• PRU 3.2 PRU 3.2 Application

    • PRU 3.2.1

      In this Section the Rules apply to an Authorised Person in any Category as follows:

      (a) Rule 3.2.2 applies to an Authorised Person operating as a Branch; and
      (b) Rules 3.2.3 to 3.2.5 apply to an Authorised Person operating as a Domestic Firm

    • Branches – general requirements

      • PRU 3.2.2

        An Authorised Person that is a Branch must:

        (a) ensure that it has and maintains, at all times, liquid assets and access to financial resources which are adequate in relation to the nature, size and complexity of its business both as to amount and quality to ensure that there is no significant risk that liabilities cannot be met as they fall due;
        (b) ensure that it complies at all times with its Home State Regulator's prudential requirements;
        (c) submit to the Regulator a copy of every capital adequacy summary report and Leverage Ratio report submitted to its Home State Regulator within ten business days of the due date for submission to that regulator; and
        (d) in the event of any anticipated or actual breach of any prudential requirements set by its Home State Regulator, notify the Regulator immediately with any relevant documents.

    • Domestic Firms – adequate capital resources

      • PRU 3.2.3 PRU 3.2.3

        An Authorised Person that is a Domestic Firm must have, at all times, Capital Resources which equal or exceed the amount of its Capital Requirement.

        • Guidance

          The specific Capital Requirements for the various Categories of Authorised Persons that are Domestic Firms are dealt with in Sections 3.4 and 3.6.

    • Domestic Firms – maintaining capital resources

      • PRU 3.2.4 PRU 3.2.4

        An Authorised Person that is a Domestic Firm must:

        (a) have and maintain, at all times, Capital Resources of the types and amounts specified in, and calculated in accordance with, these Rules;
        (b) ensure that it maintains capital and liquid assets in addition to the requirement in (a) which are adequate in relation to the nature, size and complexity of its business to ensure that there is no significant risk that liabilities cannot be met as they fall due.

        • Guidance

          1. These Rules do not prevent Authorised Persons from holding Capital Resources in excess of or applying stricter measures than required by these Rules.
          2. For the purposes of Rule 3.2.4, an Authorised Person's Governing Body should assess whether the Capital Resources which are required by the Regulator as set out in these Rules are adequate in relation to the Authorised Person's specific business model and risk profile. Additional resources should be maintained by the Authorised Person where its Governing Body has considered that the required Capital Resources do not adequately reflect the nature and risks of the Authorised Person's business.
          3. The liabilities referred to in Rule 3.2.4(b) include an Authorised Person's contingent and prospective liabilities, such as liabilities arising from a change in business strategy or claims made against the Authorised Person, but not liabilities that might arise from prospective transactions which the Authorised Person could avoid, for example by ceasing its operations. Liabilities from prospective transactions refers to the potential liabilities which can be avoided by adequate risk management, risk transfer or avoiding the transaction completely. This refers to any prospective transaction, for example, lending Money to a borrower or entering into a contract for the provision of services by a service provider.
          4. An Authorised Person subject to the requirements in Chapter 10 may be required to meet an Individual Capital Requirement imposed under those Rules following the Pillar 2 review process, in addition to the Capital Requirement calculated under Pillar 1.

    • Domestic Firms – systems and controls

      • PRU 3.2.5 PRU 3.2.5

        (1) An Authorised Person must have systems and controls to enable it to determine and monitor:
        (a) its Capital Requirement; and
        (b) whether the amount of its Capital Resources is, and is likely to remain, adequate at all times to ensure compliance with the applicable capital adequacy requirements.
        (2) Such systems and controls must be capable of contributing to an analysis of:
        (a) realistic scenarios which are relevant to the circumstances of the Authorised Person; and
        (b) the effects on the Capital Requirement of the Authorised Person and on its Capital Resources if those scenarios occurred.
        (3) An Authorised Person must notify the Regulator immediately and confirm in writing any breach, or expected breach, of any of the provisions of this Chapter by the Authorised Person.

        • Guidance

          For the purposes of Part 2, an Authorised Person is required to have appropriate systems and controls in place to enable it to be certain that it has adequate Capital Resources to meet the requirements in Part 4 on capital adequacy at all times and to allow it to demonstrate that at any particular time if required to do so by the Regulator. Where through the operation of those systems and controls an Authorised Person forms the view that it does not currently or is not likely to be able to satisfy the requirements of Rule 3.2.3 in future, that Authorised Person is required to immediately inform the Regulator in accordance with Rule 3.2.5.

          • Guidance

            1. App3 provides Guidance on the nature and type of stress and scenario testing that Authorised Persons should be frequently undertaking to support their view that they have adequate financial resources to meet their obligations.
            2. The requirements in this Chapter apply to Authorised Persons on a solo basis. An Authorised Person may also be subject to Capital Resources requirements at a Group level. Group requirements are addressed in Chapter 8 of these Rules.