• PRU 3.16 PRU 3.16 Adequate Capital Resources for Categories 1, 2, 3A and 5

    • Application

      • Capital ratios

      • Minority interests that qualify for inclusion in consolidated CET1 Capital

        • PRU 3.16.1

          This Section applies to an Authorised Person in Category 1, 2, 3A or 5.

        • PRU 3.16.2 PRU 3.16.2

          Subject to 3.2.3, an Authorised Person must ensure that it complies with the following requirements at all times.

          (a) The ratio of CET1 Capital to Total Risk Exposure Amount must not be less than 6.0%.
          (b) The ratio of T1 Capital to Total Risk Exposure Amount must not be less than 8.0%.
          (c) The ratio of Capital Resources to Total Risk Exposure Amount must not be less than 10.0%.

          • Guidance

            In Rule 3.16.2 CET1 Capital is that calculated at step A3, T1 Capital is that calculated at step A7 and Capital Resources is that calculated at step A11 of Rule 3.15.3.

        • PRU 3.16.3

          The Regulator may impose a further requirement, termed an Individual Capital Requirement (ICR), on an Authorised Person to hold additional Capital Resources arising from Pillar 2 adjustments (see Chapter 10). Where the Authorised Person has an ICR imposed on it, then the Authorised Person must, at all times, maintain adequate Capital Resources of the type and amount as specified in Rule 10.6.1 in addition to those kept to meet the capital adequacy requirements outlined in Rule 3.2.4.

      • Qualifying AT1, T1, T2 Capital and qualifying own funds

        • PRU 3.16.4

          Qualifying AT1, T1, T2 Capital and qualifying Capital Resources must include the minority interest, AT1, T1 or T2 Capital instruments, as applicable, plus the related retained earnings and Share premium accounts, of a Subsidiary, only where the following conditions are met:

          (a) the Subsidiary is one of the following:
          (i) an Authorised Person; or
          (ii) a regulated entity;
          (b) the Subsidiary is a member of the Financial Group and included in the scope of consolidated supervision in accordance with Chapter 8; and
          (c) those instruments are owned by Persons other than the Undertakings included in the Financial Group.

      • Qualifying AT1 and T2 Capital issued by a Special Purpose Entity

        • PRU 3.16.5 PRU 3.16.5

          AT1 and T2 Capital instruments issued by an SPE, and the related retained earnings and Share premium accounts, are included in qualifying AT1 or T2 Capital or qualifying Capital Resources, as applicable, only where the following conditions are met:

          (a) the SPE issuing those instruments is included fully in the Financial Group to which the Authorised Person belongs;
          (b) the instruments, and the related retained earnings and Share premium accounts, are included in qualifying AT1 Capital only where the conditions laid down in Rule 3.14.3(1) are satisfied;
          (c) the instruments, and the related retained earnings and Share premium accounts, are included in qualifying T2 Capital only where the conditions laid down in Rule 3.15.3(1) are satisfied; and
          (d) the only asset of the SPE is its investment in the Capital Resources of any of its Parents or their Subsidiaries, which are included fully in the Financial Group to which the Authorised Person belongs, the form of which satisfies the relevant conditions laid down in Rule 3.14.3(1) or Rule 3.15.3(1), as applicable.

          • Guidance

            If the Regulator considers the assets of a Special Purpose Entity to be minimal and insignificant for such an entity, the Regulator may consider waiving the condition specified in Rule 3.16.5(d).

      • Qualifying T1 Capital instruments included in consolidated T1 Capital

        • PRU 3.16.6

          An Authorised Person must determine the amount of qualifying T1 Capital of a Subsidiary that is included in consolidated T1 Capital of the Authorised Person's Financial Group by subtracting from the qualifying T1 Capital of that Subsidiary the result of multiplying the amount referred to in (a) by the percentage referred to in (b):

          (a) the lesser of the following:
          (i) the amount of T1 Capital of that Subsidiary required to meet the sum of the Subsidiary's T1 Capital requirement (on a solo basis) of 80% of the Risk Capital Requirement and its Capital Conservation Buffer requirement of 25% of the Risk Capital Requirement; or
          (ii) the amount of consolidated T1 Capital that relates to the Subsidiary that is required on a consolidated basis to meet the sum of its Financial Group's T1 Capital requirement of 80% of the Risk Capital Requirement and its Capital Conservation Buffer requirement of 25% of the Risk Capital Requirement;
          (b) the qualifying T1 Capital of the Subsidiary expressed as a percentage of all T1 Capital instruments of that Subsidiary plus the related retained earnings and Share premium accounts.

      • Qualifying T1 Capital included in consolidated AT1 Capital

        • PRU 3.16.7

          An Authorised Person must determine the amount of qualifying T1 Capital of a Subsidiary that is included in consolidated AT1 Capital by subtracting from the qualifying T1 Capital of that Subsidiary included in consolidated T1 Capital, the minority interests of that Subsidiary that are included in consolidated CET1 Capital.

      • Qualifying Capital Resources included in consolidated Capital Resources

        • PRU 3.16.8

          An Authorised Person must determine the amount of qualifying Capital Resources of a Subsidiary that is included in consolidated Capital Resources of its Financial Group by subtracting from the qualifying Capital Resources of that Subsidiary, the result of multiplying the amount referred to in (a) by the percentage referred to in (b):

          (a) the lesser of the following:
          (i) the amount of Capital Resources of the Subsidiary required to meet the sum of the Subsidiary's total Capital Requirement (on a solo basis) of 100% of the Risk Capital Requirement and its Capital Conservation Buffer requirement of 25% of the Risk Capital Requirement; or
          (ii) the amount of Capital Resources that relates to the Subsidiary that is required on a consolidated basis to meet the sum of its Financial Group's total Capital Requirement of 100% of the Risk Capital Requirement and its Capital Conservation Buffer requirement of 25% of the Risk Capital Requirement;
          (b) the qualifying Capital Resources of the Subsidiary, expressed as a percentage of all Capital Resources instruments of the Subsidiary that are included in its CET1, AT1 and T2 Capital items and the related retained earnings and Share premium accounts.