees' and directors' shares in profits, including share options, except to the extent that they are non-discretionary;
          (c) other appropriations of profits, except to the extent that they are automatic;
          (d) shared commissions and fees payable that are directly related to commissions and fees receivable, which are included with total revenue;
          (e) fees, brokerage and other charges paid to clearing houses, exchanges and intermediate brokers for the purposes of executing, registering or clearing transactions;
          (f) any expenses for which pre-payments or advances have al been made to the respective claimant (e.g. pre-paid rent, pre-paid communication charges etc.) and deducted from Capital Resources as illiquid assets;
          (g) foreign exchange losses; and
          (h) contributions to charities.
          (2) For the purposes of (1)(c), a management charge must not be treated as an appropriation of profits.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
          [Amended] DFSA RMI250/2019 (Made 18th December 2019). [VER34/12-19]

        • PIB 3.7.3A

          If a Fund Manager uses a Fund Platform, the Annual Audited Expenditure of the Fund Manager is to be calculated as the aggregate of the expenses and losses of the Authorised Firm and the expenses and losses of the Incorporated Cell Company (the Fund Platform) calculated in accordance with Rule 3.7.4.

          Derived from DFSA RMI250/2019 (Made 18th December 2019). [VER34/12-19]

        • PIB 3.7.4

          (1) For the purposes of PIB Rule 3.7.3, an Authorised Firm must calculate its relevant Annual Audited Expenditure with reference to the Authorised Firm's most recent audited financial statements.
          (2) If the Authorised Firm's most recent audited financial statements do not represent a twelve month accounting period, it must calculate its Annual Audited Expenditure on a pro rata basis so as to produce an equivalent annual amount.
          (3) If an Authorised Firm has not completed its first twelve months of business operations, it must calculate its Annual Audited Expenditure based on forecast expenditure as reflected in the budget for the first twelve months of business operations, as submitted with its application for authorisation.
          (4)
          (a) If an Authorised Firm:
          (i) has a material change in its expenditure (either up or down); or
          (ii) has varied its authorised activities;
          it must recalculate its Annual Audited Expenditure and Expenditure Based Capital Minimum accordingly.
          (b) Where an Authorised Firm has recalculated its Annual Audited Expenditure and Expenditure Based Capital Minimum in accordance with (a), it must submit this recalculation to the DFSA within 7 days of its completion and seek agreement/approval from the DFSA. The DFSA may within 30 days of receiving the recalculation object to the recalculation and require the Authorised Firm to revise its Expenditure Based Capital Minimum.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • PIB 3.8 PIB 3.8 Risk Capital Requirement

      • PIB 3.8.1 PIB 3.8.1

        This section applies to an Authorised Firm in Category 1, 2, 3A or 5.

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • PIB 3.8.1 Guidance

          The Risk Capital Requirement is a component of the calculation of the Capital Requirement under sections PIB 3.3 and PIB 3.4.

          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • Calculation of Risk Capital Requirement

        • PIB 3.8.1A

          An Authorised Firm must calculate its Risk Capital Requirement as 10% of its Risk Weighted Assets.

          Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

      • Risk Weighted Assets

        • PIB 3.8.2

          An Authorised Firm must calculate its Risk Weighted Assets as 12.5 multiplied by the sum of the following:

          (a) the CRCOM;
          (b) the Market Risk Capital Requirement;
          (c) the Operational Risk Capital Requirement; and
          (d) the Displaced Commercial Risk Capital Requirement, where applicable.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
          [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

      • CRCOM

        • PIB 3.8.3 PIB 3.8.3

          An Authorised Firm must calculate its Credit Risk Capital Requirement in accordance with the applicable Rules in PIB chapter 4.

