Entire Section

  • PIB 3 Part 4 PIB 3 Part 4 — Calculating Capital Resources

    • PIB 3.10 PIB 3.10 Application

      • PIB 3.10.1 PIB 3.10.1

        This part applies to an Authorised Firm in any Category.

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

        • PIB 3.10.1 Guidance

          The earlier PIB section 3.2 imposes a number of basic requirements on an Authorised Firm, including requirements to:

          a. have and maintain Capital Resources in accordance with these Rules (see PIB Rule 3.2.2); and
          b. maintain an amount of Capital Resources that exceeds the amount of the firm's Capital Requirement (see PIB Rule 3.2.3).
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • PIB 3.11 PIB 3.11 Calculation of Capital Resources

      • PIB 3.11.1

        The total of Capital Resources is derived according to the following formula:

        T1 Capital + T2 Capital = Capital Resources

        where:

        (a) "T1 Capital" represents Tier 1 capital as the sum of CET1 Capital and AT1 Capital;
        (b) "CET1 Capital" represents Common Equity Tier 1 capital assessed in accordance with PIB section 3.13;
        (c) "AT1 Capital" represents Additional Tier 1 capital assessed in accordance with PIB section 3.14; and
        (d) "T2 Capital" represents Tier 2 capital assessed in accordance with PIB section 3.15.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 3.11.2

        An Authorised Firm must calculate its Capital Resources in accordance with the table below and the provisions in sections PIB 3.12 to PIB 3.15.

         
        (A1) Elements of Common Equity Tier 1 (CET1) Capital
        (A2) Adjustments to/deductions from CET1 Capital
        (A3) CET1 Capital = A1 — A2
         
        (A4) Elements of Additional Tier 1 (AT1) Capital
        (A5) Deductions from AT1 Capital
        (A6) AT1 Capital = A4 — A5
         
        (A7) Tier 1 (T1) Capital = A3 + A6
         
        (A8) Elements of Tier 2 (T2) Capital
        (A9) Deductions from T2 Capital
        (A10) Tier 2 (T2) Capital = A8 — A9
         
        (A11) Capital Resources = A7 + A10
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • PIB 3.12 PIB 3.12 Tier 1 capital (T1 Capital)

      • PIB 3.12.1

        The Tier 1 capital (referred to in these Rules as T1 Capital) of an Authorised Firm must be calculated as the total of its Common Equity Tier 1 capital (referred to in these Rules as CET1 Capital) and its Additional Tier 1 capital (referred to in these Rules as AT1 Capital).

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

    • PIB 3.13 PIB 3.13 Common Equity Tier 1 capital (CET1 Capital)

      • PIB 3.13.1

        The CET1 Capital constitutes the sum of CET1 capital elements in PIB Rule 3.13.2, subject to the adjustments, deductions and exemptions stipulated later in this section.

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

      • PIB 3.13.2

        CET1 Capital consists of the sum of the following capital elements:

        (a) capital instruments, provided the conditions laid down in PIB Rule 3.13.3 are fully met;
        (b) share premium accounts related to the instruments referred to in (a);
        (c) retained earnings;
        (d) accumulated other comprehensive income, as defined in the International Financial Reporting Standards; and
        (e) other reserves which are required to be disclosed under International Financial Reporting Standards, excluding any amounts al included in accumulated other comprehensive income or retained earnings.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 3.13.3

        (1) For the purposes of PIB Rule 3.13.2(a), a capital instrument is eligible for inclusion in CET1 Capital where all the following conditions are met:
        (a) the instruments are issued directly by the Authorised Firm with the prior approval of the shareholders of the Authorised Firm;
        (b) the instruments are fully paid up and their purchase is not funded directly or indirectly by the Authorised Firm;
        (c) the instruments meet all the following conditions as regards their classification:
        (i) they qualify as equity capital within the meaning of the DIFC Companies Law;
        (ii) they are classified as equity within the meaning of the International Financial Reporting Standards; and
        (iii) they are classified as equity capital for the purposes of determining balance sheet insolvency, under the DIFC Insolvency Law;
        (d) the instruments are clearly and separately disclosed on the balance sheet in the financial statements of the Authorised Firm;
        (e) the instruments are perpetual;
        (f) the principal amount of the instruments may not be reduced or repaid, except in either of the following cases:
        (i) the liquidation of the Authorised Firm; or
        (ii) discretionary repurchases of the instruments or other discretionary means of reducing capital, where the Authorised Firm has notified the DFSA of its intention to do so, in writing, at least 30 days prior to taking such steps;
        (g) the provisions governing the instruments do not indicate expressly or implicitly that the principal amount of the instruments would or might be reduced or repaid other than in the liquidation of the Authorised Firm, and the Authorised Firm does not otherwise provide such an indication prior to or at issuance of the instruments;
        (h) the instruments meet the following conditions as regards distributions:
        (i) there are no preferential distributions, including in relation to other CET1 Capital instruments, and the terms governing the instruments do not provide preferential rights to payment of distributions;
        (ii) distributions to holders of the instruments may be paid only out of distributable items;
        (iii) the conditions governing the instruments do not include a cap or other restriction on the maximum level of distributions;
        (iv) the level of distributions is not determined on the basis of the amount for which the instruments were purchased at issuance;
        (v) the conditions governing the instruments do not include any obligation for the Authorised Firm to make distributions to their holders and the Authorised Firm is not otherwise subject to such an obligation; and
        (vi) non-payment of distributions does not constitute an event of default of the Authorised Firm;
        (i) compared to all the capital instruments issued by the Authorised Firm, the instruments absorb the first and proportionately greatest share of losses as they occur, and each instrument absorbs losses to the same degree as all other CET1 Capital instruments;
        (j) the instruments rank below all other claims in the event of insolvency or liquidation of the Authorised Firm;
        (k) the instruments entitle their owners to a claim on the residual assets of the Authorised Firm, which, in the event of its liquidation and after the payment of all senior claims, is proportionate to the amount of such instruments issued and is not fixed or subject to a cap;
        (l) the instruments are not secured, or guaranteed by any of the following:
        (i) the Authorised Firm or its Subsidiaries;
        (ii) any Parent of the Authorised Firm or its Subsidiaries; or
        (iii) any member of its Financial Group; and
        (m) the instruments are not subject to any arrangement, contractual or otherwise, that enhances the seniority of claims under the instruments in insolvency or liquidation.
        (2) The conditions in (1)(i) must be complied with notwithstanding a write down on a permanent basis of the principal amount of AT1 Capital instruments.
        (3) Where any of the conditions in (1) cease to be met:
        (a) the instrument must cease to qualify as a CET1 Capital instrument; and
        (b) the share premium accounts that relate to that instrument must cease to qualify as a CET1 element.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 3.13.4 PIB 3.13.4

