3. MINIMUM CAPITAL REQUIREMENT
3.1 Application of Chapter 3
This Chapter does not apply to a PRU Investment Firm that is an Externally Regulated PRU Investment Firm.
3.2 References to Capital Resources and currencies
(1) In these PRU(INV) Rules, "Capital Resources" must be calculated as the sum of the following capital elements, subject to deductions listed in (2) below:
- (a) the ordinary equity share capital of the PRU Investment Firm, to the extent fully paid up;
- (b) share premium accounts related to the equity share capital referred in paragraph (a);
- (c) any retained earnings and reserves created out of earnings of past periods of the Insurance Intermediary, and accumulated other comprehensive income, as defined in the International Financial Reporting Standards, to the extent shown in its audited financial statements and accounts; and
- (d) any amount directed by the AFSA under Rule 3.2(3).
(2) In determining its Capital Resources, a PRU Investment Firm must deduct the following items from the sum of the capital elements in (1) above:
- (a) any interim losses incurred by the PRU Investment Firm in the current financial year, irrespective of whether or not shown in audited financial statements and accounts;
- (b) each of the following, to the extent that its value contributes to the sum of the capital elements in (1) above:
- (i) goodwill and other intangible assets as defined in the International Financial Reporting Standards;
- (ii) tangible fixed assets, including equipment and vehicles;
- (iii) deferred tax assets that rely on future profitability;
- (iv) defined benefit pension fund assets of the Insurance Intermediary;
- (v) investments by the PRU Investment Firm or by any of its Subsidiaries in the Insurance Intermediary's own shares;
- (vi) holdings of equity shares of Affiliates or Related Persons which a reciprocal cross holding with the PRU Investment Firm which have the effect of artificially inflating the Capital Resources of the PRU Investment Firm;
- (vii) any investments in, and loans to, Affiliates or Related Persons; and
- (viii) holdings of other investments and assets that are not readily realisable into cash; and
- (c) any amount to be deducted from Capital Resources as directed by the AFSA.
(3) Where the AFSA is satisfied that a capital instrument issued by the PRU Investment Firm, and in respect of which the PRU Investment Firm has received the issuance proceeds in full, has characteristics of permanence and loss absorption that are sufficient to ensure that it would be available to absorb unexpected losses of the PRU Investment Firm, it may direct that some or all of the liabilities created by that instrument may be included in the Capital Resources of the PRU Investment Firm under Rule 3.2(1)(d).
Guidance
In deciding whether to exercise discretion under Rule 3.2(3), the AFSA will take into account whether the Basel Requirements are satisfied.
3.3 Minimum Capital Requirement
(1) A PRU Investment Firm must ensure that it maintains at all times Capital Resources of at least its Minimum Capital Requirement.
(2) The Minimum Capital Requirement of:
- (a) a PRU Intermediary Investment Firm is equal to its Base Capital Requirement;
- (b) a PRU Dealing Investment Firm is equal to the sum of:
- (i) its Base Capital Requirement;
- (ii) its Credit Risk Capital Requirement;
- (iii) its Market Risk Capital Requirement; and
- (iv) its Operational Risk Capital Requirement.
(3) The Base Capital Requirement of a PRU Investment Firm shall be the amount specified in Table 3.3 by reference to the activity that the PRU Investment Firm is authorised to conduct or, if the PRU Investment Firm is authorised to conduct more than one such activity, the amount that is the higher or highest of the relevant amounts of in Table 3.3.
Table 3.3 Base Capital Requirement
|
Regulated Activity |
Base Capital Requirement (USD) |
|
Dealing In Investments as Principal, unless such activities are limited to matching client orders and the AFSA determines that it is appropriate in all the circumstances to apply a lower Base Capital Requirement |
500,000 |
|
Dealing In Investments as Principal, where such activities are limited to matching client orders and the AFSA determines that it is appropriate in all the circumstances to apply a lower Base Capital Requirement than above |
50,000 |
|
Dealing In Investments As Agent |
50,000 |
|
Managing Investments |
150,000 |
|
Managing A Collective Investment Scheme, that is an Exempt Fund and that has an appointed Eligible Custodian, unless the appointment of an Eligible Custodian is not required (a) due to the nature of the Fund and the type of assets which it holds; or (b) because the Fund is a Single Family Office Fund |
50,000 |
|
Managing A Collective Investment Scheme, which is a Non-Exempt Fund |
150,000 |
|
Managing A Collective Investment Scheme, which is a Self-managed Fund and has an appointed Eligible Custodian, unless the appointment of an Eligible Custodian is not required due to the nature of the Fund and the type of assets which it holds |
300,000 |
|
Managing A Collective Investment Scheme, which does not have an appointed Eligible Custodian, except where an Eligible Custodian is not required due to the nature of the Fund and the type of assets which it holds |
500,000 |
|
Providing Custody Services |
500,000 |
|
Arranging Custody Services |
10,000 |
|
Providing Trust Services |
200,000 |
|
Providing Fund Administration |
10,000 |
|
Acting as A Trustee of A Fund |
200,000 |
|
Advising on Investments |
10,000 |
|
Arranging Deals In Investments |
10,000 |
|
Managing Profit-Sharing Investment Accounts |
200,000 |
4) The Credit Risk Capital Requirement of a PRU Dealing Investment Firm must be calculated in accordance with rules imposed on the PRU Dealing Investment Firm individually as part of its authorisation by the AFSA.
(5) The Market Risk Capital Requirement of a PRU Dealing Investment Firm must be calculated in accordance with rules imposed on the PRU Dealing Investment Firm individually as part of its authorisation by the AFSA.
(6) The Operational Risk Capital Requirement of a PRU Dealing Investment Firm must be calculated in accordance with rules imposed on the PRU Dealing Investment Firm individually as part of its authorisation by the AFSA.
Guidance
The rules imposed under paragraphs (4), (5) and (6) will apply the relevant parts of the Basel Requirements to the PRU Dealing Investment Firm, taking into account the nature, scale and complexity of the PRU Dealing Investment Firm's business. This will include:
- (a) rules providing for the Credit Risk Capital Requirement to be determined using a riskweighted assets calculation in respect of on- and off- balance sheet exposures of the PRU Dealing Investment Firm using the standardised approach of the Basel Requirements, and allowing for reliance on credit risk mitigation techniques and providing for more onerous treatment of exposures to securitisations and over-thecounter derivatives in each case in accordance with Basel Requirements to the extent applicable to the PRU Dealing Investment Firm's business;
- (b) rules providing for the Market Risk Capital Requirement to be determined using the standardised measurement method of the Basel Requirements, reflecting interest rate risk, equity position risk, foreign exchange risk, commodities risk and the treatment of options, in each case in accordance with the Basel Requirements to the extent applicable to the PRU Dealing Investment Firm's business;
- (c) rules providing for the Operational Risk Capital Requirement to be determined using the basic indicator approach or the standardised approach of the Basel Requirements to the extent applicable to the PRU Dealing Investment Firm's business.
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