          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

          • PIB 3.8.3 Guidance

            1. Detailed Rules and Guidance in respect of the CRCOM are specified in PIB chapter 4. The CRCOM includes the risk weighted assets (RWA) for all Credit Risk Exposures and securitisation Exposures.
            2. Rules and Guidance in respect of calculating the CRCOM for Islamic Contracts are contained in IFR chapter 5.
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • Market Risk Capital Requirement

        • PIB 3.8.4 PIB 3.8.4

          An Authorised Firm must calculate its Market Risk Capital Requirement in accordance with the applicable Rules in PIB chapter 5.

          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

          • PIB 3.8.4 Guidance

            1. Detailed Rules and Guidance in respect of the Market Risk Capital Requirement and each of its components are contained in PIB chapter 5.
            2. Rules and Guidance in respect of calculating Market Risk for Islamic Contracts are contained in IFR chapter 5.
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • Operational Risk Capital Requirement

        • PIB 3.8.5

          An Authorised Firm must calculate its Operational Risk Capital Requirement in accordance with the applicable Rules in PIB chapter 6.

          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • Displaced Commercial Risk Capital Requirement

        • PIB 3.8.6

          An Authorised Firm Managing a PSIAu must calculate its Displaced Commercial Risk Capital Requirement in accordance with IFR chapter 5.

          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • PIB 3.9 PIB 3.9 Capital Conservation Buffer

      • PIB 3.8A PIB 3.8A Stored Value Capital Requirement

        • PIB 3.8A.1 PIB 3.8A.1

          This section applies to an Authorised Firm in Category 3C that issues Stored Value.

          Derived from DFSA RMI270/2020 (Made 26th February 2020). [VER36/04-20]

          • Calculation of Stored Value Capital Requirement Calculation of Stored Value Capital Requirement

            • PIB 3.8A.2

              (1) An Authorised Firm must calculate its Stored Value Capital Requirement as an amount equal to 3% of the average daily outstanding Stored Value of the firm.
              (2) In (1), the average daily outstanding Stored Value of a firm means the average total of financial liabilities related to Stored Value in issue at the end of each calendar day where that average is calculated over the previous six calendar months.
              (3) The Authorised Firm must calculate its Stored Value Capital Requirement on the first calendar day of each calendar month and apply the resulting sum as its requirement for that month.
              (4) If the Authorised Firm has not completed its first six months of business, it must make the calculation under (2) and (3) based on the outstanding Stored Value projected in the business plan included with its application for authorisation, subject to any adjustment to that plan required by the DFSA.
              Derived from DFSA RMI270/2020 (Made 26th February 2020). [VER36/04-20]

        • PIB 3.9.1

          This section applies to an Authorised Firm in Category 1, 2 or 5.

          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
          [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

        • PIB 3.9.2

          Where, under section PIB 3.3 or PIB 3.4, the Risk Capital Requirement in PIB section 3.8 applies to an Authorised Firm, then the firm is subject to a Capital Conservation Buffer Requirement.

          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
          [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

        • PIB 3.9.3

          The Capital Conservation Buffer Requirement is equivalent to 2.5% of an Authorised Firm's Risk Weighted Assets and must constitute only CET1 Capital.

          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
          [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

        • PIB 3.9.4

          (1) An Authorised Firm must maintain the required buffer amount, calculated in accordance with PIB Rule 3.9.3, at all times.
          (2) The Capital Conservation Buffer Requirement applies on both a solo and a consolidated basis for Authorised Firms forming part of Financial Groups.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
          [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

        • PIB 3.9.5

          An Authorised Firm must not apply CET1 Capital that it maintains to meet the Capital Conservation Buffer Requirement towards meeting:

          (a) any Individual Capital Requirement the DFSA may imposed on it pursuant to PIB chapter 10; or
          (b) its Risk Capital Requirement;
          (c) its Countercyclical Capital Buffer Requirement; or
          (d) its HLA Capital Buffer Requirement.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
          [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

      • PIB 3.9A PIB 3.9A Countercyclical Capital Buffer (CCyB)

        • PIB 3.8B PIB 3.8B Transaction Based Capital Requirement

          • PIB 3.8B.1 PIB 3.8B.1

            This section applies to an Authorised Firm that is a Payment Service Provider.