        For the purposes of PIB Rule 3.13.2(c), an Authorised Firm may include interim or year-end net profits in CET1 Capital before the Authorised Firm has approved its annual audited accounts confirming its final profit or loss for the year, but only where:

        (a) those profits have been reviewed by the External Auditor of the Authorised Firm, who is responsible for auditing its accounts; and
        (b) the Authorised Firm is fully satisfied that any foreseeable charge or dividend has been deducted from the amount of those net profits.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • PIB 3.13.4 Guidance

          The review of the interim or year-end profits of the Authorised Firm referred to in PIB Rule 3.13.4 should provide an adequate level of assurance that those profits have been evaluated in accordance with the principles set out in the International Financial Reporting Standards. The DFSA may request an Authorised Firm to provide it with a copy of its external auditor's opinion on whether the interim profits are reasonably stated.

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

      • CET1 Adjustments

        • PIB 3.13.5

          An Authorised Firm must, in the calculation of CET1 Capital, exclude the following:

          (a) any increase in its equity under the International Financial Reporting Standards; including:
          (i) where such an increase is associated with future margin income that results in a gain on sale for the Authorised Firm; and
          (ii) where the Authorised Firm is the Originator of a securitisation, net gains that arise from the capitalisation of future income from the securitised assets that provide Credit Enhancement to positions in the securitisation;
          (b) the amount of cash flow hedge reserve related to gains or losses on cash flow hedges of financial instruments that are not valued at fair value, including projected cash flows; and
          (c) all unrealised gains or losses on liabilities of the Authorised Firm that are valued at fair value, and which result from changes in the Authorised Firm's own credit quality, except when such gains or losses are offset by a change in the fair value of another financial instrument which is measured at fair value and resulting from changes in the Authorised Firm's own credit quality.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • PIB 3.13.6 PIB 3.13.6

          Except for the items referred to in PIB Rule 3.13.5, an Authorised Firm must not make any adjustments to remove from its Capital Resources unrealised gains or losses on their assets or liabilities measured at fair value.

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

          • PIB 3.13.6 Guidance

            An Authorised Firm is expected to follow the guidance provided in respect of prudent valuation in PIB section 2.4 and in PIB App2, in valuing all its assets measured at fair value while calculating its Capital Resources.

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

      • CET1 Deductions

        • PIB 3.13.7

          Subject to the following Rules in this section, an Authorised Firm must deduct the following from the calculation of its CET1 Capital:

          (a) losses for the current financial year;
          (b) goodwill and other intangible assets as defined in the International Financial Reporting Standards;
          (c) deferred tax assets that rely on future profitability;
          (d) defined benefit pension fund assets of the Authorised Firm;
          (e) the applicable amount, by reference to PIB Rule 3.13.12, of direct and indirect holdings by an Authorised Firm of its own CET1 Capital instruments including instruments under which an Authorised Firm is under an actual or contingent obligation to effect a purchase by virtue of an existing contractual obligation;
          (f) holdings of the CET1 Capital instruments of Relevant Entities where those entities have a reciprocal cross holding with the Authorised Firm which have the effect of artificially inflating the Capital Resources of the Authorised Firm;
          (g) the applicable amount, by reference to PIB Rule 3.13.13, of direct and indirect holdings by the Authorised Firm of CET1 Capital instruments of Relevant Entities where the Authorised Firm does not have a significant investment in those entities;
          (h) the applicable amount, by reference to Rules PIB 3.13.13 and PIB 3.13.18, of direct and indirect holdings by the Authorised Firm of the CET1 Capital instruments of Relevant Entities where the Authorised Firm has a significant investment in those entities;
          (i) the amount of items required to be deducted from the calculation of AT1 Capital in accordance with the relevant Rules under PIB section 3.14, that exceeds the AT1 Capital of the Authorised Firm;
          (j) the Exposure amount of the following items which qualify for a risk weight of 1000%, where the Authorised Firm deducts that Exposure amount from CET1 Capital as an alternative to applying a risk weight of 1000%;
          (i) Qualifying Holdings;
          (ii) securitisation positions, in accordance with relevant Rules in PIB chapter 4; and
          (iii) free deliveries, in accordance with the Rules in PIB section A4.6; and
          (k) for an Authorised Firm which is a Partnership or Limited Liability Partnership, the amount by which the aggregate of the amounts withdrawn by its partners or members exceeds the profits of that firm.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • CET1 Deductions Relating to Intangible Assets

        • PIB 3.13.8

          For the purposes of PIB Rule 3.13.7(b), an Authorised Firm must determine the intangible assets to be deducted in accordance with the following:

          (a) the amount to be deducted must be reduced by the amount of associated deferred tax liabilities that would be extinguished if the intangible assets became impaired or were derecognised under the International Financial Reporting Standards; and
          (b) the amount to be deducted must include goodwill included in the valuation of significant investments of the Authorised Firm.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • CET1 Deductions Relating to Deferred Tax Assets

        • PIB 3.13.9 PIB 3.13.9

          (1) For the purposes of PIB Rule 3.13.7(c), and subject to (2), the amount of deferred tax assets that rely on future profitability must be calculated without reducing it by the amount of the associated deferred tax liabilities of the Authorised Firm.
          (2) The amount of deferred tax assets that rely on future profitability may be reduced by the amount of the associated deferred tax liabilities of the Authorised Firm, provided the following conditions are met:
          (a) those deferred tax assets and associated deferred tax liabilities both arise from the tax law of the same tax jurisdiction; and
          (b) the taxation authority of that tax jurisdiction permits the offsetting of deferred tax assets and the associated deferred tax liabilities.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

