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Dubai Financial Services Authority (DFSA): Contents

Dubai Financial Services Authority (DFSA)
Laws
Rulebook Modules
Prudential — Investment, Insurance Intermediation and Banking Module (PIB) [VER33/02-19]
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Policy Statements
DFSA Codes of Practice
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Financial Markets Tribunal
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  • PIB 3 Capital

    • Introduction

      • PIB 3 Guidance

        1. This chapter deals with all aspects of prudential requirements relating to capital adequacy. The chapter aims to ensure that an Authorised FirmG maintains adequate capital to support the risks associated with its activities and that it can absorb potential unexpected losses to its capital. It also includes provisions forming part of the framework for assessing the capital adequacy of an Authorised FirmG .
        2. PIB 3 Part 1 of this chapter deals with the application provisions. PIB 3 Part 2 outlines the fundamental capital adequacy obligations and systems and controls requirements to ensure compliance with this critical regulatory obligation. PIB 3 Part 3 includes all the RulesG and associated guidance for the calculation of minimum Capital RequirementG for different CategoriesG of Authorised FirmsG . This part also specifies the requirements in respect of Capital BuffersG and associated obligations. It specifies three types of Capital Buffers: the Capital Conservation Buffer, the Countercyclical Capital Buffer and the HLA Capital Buffer. PIB 3 Part 4 of this chapter specifies detailed RulesG on the calculation of Capital ResourcesG of an Authorised FirmG , including detailed RulesG on the eligibility criteria for different components of Capital ResourcesG which correspond to varying levels of quality.
        3. PIB Appendix 3 provides detailed guidance on various aspects of stress and scenario testing which are required to be considered by an Authorised FirmG to effectively comply with the RulesG in this chapter.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
        [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

    • PIB 3 Part 1 — Application

      • PIB 3.1 Application

        • PIB 3.1.1

          The parts, sections and RulesG in this chapter apply to an Authorised FirmG as stated in those provisions.

          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

          • PIB 3.1.1 Guidance

            1. PIB 3 Part 2 of this chapter imposes a number of basic requirements, including the core requirement that the amount of a firm's Capital ResourcesG must at all times exceed the amount of its Capital RequirementG .
            2. In particular, note that:
            a. PIB Part 3 (Calculating Capital RequirementsG ) applies to all firms, but with differentiated calculations for Capital RequirementsG for the various CategoriesG of Authorised FirmsG as prescribed in sections PIB 3.3, PIB 3.4 and PIB 3.5;
            b. Within PIB 3 Part 3, an exemption from the calculation of Tier 2 (T2) Capital in relation to firms authorised to Manage a PSIAuG is prescribed in PIB Rule 3.15.9; and
            c. PIB 3 Part 4 (Calculating Capital ResourcesG ) applies to all firms, but in a differentiated manner for different CategoriesG of firms as demonstrated in the table in PIB section 3.11.
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • PIB 3 Part 2 — Basic Requirements

      • PIB 3.2 Requirements

        • Application

          • PIB 3.2.1

            In this section:

            (a) Rules PIB 3.2.2 to PIB 3.2.5 apply to an Authorised FirmG in any CategoryG ;
            (b) PIB Rule 3.2.6 applies only to an Authorised FirmG in CategoryG 3B, 3C or 4; and
            (c) PIB Rule 3.2.7 applies only to an Authorised FirmG in CategoryG 1, 2, 3A or 5.
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

          • Maintaining Capital Resources

            • PIB 3.2.2

              An Authorised FirmG that is a Domestic FirmG must:

              (a) have and maintain, at all times, Capital ResourcesG of the kinds and amounts specified in, and calculated in accordance with, the RulesG in PIBG ; and
              (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.
              Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

              • PIB 3.2.2 Guidance

                1. For the purposes of PIB Rule 3.2.2, an Authorised Firm'sG Governing BodyG should assess whether the Capital ResourcesG which are required by the DFSAG as set out in PIBG are adequate in relation to the Authorised Firm'sG specific business. Additional resources should be maintained by the Authorised FirmG where its Governing BodyG has considered that the required Capital ResourcesG do not adequately reflect the nature and risks of the Authorised Firm'sG business.
                2. The liabilities referred to in PIB Rule 3.2.2(b) include an Authorised Firm'sG contingent and prospective liabilities, such as liabilities arising from a change in business strategy or claims made against the Authorised FirmG , but not liabilities that might arise from prospective transactions which the Authorised FirmG could avoid, for example by ceasing its operations. Liabilities from prospective transactions refers to the potential liabilities which can be avoided by either 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.
                3. An Authorised FirmG subject to the requirements in PIB chapter 10 may be required to meet Individual Capital RequirementsG under those RulesG .
                Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

            • PIB 3.2.3

              An Authorised FirmG must have, at all times, Capital ResourcesG which exceed the amount of its Capital RequirementG .

              Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

          • Systems and Controls

            • Systems and Controls Guidance

              For the purposes of PIB section 3.2, an Authorised FirmG is required to have systems and controls in place to enable it to be certain that it has adequate Capital ResourcesG to comply with PIB Rule 3.2.3 at all times. An Authorised Firm'sG systems and controls should be such as to allow it to demonstrate its capital adequacy at any particular time if required to do so by the DFSAG . Where through the operation of those systems and controls an Authorised FirmG forms the view that it may not be able to satisfy the requirements of PIB Rule 3.2.3 in the future, that Authorised FirmG is required to immediately inform the DFSAG in accordance with PIB Rule 3.2.5.

              Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

            • PIB 3.2.4

              An Authorised FirmG that is a BranchG 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 to ensure that there is no significant risk that liabilities cannot be met as they fall due;
              (b) ensure that it complies with its home state Financial Services Regulator'sG prudential requirements;
              (c) submit to the DFSAG a copy of every capital adequacy summary report and leverage ratio report submitted to its home state Financial Services RegulatorG 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 Financial Services RegulatorG , notify the DFSAG forthwith with any relevant documents.
              Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
              [Amended] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]

            • PIB 3.2.5

              (1) An Authorised FirmG must have systems and controls to enable it to determine and monitor:
              (a) its Capital RequirementG ; and
              (b) whether the amount of its Capital ResourcesG is, and is likely to remain, greater than the amount of its Capital RequirementG .
              (2) Such systems and controls must include an analysis of:
              (a) realistic scenarios which are relevant to the circumstances of the Authorised FirmG ; and
              (b) the effects on the Capital RequirementG of the Authorised FirmG and on its Capital ResourcesG if those scenarios occurred.
              (3) An Authorised FirmG must notify the DFSAG immediately and confirm in writing any breach, or expected breach, of any of the provisions of this chapter by the Authorised FirmG .
              Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

              • PIB 3.2.5 Guidance

                1. PIB App3 provides GuidanceG on the nature and type of stress and scenario testing that Authorised FirmsG should be undertaking to support their view that they have adequate financial resources to meet their obligations.
                2. The requirements in this chapter apply to Authorised FirmsG on a solo basis. An Authorised FirmG may also be subject to Capital ResourcesG requirements at a GroupG level. GroupG requirements are addressed in PIB chapter 8.
                Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

          • Notifications to the DFSA

            • PIB 3.2.6

              (1) This RuleG applies to an Authorised FirmG in CategoryG 3B, 3C or 4.
              (2) An Authorised FirmG must notify the DFSAG immediately and confirm in writing if its Capital ResourcesG fall below 120% of its Capital RequirementG .
              Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

          • Requirements as to Composition of Capital

            • PIB 3.2.7

              (1) This RuleG applies to an Authorised FirmG in CategoryG 1, 2, 3A or 5.
              (2) Subject to PIB Rule 3.6.3 and (3), an Authorised FirmG must at all times maintain the following components of capital:
              (a) where the Risk Capital RequirementG forms part of the Capital Requirement of the firm under section PIB 3.3 or PIB 3.4:
              (i) CET1 Capital equating to at least 6.0% of the firm's Risk Weighted Assets; and
              (ii) T1 Capital equating to at least 8.0% of the firm's Risk Weighted Assets; or
              (b) where the Expenditure Based Capital MinimumG forms the Capital RequirementG of the firm under PIB section 3.4:
              (i) CET1 Capital equating to at least 60% of the firm's Expenditure Based Capital MinimumG ; and
              (ii) T1 Capital equating to at least 80% of the firm's Expenditure Based Capital MinimumG .
              (3) The CET1 Capital used to meet the requirement in (2)(a) must not also be used as a component of a Capital BufferG .
              Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
              [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

              • PIB 3.2.7 Guidance

                1. It follows from Rule 3.2.7(2)(a) and Rule 3.2.3 that an Authorised FirmG cannot use T2 Capital of more than 2% of its >Risk Weighted Assets to meet its Risk Capital Requirement.
                2. It follows from Rule 3.2.7(2)(b) and Rule 3.2.3 that an Authorised FirmG cannot use T2 Capital to meet more than 20% of its Expenditure Based Capital MinimumG .
                3. In accordance with Rules 3.9.5, PIB 3.9 A.3 and PIB 3.9B4 the CET1 Capital used for a Capital Buffer cannot constitute CET1 Capital for meeting the Risk Capital RequirementG .
                Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
                [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

    • PIB 3 Part 3 — Calculating the Capital Requirement

      • PIB 3.3 Capital Requirements for Categories 1 and 5

        • PIB 3.3.1

          This section applies to an Authorised FirmG in CategoryG 1 or 5.

          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • PIB 3.3.2

          (1) The Capital RequirementG for an Authorised FirmG is calculated, subject to (2), as the higher of:
          (a) the applicable Base Capital RequirementG ; or
          (b) its Risk Capital RequirementG plus applicable Capital Buffer Requirements.
          (2) Where the Authorised FirmG has an ICR imposed on it then the Capital RequirementG is its ICR plus Risk Capital RequirementG plus applicable Capital Buffer Requirements.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
          [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

          • PIB 3.3.2 Guidance

            1. An Authorised FirmG should refer to chapters PIB 4, PIB 5 and PIB 6 to determine whether it is required to calculate a Credit Risk Capital RequirementG (also referred to in this module as CRCOMG ), a Market Risk Capital RequirementG or an Operational RiskG Capital RequirementG , respectively.
            2. The Displaced Commercial Risk Capital RequirementG will only apply to an Authorised FirmG Managing a PSIAuG .
            3. An Authorised FirmG will also need to consider the relevant provisions in IFR chapter 5 when calculating its Credit RiskG and Market RiskG for Islamic ContractsG .
            4. If an Individual Capital RequirementG is imposed on an Authorised FirmG under PIB Chapter 10, such a requirement is additional to the Risk Capital RequirementG and is, therefore, a component of the Authorised FirmsG Capital RequirementG .
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
            [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

      • PIB 3.4 Capital Requirements for Categories 2 and 3A

        • PIB 3.4.1

          This section applies to an Authorised FirmG in CategoryG 2 or 3A.

