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 anyCategory .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:b. maintain an amount ofCapital Resources that exceeds the amount of the firm'sCapital 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 itsCapital 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 + A10Derived 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 anAuthorised Firm must be calculated as the total of its Common Equity Tier 1 capital (referred to in theseRules as CET1 Capital) and its Additional Tier 1 capital (referred to in theseRules 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 theInternational Financial Reporting Standards ; and(e) other reserves which are required to be disclosed underInternational 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 theAuthorised Firm with the prior approval of the shareholders of theAuthorised Firm ;(b) the instruments are fully paid up and their purchase is not funded directly or indirectly by theAuthorised Firm ;(c) the instruments meet all the following conditions as regards their classification:(i) they qualify as equity capital within the meaning of theDIFC Companies Law;(ii) they are classified as equity within the meaning of theInternational Financial Reporting Standards ; and(iii) they are classified as equity capital for the purposes of determining balance sheet insolvency, under theDIFC Insolvency Law;(d) the instruments are clearly and separately disclosed on the balance sheet in the financial statements of theAuthorised 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 theAuthorised Firm ; or(ii) discretionary repurchases of the instruments or other discretionary means of reducing capital, where theAuthorised Firm has notified theDFSA 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 theAuthorised Firm , and theAuthorised 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 theAuthorised Firm to make distributions to their holders and theAuthorised Firm is not otherwise subject to such an obligation; and(vi) non-payment of distributions does not constitute an event of default of theAuthorised Firm ;(i) compared to all the capital instruments issued by theAuthorised 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 theAuthorised Firm ;(k) the instruments entitle their owners to a claim on the residual assets of theAuthorised 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) theAuthorised Firm or itsSubsidiaries ;(ii) anyParent of theAuthorised Firm or itsSubsidiaries ; or(iii) any member of itsFinancial 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 theAuthorised 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 ExternalAuditor of theAuthorised Firm , who is responsible for auditing its accounts; and(b) theAuthorised 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 theInternational Financial Reporting Standards . TheDFSA may request anAuthorised 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 theInternational Financial Reporting Standards ; including:(i) where such an increase is associated with future margin income that results in a gain on sale for theAuthorised Firm ; and(ii) where theAuthorised Firm is theOriginator of a securitisation, net gains that arise from the capitalisation of future income from the securitised assets that provideCredit 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 theAuthorised Firm that are valued at fair value, and which result from changes in theAuthorised 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 theAuthorised 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 itsCapital 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 itsCapital 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 theInternational Financial Reporting Standards ;(c) deferred tax assets that rely on future profitability;(d) defined benefit pension fund assets of theAuthorised Firm ;(e) the applicable amount, by reference to PIB Rule 3.13.12, of direct and indirect holdings by anAuthorised Firm of its own CET1 Capital instruments including instruments under which anAuthorised 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 ofRelevant Entities where those entities have a reciprocal cross holding with theAuthorised Firm which have the effect of artificially inflating theCapital Resources of theAuthorised Firm ;(g) the applicable amount, by reference to PIB Rule 3.13.13, of direct and indirect holdings by theAuthorised Firm of CET1 Capital instruments ofRelevant Entities where theAuthorised 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 theAuthorised Firm of the CET1 Capital instruments ofRelevant Entities where theAuthorised 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 relevantRules under PIB section 3.14, that exceeds the AT1 Capital of theAuthorised Firm ;(j) theExposure amount of the following items which qualify for a risk weight of 1000%, where theAuthorised Firm deducts thatExposure amount from CET1 Capital as an alternative to applying a risk weight of 1000%;(i)Qualifying Holdings ;(ii) securitisation positions, in accordance with relevantRules in PIB chapter 4; and(iii) free deliveries, in accordance with theRules in PIB section A4.6; and(k) for anAuthorised Firm which is aPartnership orLimited 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 theInternational Financial Reporting Standards ; and(b) the amount to be deducted must include goodwill included in the valuation of significant investments of theAuthorised 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 theAuthorised 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 theAuthorised 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 theAuthorised 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; andb. all other deferred tax assets that rely on future profitability.2. AnAuthorised 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 inGuidance note 1a and b represent.Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]PIB 3.13.10