          • PIB 3.13.9 Guidance

            1. Associated deferred tax liabilities of the Authorised Firm used for the purposes of PIB Rule 3.13.9 may not include deferred tax liabilities that reduce the amount of intangible assets or defined benefit pension fund assets required to be deducted. The amount of associated deferred tax liabilities referred to in this guidance should be allocated between the following:
            a. deferred tax assets that rely on future profitability and arise from temporary differences that are not deducted as part of a threshold exemption for deductions from CET1 Capital; and
            b. all other deferred tax assets that rely on future profitability.
            2. An Authorised Firm should allocate the associated deferred tax liabilities according to the proportion of deferred tax assets that rely on future profitability that the items referred to in Guidance note 1a and b represent.
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • PIB 3.13.10

          (1) An Authorised Firm must apply a risk weight in accordance with PIB chapter 4 as applicable, to deferred tax assets that do not rely on future profitability.
          (2) For the purpose of (1), deferred tax assets that do not rely on future profitability comprise the following:
          (a) overpayments of tax by the Authorised Firm for the current year;
          (b) current year tax losses of the Authorised Firm carried back to previous years that give rise to a claim on, or a receivable from, a central government, regional government or local tax authority; and
          (c) deferred tax assets arising from temporary differences which, in the event the Authorised Firm incurs a loss, becomes insolvent or enters liquidation, are replaced, on a mandatory and automatic basis in accordance with the applicable national law, with a claim on the central government of the jurisdiction in which the Authorised Firm is incorporated which must absorb losses to the same degree as CET1 Capital instruments on a going concern basis and in the event of insolvency or liquidation of the Authorised Firm.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • Deductions Relating to Defined Benefit Pension Fund Assets

        • PIB 3.13.11

          For the purposes of PIB Rule 3.13.7(d), the amount of defined benefit pension fund assets to be deducted from CET1 Capital must be reduced by the following:

          (a) the amount of any associated deferred tax liability which could be extinguished if the assets became impaired or were derecognised under the International Financial Reporting Standards; and
          (b) the amount of assets in the defined benefit pension fund which the Authorised Firm has an unrestricted ability to use where the Authorised Firm has provided adequate advance notification of its intention to use those assets to the DFSA. Those assets used to reduce the amount to be deducted must receive a risk weight in accordance with PIB chapter 4 of PIB.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • Deductions Relating to Holdings of Own CET1 Capital Instruments

        • PIB 3.13.12

          For the purposes of PIB Rule 3.13.7(e), an Authorised Firm must calculate holdings of its own CET1 Capital instruments on the basis of gross long positions subject to the following exceptions:

          (a) an Authorised Firm must calculate the amount of holdings of own CET1 Capital instruments in the Trading Book on the basis of the net long position, provided the long and short positions are in the same underlying Exposure and the short positions involve no Counterparty Credit Risk;
          (b) an Authorised Firm must determine the amount to be deducted for indirect holdings in the Trading Book that take the form of holdings of index Securities by calculating the underlying Exposure to own CET1 Capital instruments included in the indices; and
          (c) an Authorised Firm must net gross long positions in own CET1 Capital instruments in its Trading Book resulting from holdings of index Securities against short positions in own CET1 Capital instruments resulting from short positions in the underlying indices, including where those short positions involve Counterparty Credit Risk.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • CET1 Deductions Relating to Significant Investment in a Relevant Entity

        • PIB 3.13.13

          For the purposes of PIB Rule 3.13.7(g) and (h), an investment by an Authorised Firm in a Relevant Entity must be considered as a significant investment if it meets any of the following conditions:

          (a) the Authorised Firm owns more than 10% of the CET1 Capital instruments issued by that entity;
          (b) the Authorised Firm has Close Links with that entity and owns CET1 Capital instruments issued by that entity; and
          (c) the Authorised Firm owns CET1 Capital instruments issued by that entity and the entity is not included in consolidation pursuant to PIB chapter 8 but is included in the same accounting consolidation as the Authorised Firm for the purposes of financial reporting under the International Financial Reporting Standards.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • Deductions Relating to CET1 Capital Instruments in Relevant Entities

        • PIB 3.13.14

          For the purposes of PIB Rule 3.13.7(f), (g) and (h), the amount of holdings of CET1 Capital instruments and other capital instruments of Relevant Entities to be deducted, must be calculated, subject to PIB Rule 3.13.15, on the basis of the gross long positions.

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

        • PIB 3.13.15

          For the purposes of PIB Rule 3.13.7(g) and (h), an Authorised Firm must make the deductions in accordance with the following:

          (a) the holdings in the Trading Book of the capital instruments of Relevant Entities must be calculated on the basis of the net long position in the same underlying Exposure provided the maturity of the short position matches the maturity of the long position or has a residual maturity of at least one year; and
          (b) the amount to be deducted for indirect holdings in the Trading Book of the capital instruments of Relevant Entities that take the form of holdings of index Securities must be determined by calculating the underlying Exposure to the capital instruments of the Relevant Entities in the indices.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • PIB 3.13.16

          (1) For the purposes of PIB Rule 3.13.7(g), the amount to be deducted is calculated by multiplying the amount referred to in (a) by the factor derived from the calculation referred to in (b):
          (a) the aggregate amount by which the direct, indirect and synthetic holdings by the Authorised Firm of the CET1, AT1 and T2 Capital instruments of Relevant Entities, in which the Authorised Firm does not have a significant investment, exceeds 10% of the CET1 items of the Authorised Firm calculated after applying the following to CET1 items:
          (i) all of the adjustments referred to in Rules PIB 3.13.5 and PIB 3.13.6;
          (ii) the deductions referred to in PIB Rule 3.13.7(a) to (f) and (h) to (j), excluding the amount to be deducted for deferred tax assets that rely on future profitability and arise from temporary differences; and
          (iii) the deductions referred to in Rules PIB 3.13.14 and PIB 3.13.15;
          (b) the amount of direct and indirect holdings by the Authorised Firm of the CET1 Capital instruments of Relevant Entities divided by the aggregate amount of direct and indirect holdings by the Authorised Firm of the CET1, AT1 and T2 Capital instruments issued by those Relevant Entities.
          (2) An Authorised Firm must exclude Underwriting positions held for 5 working days or fewer from the amount referred to in (1)(a) and from the calculation of the factor referred to in (1)(b).
          (3) The amount to be deducted pursuant to (1) must be apportioned across each CET1 Capital instrument held. An Authorised Firm must determine the portion of holdings of CET1 Capital instruments that is to be deducted pursuant to (1) by dividing the amount specified in (a) by the amount specified in (b):
          (a) the amount of holdings required to be deducted pursuant to (1)(a);
          (b) the aggregate amount of direct and indirect holdings by the Authorised Firm of all the capital instruments of Relevant Entities in which the Authorised Firm does not have a significant investment.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • PIB 3.13.17