          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • PIB 3.4.2

          (1) The Capital RequirementG for an Authorised FirmG is calculated, subject to (2), as the highest of:
          (a) the applicable Base Capital RequirementG ;
          (b) the Expenditure Based Capital MinimumG ; or
          (c) its Risk Capital RequirementG plus applicable Capital Buffer Requirements.
          (2) Where the Authorised FirmG has an ICR imposed on it then the Capital RequirementG is its ICR plus Risk Capital Requirement plus applicable Capital Buffer Requirements.G
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
          [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

          • PIB 3.4.2 Guidance

            1. An Authorised FirmG should refer to chapters 4, 5 and 6 to determine whether it is required to calculate a Credit Risk Capital RequirementG (also referred to in this module as CRCOMG ), a Market Risk Capital RequirementG or an Operational RiskG Capital RequirementG , respectively.
            2. An Authorised FirmG will also need to consider the relevant provisions in IFR chapter 5 when calculating its Credit RiskG and Market RiskG for Islamic ContractsG .
            3. If the DFSAG imposes an Individual Capital RequirementG on an Authorised FirmG under PIB Chapter 10, such a requirement is additional to the Risk Capital RequirementG and is, therefore, a component of the Authorised FirmsG Capital RequirementG .
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
            [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

      • PIB 3.5 Capital Requirements for Categories 3B, 3C and 4

        • PIB 3.5.1

          This section applies to an Authorised FirmG in CategoryG 3B, 3C or 4.

          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • PIB 3.5.2

          The Capital RequirementG for such an Authorised FirmG is calculated as the higher of:

          (a) the applicable Base Capital RequirementG as set out in PIB section 3.6; or
          (b) the Expenditure Based Capital MinimumG as set out in PIB section 3.7.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • PIB 3.5.3

          (1) An Authorised FirmG to which this section applies must, at all times, maintain an amount which exceeds its Expenditure Based Capital MinimumG in the form of liquid assets.
          (2) For the purpose of this RuleG , 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 ECAIG ;
          (c) demand deposits with a tenor of 1 year or less with a bank or deposit-taker in (b);
          (d) time deposits with a tenor of 1 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 DFSAG as comprising a liquid asset for the purpose of this RuleG .
          (3) For the purpose of this RuleG , liquid assets do not include:
          (a) any investment, asset or deposit which has been pledged as security or CollateralG for any obligations or liabilities assumed by it or by any other third party; or
          (b) cash held in Client MoneyG or Insurance MoneyG accounts.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 3.6 Base Capital Requirement

        • PIB 3.6.1

          This section applies to an Authorised FirmG in any CategoryG .

          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

          • PIB 3.6.1 Guidance

            The Base Capital RequirementG is a component of the calculation of the Capital RequirementG under sections PIB 3.3, PIB 3.4 and PIB 3.5.

            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • PIB 3.6.2

          The table below sets out the Base Capital RequirementG for each CategoryG of an Authorised FirmG .

          CategoryG Base Capital RequirementG
          CategoryG 1 US $10 million
          CategoryG 2 US $2 million
          CategoryG 3A

          US $500,000

          CategoryG 3B US $4 million
          CategoryG 3C

          US $500,000

          Except if the only Financial ServiceG referred to in PIB Rule 1.3.5(a) that the Authorised FirmG is authorised to carry on is Managing a Collective Investment FundG in which case its Base Capital RequirementG is:
          (a) US $140,000 if it manages any Public FundG ; or
          (b) US $70,000 otherwise
          CategoryG 4

          US $ 10,000

          Except if the Authorised FirmG is authorised to Operate a Crowdfunding PlatformG and it holds Client AssetsG , in which case its Base Capital RequirementG is US $140,000.
          CategoryG 5 US $10 million
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
          [Amended] DFSA RM188/2016 (Made 7th December 2016). [VER26/02-17]
          [Amended] DSFA RM203/2017 (Made 14th June 2017). [VER28/08-17]

        • PIB 3.6.3

          An Authorised FirmG must have Common Equity Tier 1 Capital (CET1 Capital), as defined in PIB section 3.13, of not less than its relevant Base Capital RequirementG at the time that it obtains authorisation and at all times thereafter.

          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 3.7 Expenditure Based Capital Minimum

        • PIB 3.7.1

          This section applies to an Authorised FirmG in CategoryG 2, 3A, 3B, 3C or 4.

          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

          • PIB 3.7.1 Guidance

            The Expenditure Based Capital MinimumG is a component of the calculation of the Capital RequirementG under sections PIB 3.4 and PIB 3.5 and is a key factor in the calculation of the capital components under PIB Rule 3.2.7.

            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • PIB 3.7.2

          An Authorised FirmG must calculate its Expenditure Based Capital MinimumG as:

          (a) subject to (b), in the case of an Authorised FirmG which holds Client AssetsG or Insurance MoniesG , 18/52;
          (b) in the case of an Insurance IntermediaryG which holds Insurance MoniesG but not Client AssetsG , 9/52;
          (c) in the case of an Authorised FirmG in CategoryG 2, 3A, 3B or 3C which does not hold Client AssetsG or Insurance MoniesG , 13/52; or
          (d) in the case of an Authorised FirmG in CategoryG 4, which does not hold Insurance MoniesG , 6/52;

          of the Annual Audited ExpenditureG , calculated in accordance with PIB Rule 3.7.3.

