Entire Section

  • PIB 10 PIB 10 Supervisory Review and Evaluation Processes

    • Introduction

      • PIB 10 Guidance

        1. This chapter deals with the regulatory requirements arising out of the need for Authorised Firms to carry out a self-assessment of their risk which can be reviewed and assessed by the regulator. This chapter details the Rules stipulating the need to complete internal risk assessments by Authorised Firms in defined frequencies and the DFSA's role in reviewing the results of such assessments. In the case of Authorised Firms facing financial risks, the requirements in this chapter mandate completion of an internal capital adequacy assessment process. The DFSA will review the results of such internal risk assessments. This chapter also sets out how the DFSA may impose an additional capital requirement on a firm-specific basis in addition to the minimum requirement specified in PIB chapter 3 of this module.
        2. PIB Appendix 10 provides detailed guidance on the various components of the supervisory review and evaluation process and explains the role of the different parties in completing the required processes.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • PIB 10.1 PIB 10.1 Application

      • PIB 10.1.1

        This chapter applies to an Authorised Firm in Category 1, 2, 3A, 3B, 3C, 3D, 4 (if it provides Money Transmission, Account Information Services or Payment Initiation Services) or 5, as follows:

        (a) PIB sections 10.1, 10.2, 10.3 and 10.5 apply only to an Authorised Firm in Category 1, 2, 3A, 3B, 3C, 3D, 4 or 5; and
        (b) PIB sections   10.4 and 10.6 apply only to an Authorised Firm in Category 1, 2, 3A or 5.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
        [Added] DFSA RMI270/2020 (Made 26th February 2020). [VER36/04-20]

      • PIB 10.1.2

        Where an Authorised Firm to which this chapter applies is part of a Financial Group, this chapter applies on a consolidated basis in relation to all the entities within the Financial Group.

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

      • PIB 10.1.3 PIB 10.1.3

        In implementing the requirements prescribed in this chapter, an Authorised Firm must give due and appropriate regard to the provisions in PIB App10.

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

        • PIB 10.1.3 Guidance

          If an Authorised Firm is part of a Financial Group which is al subject to requirements similar to those prescribed in this chapter, the DFSA may consider a request for a waiver or modification in relation to the requirements of this chapter.

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

    • PIB 10.2 PIB 10.2 Overview

      • PIB 10.2 Guidance

        1. These Rules are designed to implement key aspects of Pillar 2 of the revised framework of capital adequacy, commonly known as Basel III, published by the Basel Committee on Banking Supervision.

        Internal Risk Assessment Process (IRAP)

        2. An Authorised Firm in Category 1, 2, 3A, 3B, 3C, 3D, 4 (for certain firms) or 5 is required to carry out an IRAP. An IRAP is a comprehensive internal risk evaluation as detailed in PIB section 10.3. More detail on the establishment of an IRAP and the manner of carrying out an IRAP assessment is provided in PIB App10.

        Internal Capital Adequacy Assessment Process (ICAAP)

        3. An Authorised Firm in Category 1, 2, 3A or 5 is also required to carry out an ICAAP as detailed in PIB section 10.4. This process enables such an Authorised Firm to determine and maintain an adequate amount and quality of capital, relative to its risk profile. More detail on the establishment of an ICAAP and the manner of carrying out an ICAAP assessment is provided in PIB App10.

        Supervisory Review and Evaluation Process (SREP)

        4. The documented results of IRAP and ICAAP assessments are required to be submitted to the DFSA. The DFSA then applies a process known as the SREP as detailed in PIB section 10.5. As part of the SREP, the DFSA will evaluate the quality, completeness and consistency of the IRAP and, where applicable, the ICAAP of the Authorised Firm, to form a view on the overall risk profile of the firm and whether the capital held by the firm is sufficient to deal with the risks. More detail concerning the SREP is provided in PIB App10.
        5. Following review of the IRAP and ICAAP of an Authorised Firm, the DFSA may engage in a dialogue with the firm to evaluate the assessment of risks and where relevant, additional capital which the DFSA considers that the firm should hold resulting from the IRAP, ICAAP or SREP.

        Individual Capital Requirement (ICR)

        6. Upon completing the SREP, the DFSA may impose an Individual Capital Requirement on an Authorised Firm in Category 1, 2, 3A or 5 as detailed in PIB section 10.6. The ICR may be imposed where the DFSA concludes that the firm should hold more capital to provide for its overall risks.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
        [Added] DFSA RMI270/2020 (Made 26th February 2020). [VER36/04-20]

    • PIB 10.3 PIB 10.3 IRAP

      • PIB 10.3.1

        This section applies to an Authorised Firm in Category 1, 2, 3A, 3B, 3C, 3D, 4 (if it provides Money Transmission, Account Information Services or Payment Initiation Services) or 5.