          (1) The amount of holdings referred to in PIB Rule 3.13.7(g) that is equal to or less than 10% of the CET1 items of the Authorised Firm after applying the provisions laid down in (1)(a)(i) to (iii) must not be deducted and must be subject to the applicable risk weights in accordance with PIB chapter 4.
          (2) An Authorised Firm must determine the portion of holdings of all the capital instruments that is risk weighted by dividing the amount specified in (a) by the amount specified in (b):
          (a) the amount of holdings required to be risk weighted pursuant to PIB Rule 3.13.17(1);
          (b) the aggregate amount of direct and indirect holdings by the Authorised Firm of all the capital instruments of Relevant Entities in which the Authorised Firm does not have a significant investment.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • PIB 3.13.18

          For the purposes of PIB Rule 3.13.7(h), the amount to be deducted from CET1 elements must exclude Underwriting positions held for 5 working days or fewer and must be determined in accordance with Rules PIB 3.13.14 and PIB 3.13.15.

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

      • CET1 Exemptions from Deductions

        • PIB 3.13.19

          (1) In making the deductions required pursuant to PIB Rule 3.13.7(c) and (h), an Authorised Firm must not deduct the items listed in (a) and (b), where in aggregate they are equal to or less than 15% of CET1 Capital:
          (a) deferred tax assets that are dependent on future profitability and arise from temporary differences, and in aggregate are equal to or less than 10% of the CET1 items of the Authorised Firm calculated after applying the following:
          (i) adjustments referred in Rules PIB 3.13.5 and PIB 3.13.6; and
          (ii) deductions referred to in (a) to (g) and (i) to (j) of PIB Rule 3.13.7, excluding deferred tax assets that rely on future profitability and arise from temporary differences.
          (b) where an Authorised Firm has a significant investment in a Relevant Entity, the direct and indirect holdings of that Authorised Firm of the CET1 Capital instruments of those entities that in aggregate are equal to or less than 10% of the CET1 items of the Authorised Firm calculated after applying the following:
          (i) adjustments referred in Rules PIB 3.13.5 and PIB 3.13.6; and
          (ii) deductions referred to in (a) to (h) and (i) to (j) of PIB Rule 3.13.7 excluding deferred tax assets that rely on future profitability and arise from temporary differences.
          (2) Items that are not deducted pursuant to (1) must be risk weighted at 200% and subject to the requirements of PIB chapter 4, as applicable.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • PIB 3.14 PIB 3.14 Additional Tier 1 Capital (AT1 Capital)

      • PIB 3.14.1

        The AT1 Capital constitutes the sum of AT1 Capital elements in PIB Rule 3.14.2, subject to the deductions stipulated later in this section.

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

      • PIB 3.14.2

        AT1 Capital consists of the sum of the following capital elements:

        (a) capital instruments which meet the eligibility criteria laid down in PIB Rule 3.14.3; and
        (b) the share premium accounts related to the instruments referred to in (a).
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 3.14.3