          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
          [Amended] DFSA RM183/2016 (Made 19 June 2016). [PIB/VER25/08-16]

        • Annual Audited Expenditure

          • PIB 3.7.3

            (1) Subject to PIB Rule 3.7.4, Annual Audited ExpenditureG constitutes all expenses and losses that arise in the Authorised Firm'sG normal course of business in a twelve month accounting period (excluding exceptional items) which are recorded in the Authorised Firm'sG audited profit and loss account, less the following items (if they are included in the Authorised Firm'sG audited profit and loss account):
            (a) staff bonuses, except to the extent that they are non-discretionary;
            (b) employees' and directors' shares 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 ResourcesG 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.
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

          • PIB 3.7.4

            (1) For the purposes of PIB Rule 3.7.3, an Authorised FirmG must calculate its relevant Annual Audited ExpenditureG with reference to the Authorised Firm'sG most recent audited financial statements.
            (2) If the Authorised Firm'sG most recent audited financial statements do not represent a twelve month accounting period, it must calculate its Annual Audited ExpenditureG on a pro rata basis so as to produce an equivalent annual amount.
            (3) If an Authorised FirmG has not completed its first twelve months of business operations, it must calculate its Annual Audited ExpenditureG 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 FirmG :
            (i) has a material change in its expenditure (either up or down); or
            (ii) has varied its authorised activities;
            it must recalculate its Annual Audited ExpenditureG and Expenditure Based Capital MinimumG accordingly.
            (b) Where an Authorised FirmG has recalculated its Annual Audited ExpenditureG and Expenditure Based Capital MinimumG in accordance with (a), it must submit this recalculation to the DFSAG within 7 days of its completion and seek agreement/approval from the DFSAG . The DFSAG may within 30 days of receiving the recalculation object to the recalculation and require the Authorised FirmG to revise its Expenditure Based Capital MinimumG .
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 3.8 Risk Capital Requirement

        • PIB 3.8.1

          This section applies to an Authorised FirmG in CategoryG 1, 2, 3A or 5.

          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

          • PIB 3.8.1 Guidance

            The Risk Capital RequirementG is a component of the calculation of the Capital RequirementG under sections PIB 3.3 and PIB 3.4.

            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • Calculation of Risk Capital Requirement

          • PIB 3.8.1A

            An Authorised FirmG must calculate its Risk Capital Requirement as 10% of its Risk Weighted Assets.

            Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

        • Risk Weighted Assets

          • PIB 3.8.2

            An Authorised FirmG must calculate its Risk Weighted Assets as 12.5 multiplied by the sum of the following:

            (a) the CRCOMG ;
            (b) the Market Risk Capital RequirementG ;
            (c) the Operational RiskG Capital RequirementG ; and
            (d) the Displaced Commercial Risk Capital RequirementG , where applicable.
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
            [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

        • CRCOM

          • PIB 3.8.3

            An Authorised FirmG must calculate its Credit Risk Capital RequirementG in accordance with the applicable RulesG in PIB chapter 4.

            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

            • PIB 3.8.3 Guidance

              1. Detailed RulesG and GuidanceG in respect of the CRCOMG are specified in PIB chapter 4. The CRCOMG includes the risk weighted assets (RWAG ) for all Credit RiskG ExposuresG and securitisation ExposuresG .
              2. RulesG and GuidanceG in respect of calculating the CRCOMG for Islamic ContractsG are contained in IFR chapter 5.
              Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • Market Risk Capital Requirement

          • PIB 3.8.4

            An Authorised FirmG must calculate its Market Risk Capital RequirementG in accordance with the applicable RulesG in PIB chapter 5.

            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

            • PIB 3.8.4 Guidance

              1. Detailed RulesG and GuidanceG in respect of the Market Risk Capital RequirementG and each of its components are contained in PIB chapter 5.
              2. RulesG and GuidanceG in respect of calculating Market RiskG for Islamic ContractsG are contained in IFR chapter 5.
              Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • Operational Risk Capital Requirement

          • PIB 3.8.5

            An Authorised FirmG must calculate its Operational RiskG Capital RequirementG in accordance with the applicable RulesG in PIB chapter 6.

            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • Displaced Commercial Risk Capital Requirement

          • PIB 3.8.6

            An Authorised FirmG Managing a PSIAuG must calculate its Displaced Commercial Risk Capital RequirementG in accordance with IFR chapter 5.

            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 3.9 Capital Conservation Buffer

        • PIB 3.9.1

          This section applies to an Authorised FirmG in CategoryG 1, 2 or 5.

          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
          [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

        • PIB 3.9.2

          Where, under section PIB 3.3 or PIB 3.4, the Risk Capital RequirementG in PIB section 3.8 applies to an Authorised FirmG , then the firm is subject to a Capital Conservation Buffer Requirement.

          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
          [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

        • PIB 3.9.3

          The Capital Conservation Buffer Requirement is equivalent to 2.5% of an Authorised Firm'sG Risk Weighted Assets and must constitute only CET1 Capital.