            Derived from DFSA RMI270/2020 (Made 26th February 2020). [VER36/04-20]

            • Calculation of Transaction Based Capital Requirement Calculation of Transaction Based Capital Requirement

              • PIB 3.8B.2

                (1) An Authorised Firm must calculate its Transaction Based Capital Requirement as the sum of the following elements multiplied by the scaling factor:
                (a) 4% of the first $5 million of payment volume;
                (b) 2.5% of the next $5 million of payment volume;
                (c) 1% of the next $90 million of payment volume;
                (d) 0.5% of the next $150 million of payment volume; and
                (e) 0.25% of any remaining payment volume.
                (2) In (1), payment volume means the total value of Payment Transactions executed by the Authorised Firm in the previous financial year divided by 12.
                (3) If an Authorised Firm has not completed a full financial year’s business, references in (2) to the previous financial year are to be read as the equivalent figure projected in the business plan provided in its application for authorisation, subject to any adjustment to that plan required by the DFSA.
                (4) A Payment Service Provider that also issues Stored Value may exclude from the payment volume in (1), payments directly related to issuing Stored Value.
                (5) The scaling factor in (1) is:
                (a) 0.5 for an Authorised Firm that is authorised to provide only Money Transmission; or
                (b) 1 for an Authorised Firm that is authorised to provide other types of Payment Services.
                Derived from DFSA RMI270/2020 (Made 26th February 2020). [VER36/04-20]

          • PIB 3.9A Guidance

            1. This section sets out when an Authorised Firm must maintain a Countercyclical Capital Buffer (CCyB) and how the buffer is calculated.
            2. A Countercyclical Capital Buffer is intended to take into account the macro-financial environment in which firms operate. If national authorities consider that excess credit growth has led to a build-up of system-wide risk, they can impose this measure to ensure the financial system has a buffer of capital to protect it against future potential losses.
            3. An Authorised Firm will need to maintain a Countercyclical Capital Buffer only if it has a credit exposure in a jurisdiction where a CCyB Authority has imposed a CCyB Rate.
            4. The Countercyclical Capital Buffer is in addition to the capital required under the Risk Capital Requirement and the Capital Conservation Buffer Requirement.
            Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]
            [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

          • PIB 3.9A.1

            This section applies to an Authorised Firm if it:

            (a) is in Category 1, 2 or 5; and
            (b) has a Non-Financial Private Sector Credit Exposure in a jurisdiction for which a CCyB Rate applies.
            Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

          • Countercyclical Capital Buffer Requirement

            • PIB 3.9A.2 PIB 3.9A.2

              An Authorised Firm must maintain a Countercyclical Capital Buffer of CET1 Capital that is calculated using the formula:

              CCyB = CCyB Rate x RWA

              where:

              (a) "CCyB" is the Countercyclical Capital Buffer that the Authorised Firm must maintain;
              (b) "CCyB Rate" is the weighted average of Countercyclical Capital Buffer Rates, calculated in accordance with Rule 3.9A.5, that apply in jurisdictions in which the Authorised Firm has Non-Financial Private Sector Credit Exposures; and
              (c) "RWA" is the value of the Authorised Firm's Risk Weighted Assets.
              Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

              • PIB 3.9A2 Guidance

                1. The CCyB Requirement applies to credit exposures of an Authorised Firm that are 'Non-Financial Private Sector Risk Exposures'. PIB Rule 1.2.1 defines that expression to exclude credit exposures to other banks or to sovereigns, government bodies or agencies, or multilateral development banks.
                2. An Authorised Firm will need to follow the following steps to calculate its CCyB Requirement:
                a. identify the jurisdictions in which it has Non-Financial Private Sector Credit Exposures (Rule 3.9A.6 sets out how to determine the location of an exposure);
                b. identify if a CCyB Rate applies in that jurisdiction and, if so, the date on which it takes effect (see Rules 3.9A.7 to 3.9A.9);
                c. determine the weighted average of CCyB Rates applying to it (see Rule 3.9A.5); and
                d. multiply the weighted average by the value of its Risk Weighted Assets.
                Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