        (1) For the purposes of PIB Rule 3.14.2(a), a capital instrument is eligible for inclusion in AT1 Capital where all the following conditions are met:
        (a) the instruments are issued and paid up;
        (b) the instruments are not purchased by any of the following:
        (i) the Authorised Firm or its Subsidiaries; or
        (ii) an Undertaking in which the Authorised Firm has participation in the form of ownership, direct or by way of control, of 20% or more of the voting rights or capital of that Undertaking;
        (c) the purchase of the instruments is not funded directly or indirectly by the Authorised Firm;
        (d) the instruments rank below T2 Capital instruments in the event of the insolvency of the Authorised Firm;
        (e) the instruments are not secured, or guaranteed by any of the following:
        (i) the Authorised Firm or its Subsidiaries;
        (ii) any Parent of the Authorised Firm or their Subsidiaries;
        (iii) any member of its Financial Group in accordance with PIB chapter 8; or
        (iv) any Undertaking that has Close Links with entities referred to in (i) to (iii);
        (f) the instruments are not subject to any arrangement, contractual or otherwise that enhances the seniority of the claim under the instruments in insolvency or liquidation;
        (g) the instruments are perpetual and the provisions governing them include no incentive for the Authorised Firm to redeem them;
        (h) where the provisions governing the instruments include one or more call options, the option to call may be exercised at the sole discretion of the issuer;
        (i) the instruments may be called, redeemed or repurchased only where the Authorised Firm has notified the DFSA of its intention to call, redeem or repurchase the instruments in writing and well in advance, and not before 5 years after the date of issuance of the respective instruments;
        (j) the provisions governing the instruments do not indicate explicitly or implicitly that the instruments would or might be called, redeemed or repurchased and the Authorised Firm does not otherwise provide such an indication;
        (k) the Authorised Firm does not indicate explicitly or implicitly that the DFSA would not object to a plan to call, redeem or repurchase the instruments;
        (l) distributions under the instruments meet the following conditions:
        (i) they are paid out of distributable items;
        (ii) the level of distributions made on the instruments will not be modified based on the credit standing of the Authorised Firm or any of its Parents or any entities in its Financial Group;
        (iii) the provisions governing the instruments give the Authorised Firm full discretion at all times to cancel the distributions on the instruments for an unlimited period and on a non-cumulative basis, and the Authorised Firm may use such cancelled payments without restriction to meet its obligations as they fall due;
        (iv) cancellation of distributions does not constitute an event of default of the Authorised Firm; and
        (v) the cancellation of distributions imposes no restrictions on the Authorised Firm;
        (m) the instruments do not contribute to a determination that the liabilities of an Authorised Firm exceed its assets, where such a determination constitutes a test of insolvency under the DIFC Insolvency Law;
        (n) the provisions governing the instruments require the principal amount of the instruments to be written down, or the instruments to be converted to CET1 Capital instruments, upon the occurrence of a trigger event;
        (o) the provisions governing the instruments include no feature that could hinder the recapitalisation of the Authorised Firm ; and
        (p) where the instruments are not issued directly by the Authorised Firm or by an operating entity within the Financial Group to which the Authorised Firm belongs, or by the Parent of the Authorised Firm , the proceeds are immediately available without limitation in a form that satisfies the conditions laid down in this Rule to any of the following:
        (i) the Authorised Firm ;
        (ii) an operating entity within the Financial Group to which the Authorised Firm belongs; or
        (iii) any Parent of the Authorised Firm .
        (2) For the purposes of (1)(l)(v) and (1)(o), the provisions governing AT1 Capital instruments must not include the following:
        (a) a requirement for distributions on the instruments to be made in the event of a distribution being made on an instrument issued by the Authorised Firm that ranks to the same degree as, or more junior than, an AT1 Capital instrument;
        (b) a requirement for the payment of distributions on CET1, AT1 or T2 Capital instruments to be cancelled in the event that distributions are not made on those AT1 Capital instruments; or
        (c) an obligation to substitute the payment of interest or dividend by a payment in any other form.
        (3) For the purposes of (1)(n), the following provisions apply to AT1 Capital instruments:
        (a) a trigger event occurs when the CET1 Capital of the Authorised Firm falls below either of the following:
        (i) 66.25% of its Capital Requirement; or
        (ii) a level higher than 66.25%, where determined by the Authorised Firm and specified in the provisions governing the instrument;
        (b) where the provisions governing the instruments require them to be converted into CET1 Capital instruments upon the occurrence of a trigger event, those provisions must specify either of the following:
        (i) the rate of such conversion and a limit on the permitted amount of conversion; or
        (ii) a range within which the instruments will convert into CET1 Capital instruments;
        (c) where the provisions governing the instruments require their principal amount to be written down upon the occurrence of a trigger event, the write down must reduce all the following:
        (i) the claim of the holder of the instrument in the liquidation of the Authorised Firm ;
        (ii) the amount required to be paid in the event of the call of the instrument; and
        (iii) the distributions made on the instrument.
        (4) The following must apply where, in the case of an AT1 Capital instrument, the conditions laid down in this Rule cease to be met:
        (a) that instrument must cease to qualify as an AT1 Capital instrument; and
        (b) the part of the share premium accounts that relates to that instrument must cease to qualify as an AT1 Capital element.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • AT1 Regulatory Deductions

        • PIB 3.14.4

          Subject to the following Rules in this section, an Authorised Firm must deduct the following from the calculation of its AT1 Capital:

          (a) direct and indirect holdings by an Authorised Firm of own AT1 Capital instruments including instruments under which an Authorised Firm is under an actual or contingent obligation to effect a purchase by virtue of an existing contractual obligation;
          (b) holdings of the AT1 Capital instruments of Relevant Entities where those entities have a reciprocal cross holding with the Authorised Firm which have the effect of artificially inflating the Capital Resources of the Authorised Firm ;
          (c) the amount determined in accordance with PIB Rule 3.14.8 of direct and indirect holdings by the Authorised Firm of the AT1 Capital instruments of Relevant Entities where the Authorised Firm does not have a significant investment in those entities ;
          (d) direct and indirect holdings by the Authorised Firm of the AT1 Capital instruments of Relevant Entities where the Authorised Firm has a significant investment in those entities, excluding Underwriting positions held for 5 working days or fewer; and
          (e) the amounts required to be deducted from T2 Capital pursuant to PIB Rule 3.15.4 that exceed the T2 Capital of the Authorised Firm .
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • Deductions Relating to Holdings of Own AT1 Capital Instruments

        • PIB 3.14.5

          For the purposes of PIB Rule 3.14.4(a), an Authorised Firm must calculate holdings of its own AT1 Capital instruments on the basis of gross long positions subject to the following exceptions:

          (a) an Authorised Firm must calculate the amount of holdings of own AT1 Capital instruments in the Trading Book on the basis of the net long position provided the long and short positions are in the same underlying Exposure and the short positions involve no Counterparty Credit Risk;
          (b) an Authorised Firm must determine the amount to be deducted for indirect holdings in the Trading Book of own AT1 Capital instruments that take the form of holdings of index Securities by calculating the underlying Exposure to own AT1 Capital instruments in the indices; and
          (c) an Authorised Firm must net gross long positions in own AT1 Capital instruments in the Trading Book resulting from holdings of index Securities may be netted by the Authorised Firm against short positions in own AT1 instruments resulting from short positions in the underlying indices, including where those short positions involve Counterparty Credit Risk.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • Deductions Relating to AT1 Capital Instruments in Relevant Entities

        • PIB 3.14.6

          For the purposes of PIB Rule 3.14.4(b), (c) and (d), the amount of holdings of AT1 Capital instruments of Relevant Entities to be deducted, must be calculated, subject to PIB 3.14.7, on the basis of the gross long positions.