          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
          [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

        • PIB 3.9.4

          (1) An Authorised FirmG must maintain the required buffer amount, calculated in accordance with PIB Rule 3.9.3, at all times.
          (2) The Capital Conservation Buffer RequirementG applies on both a solo and a consolidated basis for Authorised FirmsG forming part of Financial GroupsG .
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
          [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

        • PIB 3.9.5

          An Authorised FirmG must not apply CET1 Capital that it maintains to meet the Capital Conservation Buffer Requirement towards meeting:

          (a) any Individual Capital RequirementG the DFSA may imposed on it pursuant to PIB chapter 10; or
          (b) its Risk Capital RequirementG ;
          (c) its Countercyclical Capital Buffer Requirement; or
          (d) its HLA Capital Buffer Requirement.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
          [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

      • PIB 3.9A Countercyclical Capital Buffer (CCyB)

        • PIB 3.9A Guidance

          1. This section sets out when an Authorised FirmG must maintain a Countercyclical Capital Buffer (CCyB) and how the buffer is calculated.
          2. A Countercyclical Capital Buffer is intended to take into account the macro-financial environment in which firms operate. If national authorities consider that excess credit growth has led to a build-up of system-wide risk, they can impose this measure to ensure the financial system has a buffer of capital to protect it against future potential losses.
          3. An Authorised FirmG will need to maintain a Countercyclical Capital Buffer only if it has a credit exposure in a jurisdiction where a CCyB Authority has imposed a CCyB Rate.
          4. The Countercyclical Capital Buffer is in addition to the capital required under the Risk Capital Requirement and the Capital Conservation Buffer Requirement.
          Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]
          [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

        • PIB 3.9A.1

          This section applies to an Authorised FirmG if it:

          (a) is in Category 1, 2 or 5; and
          (b) has a Non-Financial Private Sector Credit Exposure in a jurisdiction for which a CCyB Rate applies.
          Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

        • Countercyclical Capital Buffer Requirement

          • PIB 3.9A.2

            An Authorised FirmG must maintain a Countercyclical Capital Buffer of CET1 Capital that is calculated using the formula:

            CCyB = CCyB Rate x RWA

            where:

            (a) "CCyB" is the Countercyclical Capital Buffer that the Authorised FirmG must maintain;
            (b) "CCyB Rate" is the weighted average of Countercyclical Capital Buffer Rates, calculated in accordance with Rule 3.9A.5, that apply in jurisdictions in which the Authorised FirmG has Non-Financial Private Sector Credit Exposures; and
            (c) "RWA" is the value of the Authorised Firm'sG Risk Weighted Assets.
            Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

            • PIB 3.9A2 Guidance

              1. The CCyB Requirement applies to credit exposures of an Authorised FirmG that are 'Non-Financial Private Sector Risk Exposures'. PIB Rule 1.2.1 defines that expression to exclude credit exposures to other banks or to sovereigns, government bodies or agencies, or multilateral development banks.
              2. An Authorised FirmG will need to follow the following steps to calculate its CCyB RequirementG :
              a. identify the jurisdictions in which it has Non-Financial Private Sector Credit Exposures (Rule 3.9A.6 sets out how to determine the location of an exposure);
              b. identify if a CCyB Rate applies in that jurisdiction and, if so, the date on which it takes effect (see Rules 3.9A.7 to 3.9A.9);
              c. determine the weighted average of CCyB Rates applying to it (see Rule 3.9A.5); and
              d. multiply the weighted average by the value of its Risk Weighted Assets.
              Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

          • PIB 3.9A.3

            An Authorised FirmG must not apply CET1 Capital that it maintains to meet the Countercyclical Capital Buffer Requirement towards meeting:

            (a) its Risk Capital Requirement;
            (b) its Capital Conservation Buffer Requirement;
            (c) an HLA Capital Buffer Requirement; or
            (d) an Individual Capital Requirement that the DFSAG may impose on it under PIB chapter 10.
            Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

          • PIB 3.9A.4

            The Countercyclical Capital Buffer Requirement applies on both a solo and a consolidated basis for Authorised FirmsG forming part of a GroupG .

            Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

        • Weighted Average of CCyB Rates

          • PIB 3.9A.5

            (1) The rate to be used to calculate an Authorised Firm'sG Countercyclical Capital Buffer is the weighted average of the CCyB Rates that apply in jurisdictions in which it has Non-Financial Private Sector Credit Exposures.
            (2) The weighting applied to the CCyB Rate in each jurisdiction is the riskweighted amount of an Authorised Firm'sG Non-Financial Private Sector Credit Exposures in that jurisdiction, divided by the risk-weighted amount of its Non-Financial Private Sector Credit Exposures in all jurisdictions.
            Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

        • Determining the location of credit exposures

          • PIB 3.9A.6

            (1) This RuleG specifies how an Authorised FirmG must determine the jurisdiction in which it has a Non-Financial Private Sector Credit Exposure.
            (2) The jurisdiction in which an Authorised FirmG has an exposure is to be determined by allocating the exposure to the jurisdiction where, to the best of the Authorised Firm'sG knowledge and information, the risk ultimately lies.
            (3) If it is not reasonably possible to determine the jurisdiction of an exposure under (2), then the jurisdiction in which the Authorised FirmG has the exposure is the jurisdiction where the exposure is booked.
            Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

