4.1. Introduction

(1) This Chapter sets out capital adequacy requirements for a Bank.

(2) A Bank’s total Regulatory Capital is the sum of its Tier 1 Capital and Tier 2 Capital. The categories and elements of Regulatory Capital, as well as the limits, restrictions and adjustments to which they are subject are set out in this Chapter.

(3) Capital adequacy and capital management must be an integral part of a Bank’s overall governance and its bank-wide risk management process. Capital management must align the Bank’s risk appetite and risk profile with its capacity to absorb losses.

4.2. Application to branches

(1) This Chapter does not apply to a Bank that is licensed to operate as a branch in the AIFC, insofar as this Chapter would require the branch to hold capital.

(2) A branch is required to comply with the reporting requirements under this Chapter. In relation to the branch’s ICAAP, the branch may rely on the ICAAP for the bank of which it is a part (if available), to demonstrate compliance.

4.3. Governing Body’s responsibilities

(1) A Bank’s Governing Body must consider, on a periodic basis, whether the minimum capital and liquidity resources required by these rules are adequate to ensure there is no significant risk that the Bank’s liabilities cannot be met as they fall due. The Bank must take material and effective measures to obtain additional capital and liquidity resources if its Governing Body considers that the minimum requirements defined in these rules do not adequately reflect the risks of its business.

(2) The Governing Body is also responsible for:

• (a) ensuring that capital management is part of the Bank’s bank-wide risk management framework and is aligned with its risk appetite and risk profile;
• (b) ensuring that the Bank has, at all times, capital and liquidity resources of the kinds and amounts required by these rules;
• (c) ensuring that the Bank has capital, of adequate amount and appropriate quality, for the nature, scale and complexity of its business and for its risk profile;
• (d) ensuring that the amount of capital it has exceeds its minimum capital requirement, calculated according to these rules;
• (e) reviewing the Bank’s annual ICAAP and approving it, including but not limited to taking decisions to raise additional capital for the Bank; and
• (f) monitoring the adequacy and appropriateness of the Bank’s systems and controls to ensure the Bank’s compliance with these rules.

4.4. Systems and controls

(1) A Bank must have adequate systems and controls to allow it to calculate and monitor its minimum capital requirement.

(2) The systems and controls must be documented and must be appropriate for its risk profile and proportionate to the nature, scale and complexity of its business.

(3) The systems and controls employed by a Bank must include the ICAAP process which is defined in greater detail in a separate chapter of these rules.

(4) The systems and controls must, at all times, enable the Bank to demonstrate its compliance with the rules in this Chapter.

(5) The systems and controls of the Bank must enable it to manage available capital in anticipation of events or changes in market conditions.

(6) A Bank must have adequate and proportionate contingency plans to maintain or increase its capital in times of stress, whether idiosyncratic or systemic.

4.5. Use of internal models

A Bank must not use its internal models to calculate regulatory capital requirements and assess capital adequacy in accordance with the BBR Rules or to achieve compliance with the BBR Rules, except for the instances permitted by Rule 6.7 for calculation of market risk capital requirements.

4.6. References to particular currencies

In these rules, the specification of an amount of money in a particular currency is also taken to specify the equivalent sum in any other currency at the relevant time.