(1) AnAuthorised 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 theAuthorised Firm for the current year;(b) current year tax losses of theAuthorised 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 theAuthorised 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 theAuthorised 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 theAuthorised 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 theInternational Financial Reporting Standards ; and(b) the amount of assets in the defined benefit pension fund which theAuthorised Firm has an unrestricted ability to use where theAuthorised Firm has provided adequate advance notification of its intention to use those assets to theDFSA . Those assets used to reduce the amount to be deducted must receive a risk weight in accordance with PIB chapter 4 ofPIB .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) anAuthorised Firm must calculate the amount of holdings of own CET1 Capital instruments in theTrading Book on the basis of the net long position, provided the long and short positions are in the same underlyingExposure and the short positions involve noCounterparty Credit Risk ;(b) anAuthorised Firm must determine the amount to be deducted for indirect holdings in theTrading Book that take the form of holdings of indexSecurities by calculating the underlyingExposure to own CET1 Capital instruments included in the indices; and(c) anAuthorised Firm must net gross long positions in own CET1 Capital instruments in itsTrading Book resulting from holdings of indexSecurities against short positions in own CET1 Capital instruments resulting from short positions in the underlying indices, including where those short positions involveCounterparty 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) theAuthorised Firm owns more than 10% of the CET1 Capital instruments issued by that entity;(b) theAuthorised Firm hasClose Links with that entity and owns CET1 Capital instruments issued by that entity; and(c) theAuthorised 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 theAuthorised Firm for the purposes of financial reporting under theInternational 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 theTrading Book of the capital instruments ofRelevant Entities must be calculated on the basis of the net long position in the same underlyingExposure 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 theTrading Book of the capital instruments ofRelevant Entities that take the form of holdings of indexSecurities must be determined by calculating the underlyingExposure to the capital instruments of theRelevant 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 theAuthorised Firm of the CET1, AT1 and T2 Capital instruments ofRelevant Entities , in which theAuthorised Firm does not have a significant investment, exceeds 10% of the CET1 items of theAuthorised 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 theAuthorised Firm of the CET1 Capital instruments ofRelevant Entities divided by the aggregate amount of direct and indirect holdings by theAuthorised Firm of the CET1, AT1 and T2 Capital instruments issued by thoseRelevant Entities .(2) AnAuthorised Firm must excludeUnderwriting 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. AnAuthorised 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 theAuthorised Firm of all the capital instruments ofRelevant Entities in which theAuthorised 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 theAuthorised 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) AnAuthorised 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 theAuthorised Firm of all the capital instruments ofRelevant Entities in which theAuthorised 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), anAuthorised 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 theAuthorised 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 anAuthorised Firm has a significant investment in aRelevant Entity , the direct and indirect holdings of thatAuthorised Firm of the CET1 Capital instruments of those entities that in aggregate are equal to or less than 10% of the CET1 items of theAuthorised 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) theAuthorised Firm or itsSubsidiaries ; or(ii) anUndertaking in which theAuthorised 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 thatUndertaking ;(c) the purchase of the instruments is not funded directly or indirectly by theAuthorised Firm ;(d) the instruments rank below T2 Capital instruments in the event of the insolvency of theAuthorised Firm ;(e) the instruments are not secured, or guaranteed by any of the following:(i) theAuthorised Firm or itsSubsidiaries ;(ii) anyParent of theAuthorised Firm or theirSubsidiaries ;(iii) any member of itsFinancial Group in