            • PIB 3.9A.6 Guidance

              1. The location of an Authorised Firm'sG credit exposure is determined according to the concept of 'ultimate risk', i.e. the location where the risk ultimately lies. This is usually the location of the counterparties, irrespective of the Authorised Firm'sG own physical location or place of incorporation.
              2. The following examples illustrate how the concept of ultimate risk applies:
              a. if a firm has an exposure to a borrower in country A, and the risk mitigant (e.g. a guarantor) is in country B, then the ultimate risk is in country B;
              b. if, in the example in a, the exposure is only partly mitigated, then the ultimate risk would be split between the uncovered portion in country A and a covered portion in country B;
              c. if a firm has an exposure to a borrower that is a BranchG in country A, and the head office of the Branch is in country B, then the ultimate risk is in country B; and
              d. if a firm has an exposure to a borrower in country A, and the exposure is to finance a project in country B, then the ultimate risk is in country B.
              Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

        • The CCyB Rate that applies in a jurisdiction

          • PIB 3.9A.7

            (1) The Countercyclical Capital Buffer Rate for an exposure:
            (a) in the DIFC or elsewhere in the StateG , is the rate set by the Central BankG ; and
            (b) outside the StateG , is the rate set by the CCyB Authority for that jurisdiction, unless the DFSAG has specified a rate under PIB Rule 3.9A.8, in which case that specified rate applies.
            (2) If the rate specified by a CCyB Authority is more than 2.5% then it is taken to be equal to 2.5%, unless the DFSAG specifies otherwise.
            Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

          • PIB 3.9A.8

            (1) If the DFSA considers that the CCyB RateG in a jurisdiction outside the StateG is not sufficient to protect Authorised FirmsG from the risks of excessive credit growth in that jurisdiction, it may, for credit exposures in that jurisdiction:
            (a) specify a CCyB RateG even though no rate is imposed by the CCyB AuthorityG for that jurisdiction; or
            (b) specify a CCyB RateG that is higher than the rate imposed by the CCyB AuthorityG for that jurisdiction.
            (2) If the DFSAG specifies a rate under this RuleG , then that rate applies for Non- Financial Private Sector Credit ExposuresG in the jurisdiction.
            (3) The DFSAG may vary or cancel a specified rate under this RuleG .
            (4) The DFSA must notify affected Authorised FirmsG if it specifies a rate, or if it varies or cancels a rate, under this RuleG .
            Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

        • Effective date of CCyB Rates

          • PIB 3.9A.9

            (1) This RuleG specifies when a CCyB Rate takes effect for the purposes of calculating a CCyB Buffer under this section.
            (2) A CCyB Rate for a jurisdiction takes effect from whichever is the later of:
            (a) 12 months after the CCyB Authority announces the rate or the DFSA notifies the rate under PIB Rule 3.9A.8 (as the case may be); or
            (b) 1 July 2018.
            (3) In exceptional circumstances, the DFSAG may specify that a CCyB Rate is to take effect from a date earlier or later than that specified in (2).
            Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

            • PIB 3.9A.9 Guidance

              1. CCyB Rates are usually specified to apply after an advance announcement period i.e. a period between when it is announced and when it takes effect, which gives Authorised FirmsG sufficient time to adopt the new capital buffer. The effect of PIB Rule 3.9A.9(2)(a) is that Authorised FirmsG will usually have 12 months from the announcement to adopt a buffer.
              2. As a transitional measure, PIB Rule 3.9A.9(2)(b) has the effect that Authorised FirmsG will have at least 6 months from the day on which this section commences (1 January 2018) to adopt a buffer, even if the relevant rate was announced 12 months before the day the section commences.

              For example: If a CCyB Authority announced on 1 February 2017 a CCyB Rate of 1% that would apply to credit exposures in its jurisdiction, this would usually take effect on 1 February 2018. However, under PIB Rule 3.9A.9(2)(b), instead an Authorised FirmG has until 1 July 2018 (6 months after the commencement of this Rule) to adopt the buffer.
              Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

      • PIB 3.9B HLA Capital Buffer

        • 3.9B Guidance

          Under PIB section 1.4, the DFSA may designate an Authorised Firm as a systemically important bank (SIB). This section requires a SIB to maintain a further capital buffer, a higher loss absorbency capital buffer (HLA Capital Buffer), and sets out how the HLA Capital Buffer is calculated.

          Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

        • PIB 3.9B.1

          This section applies to an Authorised FirmG in Category 1, 2 or 5 that the DFSAG has designated as a SIB.

          Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

        • HLA Capital Buffer Requirement

          • PIB 3.9B.2

            A SIB must maintain an HLA Capital Buffer of CET1 Capital that is calculated using the following formula:

            HLA Capital Buffer = HLA Ratio x Relevant RWA

            where:

            "HLA Capital Buffer" is the HLA Capital Buffer that the Authorised Firm must maintain;

            "HLA Ratio" is the ratio determined by the DFSAG for that Authorised FirmG under PIB Rule 3.9B.6; and

            "Relevant RWA":

            (a) for a G-SIB, is the value of the its Risk Weighted Assets; or
            (b) for a D-SIB, is the value of its Risk Weighted Assets in jurisdictions for which it is considered to be systemically important.
            Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

          • PIB 3.9B.3

            If an Authorised FirmG is both a G-SIB and a D-SIB, the HLA Capital Buffer that applies under this section is the higher of the amount calculated under PIB Rule 3.9B.2 for the firm as a G-SIB and the amount calculated under that RuleG for the firm as a D-SIB.

            Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

          • PIB 3.9B.4

            An Authorised FirmG must not apply CET1 Capital that it maintains to meet an HLA Capital Buffer Requirement towards meeting:

            (a) its Risk Capital Requirement;
            (b) its Capital Conservation Buffer Requirement;
            (c) its Countercyclical Capital Buffer Requirement; or
            (d) an Individual Capital Requirement that the DFSAG has imposed on it under PIB chapter 10.

          • PIB 3.9B.5

            The HLA Capital Buffer Requirement applies on both a solo and a consolidated basis for Authorised FirmsG forming part of a GroupG .

            Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

        • HLA ratio

          • PIB 3.9B.6

            (1) The DFSAG must determine an HLA Ratio for each Authorised FirmG that it designates as a G-SIB or D-SIB.
            (2) The HLA Ratio determined under (1) for a D-SIB must be not less than 1% and not more than 3.5%.
            (3) The DFSAG may vary the HLA Ratio determined under this RuleG , provided that for a D-SIB the ratio as varied is within the range specified in (2).
            (4) The procedures in Schedule 3 to the Regulatory LawG apply to a DFSA decision to set or vary an HLA RatioG for an Authorised FirmG .
            (5) If the DFSAG decides to set or vary an HLA Ratio, the Authorised FirmG may refer the matter to the FMT for review.
            (6) Paragraphs (4) and (5) do not apply to a decision relating to the HLA Ratio for a G-SIB designated under PIB Rule 1.4.1.
            Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

            • PIB 3.9B.6 Guidance

              1. The DFSAG is likely to base the HLA Ratio it determines for a G-SIB on the rate specified for that G-SIB by the Financial Stability Board, in consultation with the Basel Committee. For a D-SIB, the DFSAG will determine an HLA Ratio that is between 1% and 3.5% (see PIB Rule 3.9B.6(2)).
              2. The Schedule 3 procedures and the right of review by the FMT do not apply to a rate applied to a G-SIB designated under PIB Rule 1.4.1. This is because the rate specified by the DFSAG for such a G-SIB will be the rate recommended by the FSB and Basel Committee.
              Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

      • PIB 3.9C Failure to meet a Capital Buffer Requirement

        • PIB 3.9C Guidance

          This section sets out measures that an Authorised FirmG must take if it is not meeting a Capital Buffer Requirement, i.e. its Capital Conservation Buffer Requirement, CCyB Requirement or HLA Capital Buffer Requirement. The measures, such as not distributing capital and preparing a plan to restore capitalS, do not limit other action that the DFSAG may take against the firm for failing to meet the requirement.

          Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

        • PIB 3.9C.1

          This section applies to an Authorised FirmG in Category 1, 2 or 5.

          Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

        • Restrictions on Distributions

          • PIB 3.9C.2

            Where an Authorised FirmG fails to meet a Capital Buffer Requirement requirement, it must:

            (a) calculate the maximum distributable amount in accordance with PIB Rule 3.9C.5;
            (b) ensure that it does not undertake any of the following actions until it has calculated the maximum distributable amount and notified the DFSAG under PIB Rule 3.9C.6:
            (i) make a distribution in connection with CET1 Capital;
            (ii) create an obligation to pay variable remuneration or discretionary pension benefits or pay variable remuneration if the obligation to pay was created at a time when the institution failed to meet a Capital Buffer Requirement; or
            (iii) make payments on AT1 and T2 Capital instruments.
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
            [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

          • PIB 3.9C.3

            An Authorised FirmG must:

            (1) in subsequently taking any of the actions described in PIB Rule 3.9C.2(b)(i) to (iii), ensure that it distributes no more than its calculated maximum distributable amount; and
            (2) prepare and submit a capital conservation plan pursuant to PIB Rule 3.9C.8.
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
            [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

          • PIB 3.9C.4

            For the purposes of PIB Rule 3.9C.2(b)(i), a distribution in connection with CET1 Capital includes any of the following:

            (a) payment of cash dividends;
            (b) distribution of fully or partly paid bonus shares or other capital instruments;
            (c) a redemption or purchase by an institution of its own shares or other capital instruments;
            (d) a repayment of amounts paid up in connection with capital; or
            (e) a distribution of other items referred to in PIB section 3.13 as eligible for inclusion as CET1 Capital.
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
            [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

          • PIB 3.9C.5

            (1) In this section, a reference to a "maximum distributable amount" means the maximum amount that an Authorised FirmG may distribute in connection with CET1 Capital as specified in PIB Rules 3.9C.2 and 3.9C.3.
            (2) Subject to (3), an Authorised FirmG must determine the maximum distributable amount by multiplying the sum specified in (a) by the factor determined under (b):
            (a) the total of interim or year-end profits that were not included in CET1 Capital pursuant to PIB Rule 3.13.2 and which have accrued after the most recent distribution of profits and after any of the actions referred to in PIB Rule 3.9C.2(b);
            (b) where the CET1 Capital of the Authorised FirmG (which is not used to meet the Capital Requirement), expressed as a percentage of the firm's RWA, is:
            (i) within the first quartile (0%-25%) of its Capital Buffer, the factor is 0;
            (ii) within the second quartile (25%-50%) of its Capital Buffer, the factor is 0.2;
            (iii) within the third quartile (50%-75%) of its Capital Buffer, the factor is 0.4; and
            (iv) within the fourth quartile (75%-100%) of its Capital Buffer, the factor is 0.6.
            (3) If an Authorised FirmG undertakes any action under PIB Rule 3.9C.2(b), it must take that into account and reduce the maximum distributable amount accordingly.
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
            [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