            • PIB 3.9A.3

              An Authorised Firm must not apply CET1 Capital that it maintains to meet the Countercyclical Capital Buffer Requirement towards meeting:

              (a) its Risk Capital Requirement;
              (b) its Capital Conservation Buffer Requirement;
              (c) an HLA Capital Buffer Requirement; or
              (d) an Individual Capital Requirement that the DFSA may impose on it under PIB chapter 10.
              Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

            • PIB 3.9A.4

              The Countercyclical Capital Buffer Requirement applies on both a solo and a consolidated basis for Authorised Firms forming part of a Group.

              Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

          • Weighted Average of CCyB Rates

            • PIB 3.9A.5

              (1) The rate to be used to calculate an Authorised Firm's Countercyclical Capital Buffer is the weighted average of the CCyB Rates that apply in jurisdictions in which it has Non-Financial Private Sector Credit Exposures.
              (2) The weighting applied to the CCyB Rate in each jurisdiction is the riskweighted amount of an Authorised Firm's Non-Financial Private Sector Credit Exposures in that jurisdiction, divided by the risk-weighted amount of its Non-Financial Private Sector Credit Exposures in all jurisdictions.
              Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

          • Determining the location of credit exposures

            • PIB 3.9A.6 PIB 3.9A.6

              (1) This Rule specifies how an Authorised Firm must determine the jurisdiction in which it has a Non-Financial Private Sector Credit Exposure.
              (2) The jurisdiction in which an Authorised Firm has an exposure is to be determined by allocating the exposure to the jurisdiction where, to the best of the Authorised Firm's knowledge and information, the risk ultimately lies.
              (3) If it is not reasonably possible to determine the jurisdiction of an exposure under (2), then the jurisdiction in which the Authorised Firm has the exposure is the jurisdiction where the exposure is booked.
              Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

              • PIB 3.9A.6 Guidance

                1. The location of an Authorised Firm's credit exposure is determined according to the concept of 'ultimate risk', i.e. the location where the risk ultimately lies. This is usually the location of the counterparties, irrespective of the Authorised Firm's own physical location or place of incorporation.
                2. The following examples illustrate how the concept of ultimate risk applies:
                a. if a firm has an exposure to a borrower in country A, and the risk mitigant (e.g. a guarantor) is in country B, then the ultimate risk is in country B;
                b. if, in the example in a, the exposure is only partly mitigated, then the ultimate risk would be split between the uncovered portion in country A and a covered portion in country B;
                c. if a firm has an exposure to a borrower that is a Branch in country A, and the head office of the Branch is in country B, then the ultimate risk is in country B; and
                d. if a firm has an exposure to a borrower in country A, and the exposure is to finance a project in country B, then the ultimate risk is in country B.
                Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

          • The CCyB Rate that applies in a jurisdiction

            • PIB 3.9A.7

              (1) The Countercyclical Capital Buffer Rate for an exposure:
              (a) in the DIFC or elsewhere in the State, is the rate set by the Central Bank; and
              (b) outside the State, is the rate set by the CCyB Authority for that jurisdiction, unless the DFSA has specified a rate under PIB Rule 3.9A.8, in which case that specified rate applies.
              (2) If the rate specified by a CCyB Authority is more than 2.5% then it is taken to be equal to 2.5%, unless the DFSA specifies otherwise.
              Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

            • PIB 3.9A.8

              (1) If the DFSA considers that the CCyB Rate in a jurisdiction outside the State is not sufficient to protect Authorised Firms from the risks of excessive credit growth in that jurisdiction, it may, for credit exposures in that jurisdiction:
              (a) specify a CCyB Rate even though no rate is imposed by the CCyB Authority for that jurisdiction; or
              (b) specify a CCyB Rate that is higher than the rate imposed by the CCyB Authority for that jurisdiction.
              (2) If the DFSA specifies a rate under this Rule, then that rate applies for Non- Financial Private Sector Credit Exposures in the jurisdiction.
              (3) The DFSA may vary or cancel a specified rate under this Rule.
              (4) The DFSA must notify affected Authorised Firms if it specifies a rate, or if it varies or cancels a rate, under this Rule.
              Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