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

        • PIB 3.14.7

          For the purposes of PIB Rule 3.14.4(c) and (d), an Authorised Firm must make the deductions in accordance with the following:

          (a) the holdings in the Trading Book of the capital instruments of Relevant Entities must be calculated on the basis of the net long position in the same underlying Exposure provided the maturity of the short position matches the maturity of the long position or has a residual maturity of at least one year; and
          (b) the amount to be deducted for indirect holdings in the Trading Book of the capital instruments of Relevant Entities that take the form of holdings of index Securities must be determined by calculating the underlying Exposure to the capital instruments of the Relevant Entities in the indices.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • AT1 Deductions Relating to Significant Investment in a Relevant Entity

        • PIB 3.14.8

          (1) For the purposes of PIB Rule 3.14.4(c), an Authorised Firm must calculate the applicable amount to be deducted by multiplying the amount referred to in (a) by the factor derived from the calculation referred to in (b):
          (a) the amount referred to in PIB Rule 3.13.16(1)(a);
          (b) the amount of direct and indirect holdings by the Authorised Firm of the AT1 Capital instruments of Relevant Entities divided by the aggregate amount of all direct and indirect holdings by the Authorised Firm of the CET1, AT1 and T2 Capital instruments of those Relevant Entities.
          (2) An Authorised Firm must exclude Underwriting positions held for 5 working days or fewer from the amount referred to in PIB Rule 3.13.16(1)(a) and from the calculation of the factor referred to in (1)(b).
          (3) An Authorised Firm must determine the portion of holdings of AT1 Capital instruments that is to be deducted pursuant to (1) by dividing the amount specified in (a) by the amount specified in (b):
          (a) the amount of holdings required to be deducted pursuant to (1)(a);
          (b) the aggregate amount of direct and indirect holdings by the Authorised Firm of all the capital instruments of Relevant Entities in which the Authorised Firm does not have a significant investment.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • PIB 3.15 PIB 3.15 Tier 2 capital (T2 Capital)

      • PIB 3.15.1

        The T2 Capital constitutes the sum of T2 Capital elements in PIB Rule 3.15.2, subject to the deductions stipulated later in this section.

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

      • PIB 3.15.2

        T2 Capital consists of the sum of the following elements:

        (a) capital instruments which meet the eligibility criteria laid down in PIB Rule 3.15.3 ; and
        (b) the share premium accounts related to the instruments referred to in (a).
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 3.15.3

        (1) For the purpose of PIB Rule 3.15.2(a), a capital instrument is eligible for inclusion in T2 Capital where all the following conditions are met:
        (a) the instruments are issued and fully paid-up;
        (b) the instruments are not purchased by any of the following:
        (i) the Authorised Firm or its Subsidiaries;
        (ii) an Undertaking in which the Authorised Firm has participation in the form of ownership, direct or by way of control, of 20% or more of the voting rights or capital of that Undertaking;
        (c) the purchase of the instruments is not funded directly or indirectly by the Authorised Firm ;
        (d) the claim on the principal amount of the instruments under the provisions governing the instruments is wholly subordinated to claims of all non-subordinated creditors;
        (e) the instruments are not secured, or guaranteed by any of the following:
        (i) the Authorised Firm or its Subsidiaries;
        (ii) any Parent of the Authorised Firm or their Subsidiaries;
        (iii) any member of the Financial Group to which the Authorised Firm belongs; or
        (iv) any Undertaking that has Close Links with entities referred to in (i) to (iii);
        (f) the instruments are not subject to any arrangement that otherwise enhances the seniority of the claim under the instruments;
        (g) the instruments have an Original Maturity of at least 5 years;
        (h) the provisions governing the instruments do not include any incentive for them to be redeemed by the Authorised Firm ;
        (i) where the instruments include one or more call options, the options are exercisable at the sole discretion of the Issuer;
        (j) the instruments may be called, redeemed or repurchased only where the Authorised Firm has notified the DFSA of its intention to call, redeem or repurchase the instruments in writing and well in advance, and not before 5 years after the date of issuance of the respective instruments;
        (k) the provisions governing the instruments do not indicate or suggest that the instruments would or might be redeemed or repurchased other than at maturity and the Authorised Firm does not otherwise provide such an indication or suggestion;
        (l) the provisions governing the instruments do not give the holder the right to accelerate the future scheduled payment of interest or principal, other than in the insolvency or liquidation of the Authorised Firm ;
        (m) the level of interest or dividend payments due on the instruments will not be modified based on the credit standing of the Authorised Firm , its Parent or any member of its Financial Group; and
        (n) where the instruments are not issued directly by the Authorised Firm or by an operating entity within its Financial Group, or by its Parent, the proceeds are immediately available without limitation in a form that satisfies the conditions laid down in this Rule to any of the following:
        (i) the Authorised Firm ;
        (ii) an operating entity within its Financial Group; or
        (iii) any Parent of the Authorised Firm .
        (2) The extent to which T2 Capital instruments can be considered as eligible for inclusion in T2 Capital during the final 5 years of maturity of those instruments is calculated by multiplying the result derived from the calculation in (a) by the amount referred to in (b):
        (a) the nominal amount of the instruments on the first day of the final 5 year period of their contractual maturity divided by the number of calendar days in that period;
        (b) the number of remaining calendar days of contractual maturity of the instruments.
        (3) The following must apply where, in the case of a T2 Capital instrument, the conditions laid down in this Rule cease to be met:
        (a) that instrument must cease to qualify as a T2 Capital instrument; and
        (b) the part of the share premium accounts that relates to that instrument must cease to qualify as a T2 Capital element.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • T2 Regulatory Deductions and Exclusions

        • PIB 3.15.4

          Subject to the following Rules in this section, an Authorised Firm must deduct the following from the calculation of its T2 Capital:

          (a) direct and indirect holdings by an Authorised Firm of own T2 Capital instruments, including own T2 instruments that an Authorised Firm could be obliged to purchase as a result of existing contractual obligations;
          (b) holdings of the T2 Capital instruments of Relevant Entities where those entities have a reciprocal cross holding with the Authorised Firm which have the effect of artificially inflating the Capital Resources of the Authorised Firm ;
          (c) the amount of direct and indirect holdings by the Authorised Firm of the T2 Capital instruments of Relevant Entities where the Authorised Firm does not have a significant investment in those entities; and
          (d) direct and indirect holdings by the Authorised Firm of the T2 Capital instruments of Relevant Entities where the Authorised Firm has a significant investment in those entities, excluding Underwriting positions held for fewer than 5 working days.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • Deductions Relating to Holdings of Own T2 Capital Instruments

        • PIB 3.15.5

          For the purposes of PIB Rule 3.15.4(a), an Authorised Firm must calculate holdings of its own T2 Capital instruments on the basis of the gross long positions subject to the following exceptions:

          (a) an Authorised Firm may calculate the amount of holdings in the Trading Book on the basis of the net long position provided the long and short positions are in the same underlying Exposure and the short positions involve no Counterparty Risk;
          (b) an Authorised Firm must determine the amount to be deducted for indirect holdings in the Trading Book of own T2 Capital instruments that take the form of holdings of index Securities by calculating the underlying Exposure to own T2 Capital instruments in the indices; and
          (c) an Authorised Firm may net gross long positions in own T2 Capital instruments in the Trading Book resulting from holdings of index Securities against short positions in own T2 instruments resulting from short positions in the underlying indices, including where those short positions involve Counterparty Risk.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • Deductions Relating to T2 Capital Instruments in Relevant Entities

        • PIB 3.15.6

          For the purposes of PIB Rule 3.15.4(b), (c) and (d), the amount of holdings of T2 Capital instruments and other capital instruments of Relevant Entities to be deducted, must be calculated, subject to 3.15.7, on the basis of the gross long positions.

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

        • PIB 3.15.7

          For the purposes of PIB Rule 3.15.4(c) and (d), an Authorised Firm must make the deductions in accordance with the following:

          (a) the holdings in the Trading Book of the capital instruments of Relevant Entities must be calculated on the basis of the net long position in the same underlying Exposure provided the maturity of the short position matches the maturity of the long position or has a residual maturity of at least one year; and
          (b) the amount to be deducted for indirect holdings in the Trading Book of the capital instruments of Relevant Entities that take the form of holdings of index Securities must be determined by calculating the underlying Exposure to the capital instruments of the Relevant Entities in the indices.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • T2 Deductions Relating to Insignificant Investment in a Relevant Entity

        • PIB 3.15.8

          (1) For the purposes of PIB Rule 3.15.4(c), an Authorised Firm must calculate the applicable amount to be deducted by multiplying the amount referred to in (a) by the factor derived from the calculation referred to in (b):
          (a) the amount referred to in PIB Rule 3.13.16(1)(a);
          (b) the amount of direct and indirect holdings by the Authorised Firm of the T2 Capital instruments of Relevant Entities divided by the aggregate amount of all direct and indirect holdings by the Authorised Firm of the CET1, AT1 and T2 Capital instruments of those Relevant Entities.
          (2) An Authorised Firm must exclude Underwriting positions held for 5 working days or fewer from the amount referred to in PIB Rule 3.13.16(1)(a) and from the calculation of the factor referred to in (1)(b).
          (3) An Authorised Firm must determine the portion of holdings of T2 Capital instruments that is to be deducted by dividing the amount specified in (a) by the amount specified in (b):
          (a) the amount of holdings required to be deducted pursuant to (1)(a);
          (b) the aggregate amount of direct and indirect holdings by the Authorised Firm of the capital instruments of Relevant Entities in which the Authorised Firm does not have a significant investment.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • Exclusion in Relation to Managing a PSIA

        • PIB 3.15.9

          An Authorised Firm must exclude from T2 Capital any amount by which the total of the Profit Equalisation Reserve and the Investment Risk Reserve exceeds the Displaced Commercial Risk Capital Requirement calculated in accordance with IFR Rule 5.4.4.

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

    • PIB 3.16 PIB 3.16 Minority Interests and Instruments Issued by Subsidiaries

      • Minority Interests that Qualify for Inclusion in Consolidated CET1 Capital

        • PIB 3.16.1

          Minority interests must include the CET1 Capital instruments, plus the related retained earnings and share premium accounts, of a Subsidiary only where all of the following conditions are met:

          (a) the Subsidiary is one of the following:
          (i) an Authorised Firm; or
          (ii) a regulated entity,
          (b) the Subsidiary is a member of the Financial Group and included in the scope of consolidated supervision in accordance with PIB chapter 8; and
          (c) those CET1 Capital instruments are owned by persons other than the Undertakings included in the Financial Group.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • PIB 3.16.2

          Minority interests that are funded directly or indirectly, through a special purpose entity or otherwise, by the Parent of the Authorised Firm or any member of its Financial Group must not qualify for inclusion in the consolidated CET1 Capital of the Financial Group.

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

        • PIB 3.16.3

          An Authorised Firm must determine the amount of minority interests of a Subsidiary that is eligible for inclusion in its consolidated CET1 Capital by subtracting from the minority interests of that Subsidiary the result of multiplying the amount referred to in (a) by the percentage referred to in (b):

          (a) the CET1 Capital of the Subsidiary minus the lesser of the following:
          (i) the amount of CET1 Capital of that Subsidiary required to meet the sum of the Subsidiary's CET1 Capital requirement (on a solo basis) of 60% of the Risk Capital Requirement and its Capital Conservation Buffer requirement of 25% of the Risk Capital Requirement; or
          (ii) the amount of consolidated CET1 Capital that relates to that Subsidiary that is required on a consolidated basis to meet the sum of its Financial Group's CET1 Capital requirement of 60% of the Risk Capital Requirement and its Capital Conservation Buffer requirement of 25% of the Risk Capital Requirement;
          (b) the minority interests of the Subsidiary expressed as a percentage of all CET1 Capital instruments of that Undertaking plus the related retained earnings and share premium accounts.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • Qualifying AT1, T1, T2 Capital and Qualifying Own Funds

        • PIB 3.16.4

          Qualifying AT1, T1, T2 Capital and qualifying Capital Resources must include the minority interest, AT1, T1 or T2 Capital instruments, as applicable, plus the related retained earnings and share premium accounts, of a Subsidiary, only where the following conditions are met:

          (a) the Subsidiary is one of the following:
          (i) an Authorised Firm; or
          (ii) a regulated entity,
          (b) the Subsidiary is a member of the Financial Group and included in the scope of consolidated supervision in accordance with PIB chapter 8; and
          (c) those instruments are owned by persons other than the Undertakings included in the Financial Group.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • Qualifying AT1 and T2 Capital Issued by a Special Purpose Entity

        • PIB 3.16.5 PIB 3.16.5

          AT1 and T2 Capital instruments issued by an SPE, and the related retained earnings and share premium accounts, are included in qualifying AT1 or T2 Capital or qualifying Capital Resources, as applicable, only where the following conditions are met:

          (a) the SPE issuing those instruments is included fully in the Financial Group to which the Authorised Firm belongs;
          (b) the instruments, and the related retained earnings and share premium accounts, are included in qualifying AT1 Capital only where the conditions laid down in PIB Rule 3.14.3(1) are satisfied;
          (c) the instruments, and the related retained earnings and share premium accounts, are included in qualifying T2 Capital only where the conditions laid down in PIB Rule 3.15.3(1) are satisfied; and
          (d) the only asset of the SPE is its investment in the Capital Resources of any of its Parents or their Subsidiaries, which are included fully in the Financial Group to which the Authorised Firm belongs, the form of which satisfies the relevant conditions laid down in PIB Rule 3.14.3(1) or PIB Rule 3.15.3(1), as applicable.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

          • PIB 3.16.5 Guidance

            If the DFSA considers the assets of a special purpose entity to be minimal and insignificant for such an entity, the DFSA may consider waiving the condition specified in PIB Rule 3.16.5(d).

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

      • Qualifying T1 Capital Instruments Included in Consolidated T1 Capital

        • PIB 3.16.6

          An Authorised Firm must determine the amount of qualifying T1 Capital of a Subsidiary that is included in consolidated T1 Capital of the Authorised Firm's Financial Group by subtracting from the qualifying T1 Capital of that Subsidiary the result of multiplying the amount referred to in (a) by the percentage referred to in (b):

          (a) the lesser of the following:
          (i) the amount of T1 Capital of that Subsidiary required to meet the sum of the subsidiary's T1 Capital requirement (on a solo basis) of 80% of the Risk Capital Requirement and its Capital Conservation Buffer requirement of 25% of the Risk Capital Requirement; or
          (ii) the amount of consolidated T1 Capital that relates to the Subsidiary that is required on a consolidated basis to meet the sum of its Financial Group's T1 Capital requirement of 80% of the Risk Capital Requirement and its Capital Conservation Buffer requirement of 25% of the Risk Capital Requirement;
          (b) the qualifying T1 Capital of the Subsidiary expressed as a percentage of all T1 Capital instruments of that Subsidiary plus the related retained earnings and share premium accounts.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • Qualifying T1 Capital Included in Consolidated AT1 Capital

        • PIB 3.16.7

          An Authorised Firm must determine the amount of qualifying T1 Capital of a Subsidiary that is included in consolidated AT1 Capital by subtracting from the qualifying T1 Capital of that Subsidiary included in consolidated T1 Capital, the minority interests of that Subsidiary that are included in consolidated CET1 Capital.

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

      • Qualifying Capital Resources Included in Consolidated Capital Resources

        • PIB 3.16.8

          An Authorised Firm must determine the amount of qualifying Capital Resources of a Subsidiary that is included in consolidated Capital Resources of its Financial Group by subtracting from the qualifying Capital Resources of that Subsidiary, the result of multiplying the amount referred to in (a) by the percentage referred to in (b):

          (a) the lesser of the following:
          (i) the amount of Capital Resources of the Subsidiary required to meet the sum of the Subsidiary's total Capital Requirement (on a solo basis) of 100% of the Risk Capital Requirement and its Capital Conservation Buffer requirement of 25% of the Risk Capital Requirement; or
          (ii) the amount of Capital Resources that relates to the Subsidiary that is required on a consolidated basis to meet the sum of its Financial Group's total Capital Requirement of 100% of the Risk Capital Requirement and its Capital Conservation Buffer requirement of 25% of the Risk Capital Requirement;
          (b) the qualifying Capital Resources of the Subsidiary, expressed as a percentage of all Capital Resources instruments of the Subsidiary that are included in its CET1, AT1 and T2 Capital items and the related retained earnings and share premium accounts.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • Qualifying Capital Resources Instruments Included in Consolidated T2 Capital

        • PIB 3.16.9

          An Authorised Firm must determine the amount of qualifying Capital Resources of a Subsidiary that is included in consolidated T2 Capital by subtracting from the qualifying Capital Resources of that Subsidiary that are included in consolidated Capital Resources, the qualifying T1 Capital of that subsidiary that is included in consolidated T1 Capital of the Financial Group of the Authorised Firm.

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

    • PIB 3.17 PIB 3.17 Qualifying Holdings Outside the Financial Sector

      • PIB 3.17.1

        (1) Where an Authorised Firm has a Qualifying Holding in an Undertaking which is not one of the following:
        (a) an Undertaking that is a Relevant Entity; or
        (b) an Undertaking that carries on activities that are:
        (i) a direct extension of banking;
        (ii) ancillary to banking, or
        (iii) leasing, factoring, the management of unit trusts, the management of data processing services or any other similar activity;
        and the amount of the holding exceeds 15% of the eligible total Capital Resources of the Authorised Firm, the Authorised Firm must comply with the requirements in (3).
        (2) The total amount of the Qualifying Holdings of an Authorised Firm in Undertakings other than those referred to in (1) that exceeds 60% of its Capital Resources are subject to the requirements in (3).
        (3) An Authorised Firm must apply the following requirements to Qualifying Holdings referred to in (1) and (2):
        (a) a risk weight of 1000% to the following:
        (i) the amount of Qualifying Holdings referred to in (1) in excess of 15% of Capital Resources; and
        (ii) the total amount of Qualifying Holdings referred to in (2) in excess of 60% of the Capital Resources of the Authorised Firm; and
        (b) must not count Qualifying Holdings referred to in (1) and (2) where the amount of those holdings exceeds the percentages of Capital Resources laid down in (1) and (2).
        (4) As an alternative to applying a 1000% risk weight to the amounts in excess of the limits specified in (1) or (2), an Authorised Firm may deduct those amounts from CET1 Capital.
        (5) Shares of Undertakings to which (1) or (2) do not apply must not be included in calculating the eligible capital limits specified in (1) where any of the following conditions are met:
        (a) those shares are held temporarily during a financial reconstruction or rescue operation,
        (b) the holding of the shares is an underwriting position held for 5 working days or less; or
        (c) those shares are held in the name of the Authorised Firm on behalf of others.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]