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PRU 2.2.19 Guidance for Form PIB 6 — Capital Adequacy Calculation

Instructional Guidelines

The structure of this reporting form, which applies to all Categories of Authorised Firm, is designed first to calculate the total eligible capital resources after the appropriate amounts have been charged to cover trading and non trading book risks. It takes into account limitations on the use of different types of capital, including Tiers 1 and 2 capital components. Secondly, it provides a snapshot of the institution's capital adequacy at the reporting date by comparing the adjusted capital resources calculated as described above to the total capital requirement.

Most of this form involves the inputting of numbers that have been provided in other returns and particular care should be taken to ensure that numbers have been transposed correctly.

Item No. Item Guidance
6.0 Capital Adequacy See PIB Section 2.6 and Table 2.6.1 for a summary of the components of capital base. PIB Section 2.7 describes each capital component in greater detail. Attention is drawn to Partnership Capital which constitutes the capital accounts of partners when the business is created. It must share the same characteristics as permanent share capital, particularly the fact that it must rank for repayment upon winding up or insolvency after all debts and liabilities have been paid. The deduction for partners drawings is in respect of any excess in drawings over current period profits. Attention is also drawn in respect of PIB Rule 2.7.3 in respect of the limitation on the use of general provisions in Tier 2 capital.
6.1–6.22 Tier 1 and Tier 2 capital Authorised Firms should note that there are related guidance notes on the capital base for Forms PIB 1 and PIB 2. The guidance there would apply in their entirety to this section of the return.
6.23 Deduction for excess of reserves This applies only in respect of Category 5 Authorised Firms with regards the Investment Risk and Profit Equalisation Reserves. See PIB Section 2.9.
6.25 NTB Capital Requirement See PIB Rule 2.8.3 for a definition of the components of non trading book capital. For Category 5 Authorised Firms, the CRCOM and FER are on self financed assets only. These numbers will be derived from Forms PIB1 and PIB 2 for Category 1-4 Authorised Firms and Category 5 Authorised Firms, respectively. The DCR charges are derived from Form PIB 1 Appendix 4 and Form PIB 2 Appendix 8 for Category 1-4 Authorised Firms and Category 5 Authorised Firms, respectively.
6.30 Capital allocated to the NTB The limitations on the use of capital allocated to the NTB are set out in PIB Section 2.8.
6.34 TB Capital Requirement This is defined in PIB Rule 2.8.3. For Category 1-4 Authorised Firms, the numbers here are derived from Form PIB 1, Appendices 2 and 3. Also see guidance notes relating to those appendices. For Category 5 Authorised Firms, the capital requirements are in respect of self financed assets only (PSIA assets are subject to a DCR charge). These numbers are derived from Form PIB 2, Appendices 4 and 7.
6.42 Capital allocated to the TB Note the limitation on the use of Tier 2 capital as referenced to PIB Rule 2.8.2 (b) (iii). Category 1 and 5 Authorised Firms must exclude from Tier 2 trading book capital any excess over 200% of Tier 1 trading book capital. For Category 2-4 Authorised Firms, the appropriate percentage is 250%.
6.51 Deductions from total capital resources The deductions in respect of connected lending, material holdings and qualifying holdings are defined in Rules PIB 2.7.4, PIB 2.7.5 and PIB 2.7.6, respectively.
6.59 Capital Requirement The non additive thresholds of capital are set out in PIB Rule 2.3.1. Details of the base capital requirement are further analysed in PIB Section 2.4. The Expenditure Based Capital Requirement definition is set out in PIB Section 2.5 and applies to Categories 2, 3 and 4 Authorised Firms only.
6.61 Resources less requirement Note that the total of resources over requirement is expected to be positive. In the event of the requirement exceeding resources, Authorised Firms should make immediate contact with DFSA and not wait till the form has been submitted.
6.62 Risk Asset Ratio Obtained by dividing total capital resources by the risk weighted assets (whether on the trading or non trading books). The risk weighted assets have been reported by Authorised Firms in the preceding Forms PIB 1 and 2. The capital resources are summarised in Form PIB 6.