          • Effective date of CCyB Rates

            • PIB 3.9A.9 PIB 3.9A.9

              (1) This Rule specifies when a CCyB Rate takes effect for the purposes of calculating a CCyB Buffer under this section.
              (2) A CCyB Rate for a jurisdiction takes effect from whichever is the later of:
              (a) 12 months after the CCyB Authority announces the rate or the DFSA notifies the rate under PIB Rule 3.9A.8 (as the case may be); or
              (b) 1 July 2018.
              (3) In exceptional circumstances, the DFSA may specify that a CCyB Rate is to take effect from a date earlier or later than that specified in (2).
              Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

              • PIB 3.9A.9 Guidance

                1. CCyB Rates are usually specified to apply after an advance announcement period i.e. a period between when it is announced and when it takes effect, which gives Authorised Firms sufficient time to adopt the new capital buffer. The effect of PIB Rule 3.9A.9(2)(a) is that Authorised Firms will usually have 12 months from the announcement to adopt a buffer.
                2. As a transitional measure, PIB Rule 3.9A.9(2)(b) has the effect that Authorised Firms will have at least 6 months from the day on which this section commences (1 January 2018) to adopt a buffer, even if the relevant rate was announced 12 months before the day the section commences.

                For example: If a CCyB Authority announced on 1 February 2017 a CCyB Rate of 1% that would apply to credit exposures in its jurisdiction, this would usually take effect on 1 February 2018. However, under PIB Rule 3.9A.9(2)(b), instead an Authorised Firm has until 1 July 2018 (6 months after the commencement of this Rule) to adopt the buffer.
                Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

        • PIB 3.9B PIB 3.9B HLA Capital Buffer

          • 3.9B Guidance

            Under PIB section 1.4, the DFSA may designate an Authorised Firm as a systemically important bank (SIB). This section requires a SIB to maintain a further capital buffer, a higher loss absorbency capital buffer (HLA Capital Buffer), and sets out how the HLA Capital Buffer is calculated.

            Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

          • PIB 3.9B.1

            This section applies to an Authorised Firm in Category 1, 2 or 5 that the DFSA has designated as a SIB.

            Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

          • HLA Capital Buffer Requirement

            • PIB 3.9B.2

              A SIB must maintain an HLA Capital Buffer of CET1 Capital that is calculated using the following formula:

              HLA Capital Buffer = HLA Ratio x Relevant RWA

              where:

              "HLA Capital Buffer" is the HLA Capital Buffer that the Authorised Firm must maintain;

              "HLA Ratio" is the ratio determined by the DFSA for that Authorised Firm under PIB Rule 3.9B.6; and

              "Relevant RWA":

              (a) for a G-SIB, is the value of the its Risk Weighted Assets; or
              (b) for a D-SIB, is the value of its Risk Weighted Assets in jurisdictions for which it is considered to be systemically important.
              Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

            • PIB 3.9B.3

              If an Authorised Firm is both a G-SIB and a D-SIB, the HLA Capital Buffer that applies under this section is the higher of the amount calculated under PIB Rule 3.9B.2 for the firm as a G-SIB and the amount calculated under that Rule for the firm as a D-SIB.

              Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

            • PIB 3.9B.4

              An Authorised Firm must not apply CET1 Capital that it maintains to meet an HLA Capital Buffer Requirement towards meeting:

              (a) its Risk Capital Requirement;
              (b) its Capital Conservation Buffer Requirement;
              (c) its Countercyclical Capital Buffer Requirement; or
              (d) an Individual Capital Requirement that the DFSA has imposed on it under PIB chapter 10.

