• PRU 3.7 PRU 3.7 Expenditure Based Capital Minimum

    • PRU 3.7.1

      An Authorised Person must calculate its Expenditure Based Capital Minimum as:

      (a) in the case of an Authorised Person which holds Client Assets or Insurance Money, 18/52nds;
      (b) in the case of an Authorised Person in Category 3B or 3C which does not hold Client Assets or Insurance Money, 13/52nds; or
      (c) in the case of an Authorised Person in Category 4, which does not hold Insurance Money, 6/52nds;

      of the Annual Audited Expenditure, calculated in accordance with Rule 3.7.2.

    • Annual Audited Expenditure

      • PRU 3.7.2

        (1) Subject to Rule 3.7.3, Annual Audited Expenditure constitutes all expenses and losses that arise in the Authorised Person's normal course of business in a twelve-month accounting period (excluding exceptional items) which are recorded in the Authorised Person's audited profit and loss account, less the following items (if they are included in the Authorised Person's audited profit and loss account):
        (a) staff bonuses, except to the extent that they are non-discretionary;
        (b) the shares of Employees and Directors in profits, including Share Options, except to the extent that they are non-discretionary;
        (c) other appropriations of profits, except to the extent that they are automatic;
        (d) shared commissions and fees payable that are directly related to commissions and fees receivable, which are included with total revenue;
        (e) fees, brokerage and other charges paid to clearing houses, exchanges and intermediate brokers for the purposes of executing, registering or clearing transactions;
        (f) any expenses for which pre-payments or advances have already been made to the respective claimant (e.g. pre-paid rent, pre-paid communication charges etc.) and deducted from Capital Resources as illiquid assets;
        (g) foreign exchange losses; and
        (h) contributions to charities.
        (2) For the purposes of (1)(c), a management charge must not be treated as an appropriation of profits.

      • PRU 3.7.3

        (1) For the purposes of Rule 3.7.2, an Authorised Person must calculate its relevant Annual Audited Expenditure with reference to the Authorised Person's most recent audited financial statements.
        (2) If the Authorised Person's most recent audited financial statements do not represent a twelve-month accounting period, it must calculate its Annual Audited Expenditure on a pro rata basis so as to produce an equivalent annual amount.
        (3) If an Authorised Person has not completed its first twelve months of business operations, it must calculate its Annual Audited Expenditure based on forecast expenditure as reflected in the budget for the first twelve months of business operations, as submitted with its application for authorisation.
        (4) (a) If an Authorised Person:
        (i) has a material change in its expenditure (whether up or down); or
        (ii) has varied its authorised activities,
        it must recalculate its Annual Audited Expenditure and Expenditure Based Capital Minimum accordingly.
             (b) Where an Authorised Person has recalculated its Annual Audited Expenditure and Expenditure Based Capital Minimum in accordance with (a), it must submit this recalculation to the Regulator within seven days of its completion and seek agreement/approval from the Regulator. The Regulator may within thirty days of receiving the recalculation object to the recalculation and require the Authorised Person to revise its Expenditure Based Capital Minimum.

    • Liquid assets

      • PRU 3.7.4

        (1) An Authorised Person to which this Section applies must, at all times, maintain an amount of assets which exceeds its Expenditure Based Capital Minimum in the form of liquid assets.
        (2) For the purpose of this Rule, and subject to (3), liquid assets comprise any of the following:
        (a) cash in hand;
        (b) Money deposited with a regulated bank or Deposit-taker which has a short-term credit rating of A1 or P1 (or equivalent) and above from an ECAI;
        (c) demand Deposits with a tenor of one year or less with a bank or Deposit-taker in (b);
        (d) time Deposits with a tenor of one year or less which have an option to redeem the Deposit at any time. In such cases, the Deposit amount eligible to be included as liquid assets must be calculated as net of any costs associated with such early redemption;
        (e) cash receivable from a regulated clearing house and cash Deposits with such clearing houses, other than any fees or contributions to guarantee or reserve funds of such clearing houses; or
        (f) any other asset which may be approved by the Regulator as comprising a liquid asset for the purpose of this Rule.
        (3) For the purpose of this Rule, liquid assets do not include:
        (a) any Investment, asset or Deposit which has been pledged as security or Collateral for any obligations or liabilities assumed by it or by any other third party; or
        (b) cash held in Client Money or Insurance Money accounts.