PIB 3.9C PIB 3.9C Failure to meet a Capital Buffer Requirement
PIB 3.9C Guidance
This section sets out measures that an
Authorised Firmmust take if it is not meeting a Capital Buffer Requirement, i.e. its Capital Conservation Buffer Requirement, CCyB Requirement or HLA Capital Buffer Requirement. The measures, such as not distributing capital and preparing a plan to restore capitalS, do not limit other action that the DFSAmay take against the firm for failing to meet the requirement.Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]
This section applies to an
Authorised Firmin Category 1, 2 or 5.Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]
Restrictions on Distributions
Authorised Firmfails to meet a Capital Buffer Requirement requirement, it must:(a) calculate the maximum distributable amount in accordance with PIB Rule 3.9C.5;(b) ensure that it does not undertake any of the following actions until it has calculated the maximum distributable amount and notified the DFSAunder PIB Rule 3.9C.6:(i) make a distribution in connection with CET1 Capital;(ii) create an obligation to pay variable remuneration or discretionary pension benefits or pay variable remuneration if the obligation to pay was created at a time when the institution failed to meet a Capital Buffer Requirement; or(iii) make payments on AT1 and T2 Capital instruments.
Authorised Firmmust:(1) in subsequently taking any of the actions described in PIB Rule 3.9C.2(b)(i) to (iii), ensure that it distributes no more than its calculated maximum distributable amount; and(2) prepare and submit a capital conservation plan pursuant to PIB Rule 3.9C.8.
For the purposes of PIB Rule 3.9C.2(b)(i), a distribution in connection with CET1 Capital includes any of the following:(a) payment of cash dividends;(b) distribution of fully or partly paid bonus shares or other capital instruments;(c) a redemption or purchase by an institution of its own shares or other capital instruments;(d) a repayment of amounts paid up in connection with capital; or(e) a distribution of other items referred to in PIB section 3.13 as eligible for inclusion as CET1 Capital.
PIB 3.9C.5(1) In this section, a reference to a "maximum distributable amount" means the maximum amount that an
Authorised Firmmay distribute in connection with CET1 Capital as specified in PIB Rules 3.9C.2 and 3.9C.3.(2) Subject to (3), an Authorised Firmmust determine the maximum distributable amount by multiplying the sum specified in (a) by the factor determined under (b):(a) the total of interim or year-end profits that were not included in CET1 Capital pursuant to PIB Rule 3.13.2 and which have accrued after the most recent distribution of profits and after any of the actions referred to in PIB Rule 3.9C.2(b);(b) where the CET1 Capital of the Authorised Firm(which is not used to meet the Capital Requirement), expressed as a percentage of the firm's RWA, is:(i) within the first quartile (0%-25%) of its Capital Buffer, the factor is 0;(ii) within the second quartile (25%-50%) of its Capital Buffer, the factor is 0.2;(iii) within the third quartile (50%-75%) of its Capital Buffer, the factor is 0.4; and(iv) within the fourth quartile (75%-100%) of its Capital Buffer, the factor is 0.6.(3) If an Authorised Firmundertakes any action under PIB Rule 3.9C.2(b), it must take that into account and reduce the maximum distributable amount accordingly.
PIB 3.9C.6 PIB 3.9C.6
For the purpose of PIB Rule 3.9C.2(b), where an
Authorised Firmintends to distribute any of its distributable profits or intends to undertake an action referred to in PIB Rule 3.9C.2(b)(i) to (iii), the Authorised Firmmust notify the DFSAand provide the following information:(a) the amount of capital maintained by the Authorised Firm, subdivided as follows:(i) CET1 Capital,(ii) AT1 Capital, and(iii) T2 Capital;(b) the amount of its interim and year-end profits;(c) the maximum distributable amount calculated in accordance with this section; and(d) the amount of distributable profits it intends to allocate between the following:(i) dividend payments,(ii) share buybacks,(iii) payments on AT1 Capital instruments, and(iv) the payment of variable remuneration or discretionary pension benefits, whether by creation of a new obligation to pay, or by payment pursuant to an obligation to pay created at a time when the institution failed to meet a Capital Buffer Requirement.
PIB 3.9.6 Guidance
Upon receiving a notification under this
Rule, the DFSAwill make an assessment of the firm's ability to meet and maintain its Capital Requirementon a sustainable basis going forward.
Authorised Firmmust maintain systems and processes to ensure that the amount of distributable profits and the maximum distributable amount are calculated accurately, and must be able to demonstrate that accuracy to the DFSAon request.
Capital Conservation Plan
Authorised Firmfails to meet a Capital Buffer Requirement, it must prepare a capital conservation plan and submit it to the DFSAno later than 5 business days after it identified its failure to meet Capital Buffer Requirement. The capital conservation plan must include the following:(a) estimates of income and expenditure and a forecast balance sheet;(b) measures to increase the Capital Resources of the Authorised Firm;(c) a plan and timeframe for the increase of own funds with the objective of restoring the Capital Buffer; and(d) any other information the DFSAmight need in order effectively to carry out its considerations referred to in PIB Rule 3.9C.9.
PIB 3.9C.9(1) Following assessment, the
DFSAwill approve the capital conservation plan only if it considers that the plan, if implemented, would be reasonably likely to conserve or raise sufficient capital to enable the Authorised Firmto meet its Capital Requirement and Capital Buffer Requirement, within a period that the DFSAconsiders appropriate.(2) If the DFSAdoes not approve the capital conservation plan, the DFSAmay require the Authorised Firmto increase its CET1 Capital to meet the Capital Requirement and the Capital Buffer Requirement, within a specified period of time.