            • PIB 3.9B.5

              The HLA Capital Buffer Requirement applies on both a solo and a consolidated basis for Authorised Firms forming part of a Group.

              Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

          • HLA ratio

            • PIB 3.9B.6 PIB 3.9B.6

              (1) The DFSA must determine an HLA Ratio for each Authorised Firm that it designates as a G-SIB or D-SIB.
              (2) The HLA Ratio determined under (1) for a D-SIB must be not less than 1% and not more than 3.5%.
              (3) The DFSA may vary the HLA Ratio determined under this Rule, provided that for a D-SIB the ratio as varied is within the range specified in (2).
              (4) The procedures in Schedule 3 to the Regulatory Law apply to a DFSA decision to set or vary an HLA Ratio for an Authorised Firm.
              (5) If the DFSA decides to set or vary an HLA Ratio, the Authorised Firm may refer the matter to the FMT for review.
              (6) Paragraphs (4) and (5) do not apply to a decision relating to the HLA Ratio for a G-SIB designated under PIB Rule 1.4.1.
              Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

              • PIB 3.9B.6 Guidance

                1. The DFSA is likely to base the HLA Ratio it determines for a G-SIB on the rate specified for that G-SIB by the Financial Stability Board, in consultation with the Basel Committee. For a D-SIB, the DFSA will determine an HLA Ratio that is between 1% and 3.5% (see PIB Rule 3.9B.6(2)).
                2. The Schedule 3 procedures and the right of review by the FMT do not apply to a rate applied to a G-SIB designated under PIB Rule 1.4.1. This is because the rate specified by the DFSA for such a G-SIB will be the rate recommended by the FSB and Basel Committee.
                Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

        • PIB 3.9C PIB 3.9C Failure to meet a Capital Buffer Requirement

          • PIB 3.9C Guidance

            This section sets out measures that an Authorised Firm must take if it is not meeting a Capital Buffer Requirement, i.e. its Capital Conservation Buffer Requirement, CCyB Requirement or HLA Capital Buffer Requirement. The measures, such as not distributing capital and preparing a plan to restore capitalS, do not limit other action that the DFSA may take against the firm for failing to meet the requirement.

            Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

          • PIB 3.9C.1

            This section applies to an Authorised Firm in Category 1, 2 or 5.

            Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

          • Restrictions on Distributions

            • PIB 3.9C.2

              Where an Authorised Firm fails to meet a Capital Buffer Requirement requirement, it must:

              (a) calculate the maximum distributable amount in accordance with PIB Rule 3.9C.5;
              (b) ensure that it does not undertake any of the following actions until it has calculated the maximum distributable amount and notified the DFSA under PIB Rule 3.9C.6:
              (i) make a distribution in connection with CET1 Capital;
              (ii) create an obligation to pay variable remuneration or discretionary pension benefits or pay variable remuneration if the obligation to pay was created at a time when the institution failed to meet a Capital Buffer Requirement; or
              (iii) make payments on AT1 and T2 Capital instruments.
              Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
              [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

            • PIB 3.9C.3

              An Authorised Firm must:

              (1) in subsequently taking any of the actions described in PIB Rule 3.9C.2(b)(i) to (iii), ensure that it distributes no more than its calculated maximum distributable amount; and
              (2) prepare and submit a capital conservation plan pursuant to PIB Rule 3.9C.8.
              Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
              [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

            • PIB 3.9C.4

              For the purposes of PIB Rule 3.9C.2(b)(i), a distribution in connection with CET1 Capital includes any of the following:

              (a) payment of cash dividends;
              (b) distribution of fully or partly paid bonus shares or other capital instruments;
              (c) a redemption or purchase by an institution of its own shares or other capital instruments;
              (d) a repayment of amounts paid up in connection with capital; or
              (e) a distribution of other items referred to in PIB section 3.13 as eligible for inclusion as CET1 Capital.
              Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
              [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