accordance with PIB chapter 8; or(iv) anyUndertaking that hasClose 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 theAuthorised 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 theAuthorised Firm has notified theDFSA 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 theAuthorised Firm does not otherwise provide such an indication;(k) theAuthorised Firm does not indicate explicitly or implicitly that theDFSA 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 theAuthorised Firm or any of itsParents or any entities in itsFinancial Group ;(iii) the provisions governing the instruments give theAuthorised Firm full discretion at all times to cancel the distributions on the instruments for an unlimited period and on a non-cumulative basis, and theAuthorised 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 theAuthorised Firm ; and(v) the cancellation of distributions imposes no restrictions on theAuthorised Firm ;(m) the instruments do not contribute to a determination that the liabilities of anAuthorised Firm exceed its assets, where such a determination constitutes a test of insolvency under theDIFC 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 theAuthorised Firm ; and(p) where the instruments are not issued directly by theAuthorised Firm or by an operating entity within theFinancial Group to which theAuthorised Firm belongs, or by theParent of theAuthorised Firm , the proceeds are immediately available without limitation in a form that satisfies the conditions laid down in thisRule to any of the following:(i) theAuthorised Firm ;(ii) an operating entity within theFinancial Group to which theAuthorised Firm belongs; or(iii) anyParent of theAuthorised 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 theAuthorised 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 theAuthorised Firm falls below either of the following:(i) 66.25% of itsCapital Requirement ; or(ii) a level higher than 66.25%, where determined by theAuthorised 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 theAuthorised 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 thisRule 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, anAuthorised Firm must deduct the following from the calculation of its AT1 Capital:(a) direct and indirect holdings by anAuthorised Firm of own AT1 Capital instruments including instruments under which anAuthorised 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 ofRelevant Entities where those entities have a reciprocal cross holding with theAuthorised Firm which have the effect of artificially inflating theCapital Resources of theAuthorised Firm ;(c) the amount determined in accordance with PIB Rule 3.14.8 of direct and indirect holdings by theAuthorised Firm of the AT1 Capital instruments ofRelevant Entities where theAuthorised Firm does not have a significant investment in those entities ;(d) direct and indirect holdings by theAuthorised Firm of the AT1 Capital instruments ofRelevant Entities where theAuthorised Firm has a significant investment in those entities, excludingUnderwriting 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 theAuthorised 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) anAuthorised Firm must calculate the amount of holdings of own AT1 Capital instruments in theTrading Book on the basis of the net long position provided the long and short positions are in the same underlyingExposure and the short positions involve noCounterparty Credit Risk ;(b) anAuthorised Firm must determine the amount to be deducted for indirect holdings in theTrading Book of own AT1 Capital instruments that take the form of holdings of indexSecurities by calculating the underlyingExposure to own AT1 Capital instruments in the indices; and(c) anAuthorised Firm must net gross long positions in own AT1 Capital instruments in theTrading Book resulting from holdings of indexSecurities may be netted by theAuthorised Firm against short positions in own AT1 instruments resulting from short positions in the underlying indices, including where those short positions involveCounterparty 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 theTrading Book of the capital instruments ofRelevant Entities must be calculated on the basis of the net long position in the same underlyingExposure 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 theTrading Book of the capital instruments ofRelevant Entities that take the form of holdings of indexSecurities must be determined by calculating the underlyingExposure to the capital instruments of theRelevant 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), anAuthorised 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 theAuthorised Firm of the AT1 Capital instruments ofRelevant Entities divided by the aggregate amount of all direct and indirect holdings by theAuthorised Firm of the CET1, AT1 and T2 Capital instruments of thoseRelevant Entities .