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

      • PIB 10.3.2

        (1) An Authorised Firm must establish and maintain an IRAP which details the processes and procedures by which the firm will identify, assess, aggregate and monitor the risks faced by it.
        (2) The firm must conduct the IRAP assessment at least annually giving due regard to the Guidance in PIB section A10.1 of PIB App10.
        (3) The IRAP assessment conducted by the firm pursuant to (2) must be approved by its Governing Body and then submitted to the DFSA within four months from the end of the firm's financial year.
        (4) In addition to (2), the firm must conduct an IRAP assessment:
        (a) whenever there is material change to the business, strategy, nature or scale of the activities of the firm which may have a significant impact on its risk profile or adequacy of its Capital Resources or Adjusted Capital Resources, as applicable; or
        (b) as and when required by the DFSA.
        (5) An IRAP assessment conducted by the firm pursuant to (4) must be approved by its Governing Body and then submitted to the DFSA within two months, or such other period as may be specified by the DFSA, from the date of such material change or requirement.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 10.3.3

        The results of an IRAP assessment must be documented by the Authorised Firm in writing and include details of:

        (a) the risks identified;
        (b) the firm's strategies and plans to deal with those risks;
        (c) the firm's assessment of the adequacy of its Capital Requirement as calculated under PIB to address all the risks identified by its IRAP;
        (d) the details of any stress testing and scenario analysis carried out and the resultant impact on the Capital Requirement; and
        (e) any other relevant information, giving due regard to the Guidance in PIB App10.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 10.3.4

        An Authorised Firm must retain the records of an IRAP assessment for at least six years.

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

    • PIB 10.4 PIB 10.4 ICAAP

      • PIB 10.4.1

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

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

      • PIB 10.4.2

        (1) An Authorised Firm must implement and maintain an ICAAP which details the processes and procedures by which the firm will assess and maintain adequate Capital Resources in relation to the risks faced by it.
        (2) The firm must conduct an ICAAP assessment at least annually giving due regard to the Guidance in PIB section A10.2 of PIB App10.
        (3) The ICAAP assessment conducted by the firm pursuant to (2) must be approved by its Governing Body and then submitted to the DFSA within four months from the end of the firm's financial year.
        (4) In addition to (2), the firm must conduct an ICAAP assessment:
        (a) whenever there is material change to the business, strategy, nature or scale of the activities of the firm which may have a significant impact on its risk profile or adequacy of its Capital Resources or Adjusted Capital Resources, as applicable; or
        (b) as and when required by the DFSA.
        (5) The ICAAP assessment conducted by the firm pursuant to (4) must be approved by its Governing Body and then submitted to the DFSA within two months from the date of such material change or requirement.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 10.4.3

        An Authorised Firm must ensure that an ICAAP assessment is documented in writing and includes details of:

        (a) the calculations and models used in the determination of the level of Capital Requirements which it considers will be adequate to cover all the risks identified by its ICAAP assessment;
        (b) the firm's strategies and plans to ensure availability of the level of capital determined by the ICAAP;
        (c) specifications of any models used in the ICAAP, including the underlying assumptions, parameters, and results of back-testing; and
        (d) any other relevant information, giving due and appropriate regard to the Guidance in PIB App10.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 10.4.4

        An Authorised Firm must retain the records of an ICAAP assessment for at least six years.

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

    • PIB 10.5 PIB 10.5 SREP

      • PIB 10.5 Guidance

        1. The DFSA may conduct a SREP to review and evaluate the assessments carried out by an Authorised Firm under its IRAP (relevant to firms in Categories 1, 2, 3A, 3B, 3C, 3D, 4 and 5) and ICAAP (relevant to firms in Categories 1, 2, 3A and 5). PIB Section A10.3 of PIB App10 contains guidance in relation to a SREP.
        2. The DFSA may engage with a firm in Categories 1, 2, 3A and 5 in a dialogue where, following an SREP, the DFSA considers that it is or may be appropriate to impose an Individual Capital Requirement on the firm.
        3. It is important that a firm cooperates in an open and co-operative manner with the DFSA in the course of its conduct of the dialogue.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
        [Added] DFSA RMI270/2020 (Made 26th February 2020). [VER36/04-20]

    • PIB 10.6 PIB 10.6 Imposition of an Individual Capital Requirement

      • PIB 10.6.1

        (1) This section applies to an Authorised Firm in Category 1, 2, 3A or 5.
        (2) The DFSA may, subject to (3) and (4), at any time by written notice to an Authorised Firm:
        (a) impose an Individual Capital Requirement; or
        (b) vary or withdraw an Individual Capital Requirement.
        (3) The DFSA may act under (2) on its own initiative where the DFSA forms the view that the firm's Capital Requirement is insufficient to address adequately all its risks.
        (4) The DFSA will, in addition to prescribing an Individual Capital Requirement, also specify in the notice the types and amounts of Capital Resources required to meet the Individual Capital Requirement.
        (5) The procedures in Schedule 3 to the Regulatory Law apply to a decision of the DFSA under (2) made after a Licence has been granted.
        (6) If the DFSA decides to exercise its power under (2) after a Licence has been granted, the Authorised Firm may refer the matter to the FMT for review.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
        [Amended] DFSA RM135/2014 (Made 21st August 2014). [VER22/06-14]

      • PIB 10.6.2

        An Authorised Firm must have and maintain, at all times, Capital Resources of the types and amounts specified in the notice issued to it under PIB Rule 10.6.1 to meet its Individual Capital Requirement.

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