            • PIB 3.9C.5

              (1) In this section, a reference to a "maximum distributable amount" means the maximum amount that an Authorised Firm may distribute in connection with CET1 Capital as specified in PIB Rules 3.9C.2 and 3.9C.3.
              (2) Subject to (3), an Authorised Firm must determine the maximum distributable amount by multiplying the sum specified in (a) by the factor determined under (b):
              (a) the total of interim or year-end profits that were not included in CET1 Capital pursuant to PIB Rule 3.13.2 and which have accrued after the most recent distribution of profits and after any of the actions referred to in PIB Rule 3.9C.2(b);
              (b) where the CET1 Capital of the Authorised Firm (which is not used to meet the Capital Requirement), expressed as a percentage of the firm's RWA, is:
              (i) within the first quartile (0%-25%) of its Capital Buffer, the factor is 0;
              (ii) within the second quartile (25%-50%) of its Capital Buffer, the factor is 0.2;
              (iii) within the third quartile (50%-75%) of its Capital Buffer, the factor is 0.4; and
              (iv) within the fourth quartile (75%-100%) of its Capital Buffer, the factor is 0.6.
              (3) If an Authorised Firm undertakes any action under PIB Rule 3.9C.2(b), it must take that into account and reduce the maximum distributable amount accordingly.
              Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
              [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

            • PIB 3.9C.6 PIB 3.9C.6

              For the purpose of PIB Rule 3.9C.2(b), where an Authorised Firm intends to distribute any of its distributable profits or intends to undertake an action referred to in PIB Rule 3.9C.2(b)(i) to (iii), the Authorised Firm must notify the DFSA and provide the following information:

              (a) the amount of capital maintained by the Authorised Firm, subdivided as follows:
              (i) CET1 Capital,
              (ii) AT1 Capital, and
              (iii) T2 Capital;
              (b) the amount of its interim and year-end profits;
              (c) the maximum distributable amount calculated in accordance with this section; and
              (d) the amount of distributable profits it intends to allocate between the following:
              (i) dividend payments,
              (ii) share buybacks,
              (iii) payments on AT1 Capital instruments, and
              (iv) the payment of variable remuneration or discretionary pension benefits, whether by creation of a new obligation to pay, or by payment pursuant to an obligation to pay created at a time when the institution failed to meet a Capital Buffer Requirement.
              Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
              [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

              • PIB 3.9.6 Guidance

                Upon receiving a notification under this Rule, the DFSA will make an assessment of the firm's ability to meet and maintain its Capital Requirement on a sustainable basis going forward.

                Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
                [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

            • PIB 3.9C.7

              An Authorised Firm must maintain systems and processes to ensure that the amount of distributable profits and the maximum distributable amount are calculated accurately, and must be able to demonstrate that accuracy to the DFSA on request.

              Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
              [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

          • Capital Conservation Plan

            • PIB 3.9C.8

              Where an Authorised Firm fails to meet a Capital Buffer Requirement, it must prepare a capital conservation plan and submit it to the DFSA no later than 5 business days after it identified its failure to meet Capital Buffer Requirement. The capital conservation plan must include the following:

              (a) estimates of income and expenditure and a forecast balance sheet;
              (b) measures to increase the Capital Resources of the Authorised Firm;
              (c) a plan and timeframe for the increase of own funds with the objective of restoring the Capital Buffer; and
              (d) any other information the DFSA might need in order effectively to carry out its considerations referred to in PIB Rule 3.9C.9.
              Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
              [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

            • PIB 3.9C.9

              (1) Following assessment, the DFSA will approve the capital conservation plan only if it considers that the plan, if implemented, would be reasonably likely to conserve or raise sufficient capital to enable the Authorised Firm to meet its Capital Requirement and Capital Buffer Requirement, within a period that the DFSA considers appropriate.
              (2) If the DFSA does not approve the capital conservation plan, the DFSA may require the Authorised Firm to increase its CET1 Capital to meet the Capital Requirement and the Capital Buffer Requirement, within a specified period of time.
              Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
              [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]