(2) AnAuthorised Firm must excludeUnderwritin g 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) AnAuthorised 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 theAuthorised Firm of all the capital instruments ofRelevant Entities in which theAuthorised 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) theAuthorised Firm or itsSubsidiaries ;(ii) anUndertaking in which theAuthorised 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 thatUndertaking ;(c) the purchase of the instruments is not funded directly or indirectly by theAuthorised 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) theAuthorised Firm or itsSubsidiaries ;(ii) anyParent of theAuthorised Firm or theirSubsidiaries ;(iii) any member of theFinancial Group to which theAuthorised Firm belongs; or(iv) anyUndertaking that hasClose 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 anOriginal Maturity of at least 5 years;(h) the provisions governing the instruments do not include any incentive for them to be redeemed by theAuthorised Firm ;(i) where the instruments include one or more call options, the options are exercisable at the sole discretion of theIssuer ;(j) the instruments may be called, redeemed or repurchased only where theAuthorised Firm has notified theDFSA 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 theAuthorised 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 theAuthorised Firm ;(m) the level of interest or dividend payments due on the instruments will not be modified based on the credit standing of theAuthorised Firm , itsParent or any member of itsFinancial Group ; and(n) where the instruments are not issued directly by theAuthorised Firm or by an operating entity within itsFinancial Group , or by itsParent , the proceeds are immediately available without limitation in a form that satisfies the conditions laid down in thisRule to any of the following:(i) theAuthorised Firm ;(ii) an operating entity within itsFinancial Group ; or(iii) anyParent of theAuthorised 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 thisRule 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, anAuthorised Firm must deduct the following from the calculation of its T2 Capital:(a) direct and indirect holdings by anAuthorised Firm of own T2 Capital instruments, including own T2 instruments that anAuthorised Firm could be obliged to purchase as a result of existing contractual obligations;(b) holdings of the T2 Capital instruments ofRelevant Entities where those entities have a reciprocal cross holding with theAuthorised Firm which have the effect of artificially inflating theCapital Resources of theAuthorised Firm ;(c) the amount of direct and indirect holdings by theAuthorised Firm of the T2 Capital instruments ofRelevant Entities where theAuthorised Firm does not have a significant investment in those entities; and(d) direct and indirect holdings by theAuthorised Firm of the T2 Capital instruments ofRelevant Entities where theAuthorised Firm has a significant investment in those entities, excludingUnderwriting 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) anAuthorised Firm may calculate the amount of holdings in theTrading Book on the basis of the net long position provided the long and short positions are in the same underlyingExposure and the short positions involve noCounterparty Risk ;(b) anAuthorised Firm must determine the amount to be deducted for indirect holdings in theTrading Book of own T2 Capital instruments that take the form of holdings of indexSecurities by calculating the underlyingExposure to own T2 Capital instruments in the indices; and(c) anAuthorised Firm may net gross long positions in own T2 Capital instruments in theTrading Book resulting from holdings of indexSecurities against short positions in own T2 instruments resulting from short positions in the underlying indices, including where those short positions involveCounterparty 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 theTrading Book of the capital instruments ofRelevant Entities must be calculated on the basis of the net long position in the same underlyingExposure 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 theTrading Book of the capital instruments ofRelevant Entities that take the form of holdings of indexSecurities must be determined by calculating the underlyingExposure to the capital instruments of theRelevant 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), anAuthorised 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 theAuthorised Firm of the T2 Capital instruments ofRelevant Entities divided by the aggregate amount of all direct and indirect holdings by theAuthorised Firm of the CET1, AT1 and T2 Capital instruments of thoseRelevant Entities .(2) AnAuthorised Firm must excludeUnderwriting 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) AnAuthorised 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 theAuthorised Firm of the capital instruments ofRelevant Entities in which theAuthorised 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 theProfit Equalisation Reserve and theInvestment Risk Reserve exceeds theDisplaced 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) theSubsidiary is one of the following:(i) anAuthorised Firm ; or(ii) a regulated entity,(b) theSubsidiary is a member of theFinancial 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 theUndertakings included in theFinancial 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 theAuthorised Firm or any member of itsFinancial Group must not qualify for inclusion in the consolidated CET1 Capital of theFinancial 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 aSubsidiary that is eligible for inclusion in its consolidated CET1 Capital by subtracting from the minority interests of thatSubsidiary the result of multiplying the amount referred to in (a) by the percentage referred to in (b):(a) the CET1 Capital of theSubsidiary minus the lesser of the following:(i) the amount of CET1 Capital of thatSubsidiary required to meet the sum of theSubsidiary's CET1 Capital requirement (on a solo basis) of 60% of the RiskCapital Requirement and itsCapital Conservation Buffer requirement of 25% of the RiskCapital Requirement ; or(ii) the amount of consolidated CET1 Capital that relates to thatSubsidiary that is required on a consolidated basis to meet the sum of itsFinancial Group's CET1 Capital requirement of 60% of the RiskCapital Requirement and itsCapital Conservation Buffer requirement of 25% of the RiskCapital Requirement ;(b) the minority interests of theSubsidiary expressed as a percentage of all CET1 Capital instruments of thatUndertaking 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 aSubsidiary , only where the following conditions are met:(a) theSubsidiary is one of the following:(i) anAuthorised Firm ; or(ii) a regulated entity,(b) theSubsidiary is a member of theFinancial 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 theUndertakings included in theFinancial 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 theFinancial Group to which theAuthorised 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 theCapital Resources of any of itsParents or theirSubsidiaries , which are included fully in theFinancial Group to which theAuthorised 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, theDFSA 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 aSubsidiary that is included in consolidated T1 Capital of theAuthorised Firm's Financial Group by subtracting from the qualifying T1 Capital of thatSubsidiary 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 thatSubsidiary required to meet the sum of the subsidiary's T1 Capital requirement (on a solo basis) of 80% of the RiskCapital Requirement and itsCapital Conservation Buffer requirement of 25% of the RiskCapital Requirement ; or(ii) the amount of consolidated T1 Capital that relates to theSubsidiary that is required on a consolidated basis to meet the sum of itsFinancial Group's T1 Capital requirement of 80% of the RiskCapital Requirement and itsCapital Conservation Buffer requirement of 25% of the RiskCapital Requirement ;(b) the qualifying T1 Capital of theSubsidiary expressed as a percentage of all T1 Capital instruments of thatSubsidiary 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 aSubsidiary that is included in consolidated AT1 Capital by subtracting from the qualifying T1 Capital of thatSubsidiary included in consolidated T1 Capital, the minority interests of thatSubsidiary 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 qualifyingCapital Resources of aSubsidiary that is included in consolidatedCapital Resources of itsFinancial Group by subtracting from the qualifyingCapital Resources of thatSubsidiary , 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 ofCapital Resources of theSubsidiary required to meet the sum of theSubsidiary's totalCapital Requirement (on a solo basis) of 100% of the RiskCapital Requirement and itsCapital Conservation Buffer requirement of 25% of the RiskCapital Requirement ; or(ii) the amount ofCapital Resources that relates to theSubsidiary that is required on a consolidated basis to meet the sum of itsFinancial Group's totalCapital Requirement of 100% of the RiskCapital Requirement and itsCapital Conservation Buffer requirement of 25% of the RiskCapital Requirement ;(b) the qualifyingCapital Resources of theSubsidiary , expressed as a percentage of allCapital Resources instruments of theSubsidiary 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 qualifyingCapital Resources of aSubsidiary that is included in consolidated T2 Capital by subtracting from the qualifyingCapital Resources of thatSubsidiary that are included in consolidatedCapital Resources , the qualifying T1 Capital of that subsidiary that is included in consolidated T1 Capital of theFinancial Group of theAuthorised 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 anAuthorised Firm has aQualifying Holding in anUndertaking which is not one of the following:(a) anUndertaking that is aRelevant Entity ; or(b) anUndertaking 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 totalCapital Resources of theAuthorised Firm , theAuthorised Firm must comply with the requirements in (3).(2) The total amount of theQualifying Holdings of anAuthorised Firm inUndertakings other than those referred to in (1) that exceeds 60% of itsCapital Resources are subject to the requirements in (3).(3) AnAuthorised Firm must apply the following requirements toQualifying Holdings referred to in (1) and (2):(a) a risk weight of 1000% to the following:(i) the amount ofQualifying Holdings referred to in (1) in excess of 15% ofCapital Resources ; and(ii) the total amount ofQualifying Holdings referred to in (2) in excess of 60% of theCapital Resources of theAuthorised Firm ; and(b) must not countQualifying Holdings referred to in (1) and (2) where the amount of those holdings exceeds the percentages ofCapital 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), anAuthorised Firm may deduct those amounts from CET1 Capital.(5)Shares ofUndertakings 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 theAuthorised Firm on behalf of others.Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]