          • PIB 3.9C.6

            For the purpose of PIB Rule 3.9C.2(b), where an Authorised FirmG intends to distribute any of its distributable profits or intends to undertake an action referred to in PIB Rule 3.9C.2(b)(i) to (iii), the Authorised FirmG must notify the DFSAG and provide the following information:

            (a) the amount of capital maintained by the Authorised FirmG , subdivided as follows:
            (i) CET1 Capital,
            (ii) AT1 Capital, and
            (iii) T2 Capital;
            (b) the amount of its interim and year-end profits;
            (c) the maximum distributable amount calculated in accordance with this section; and
            (d) the amount of distributable profits it intends to allocate between the following:
            (i) dividend payments,
            (ii) share buybacks,
            (iii) payments on AT1 Capital instruments, and
            (iv) the payment of variable remuneration or discretionary pension benefits, whether by creation of a new obligation to pay, or by payment pursuant to an obligation to pay created at a time when the institution failed to meet a Capital Buffer RequirementG .
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
            [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

            • PIB 3.9.6 Guidance

              Upon receiving a notification under this RuleG , the DFSAG will make an assessment of the firm's ability to meet and maintain its Capital RequirementG on a sustainable basis going forward.

              Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
              [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

          • PIB 3.9C.7

            An Authorised FirmG must maintain systems and processes to ensure that the amount of distributable profits and the maximum distributable amount are calculated accurately, and must be able to demonstrate that accuracy to the DFSAG on request.

            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
            [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

        • Capital Conservation Plan

          • PIB 3.9C.8

            Where an Authorised FirmG fails to meet a Capital Buffer Requirement, it must prepare a capital conservation plan and submit it to the DFSAG no later than 5 business days after it identified its failure to meet Capital Buffer Requirement. The capital conservation plan must include the following:

            (a) estimates of income and expenditure and a forecast balance sheet;
            (b) measures to increase the Capital Resources of the Authorised FirmG ;
            (c) a plan and timeframe for the increase of own funds with the objective of restoring the Capital Buffer; and
            (d) any other information the DFSAG might need in order effectively to carry out its considerations referred to in PIB Rule 3.9C.9.
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
            [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

          • PIB 3.9C.9

            (1) Following assessment, the DFSAG will approve the capital conservation plan only if it considers that the plan, if implemented, would be reasonably likely to conserve or raise sufficient capital to enable the Authorised FirmG to meet its Capital Requirement and Capital Buffer Requirement, within a period that the DFSAG considers appropriate.
            (2) If the DFSAG does not approve the capital conservation plan, the DFSAG may require the Authorised FirmG to increase its CET1 Capital to meet the Capital Requirement and the Capital Buffer Requirement, within a specified period of time.
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
            [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

    • PIB 3 Part 4 — Calculating Capital Resources

      • PIB 3.10 Application

        • PIB 3.10.1

          This part applies to an Authorised FirmG in any CategoryG .

          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

          • PIB 3.10.1 Guidance

            The earlier PIB section 3.2 imposes a number of basic requirements on an Authorised FirmG , including requirements to:

            a. have and maintain Capital ResourcesG in accordance with these RulesG (see PIB Rule 3.2.2); and
            b. maintain an amount of Capital ResourcesG that exceeds the amount of the firm's Capital RequirementG (see PIB Rule 3.2.3).
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 3.11 Calculation of Capital Resources

        • PIB 3.11.1

          The total of Capital ResourcesG is derived according to the following formula:

          T1 Capital + T2 Capital = Capital ResourcesG

          where:

          (a) "T1 Capital" represents Tier 1 capital as the sum of CET1 Capital and AT1 Capital;
          (b) "CET1 Capital" represents Common Equity Tier 1 capital assessed in accordance with PIB section 3.13;
          (c) "AT1 Capital" represents Additional Tier 1 capital assessed in accordance with PIB section 3.14; and
          (d) "T2 Capital" represents Tier 2 capital assessed in accordance with PIB section 3.15.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • PIB 3.11.2

          An Authorised FirmG must calculate its Capital ResourcesG in accordance with the table below and the provisions in sections PIB 3.12 to PIB 3.15.

           
          (A1) Elements of Common Equity Tier 1 (CET1) Capital
          (A2) Adjustments to/deductions from CET1 Capital
          (A3) CET1 Capital = A1 — A2
           
          (A4) Elements of Additional Tier 1 (AT1) Capital
          (A5) Deductions from AT1 Capital
          (A6) AT1 Capital = A4 — A5
           
          (A7) Tier 1 (T1) Capital = A3 + A6
           
          (A8) Elements of Tier 2 (T2) Capital
          (A9) Deductions from T2 Capital
          (A10) Tier 2 (T2) Capital = A8 — A9
           
          (A11) Capital ResourcesG = A7 + A10
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 3.12 Tier 1 capital (T1 Capital)

        • PIB 3.12.1

          The Tier 1 capital (referred to in these RulesG as T1 Capital) of an Authorised FirmG must be calculated as the total of its Common Equity Tier 1 capital (referred to in these RulesG as CET1 Capital) and its Additional Tier 1 capital (referred to in these RulesG as AT1 Capital).

          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 3.13 Common Equity Tier 1 capital (CET1 Capital)

        • PIB 3.13.1

          The CET1 Capital constitutes the sum of CET1 capital elements in PIB Rule 3.13.2, subject to the adjustments, deductions and exemptions stipulated later in this section.

          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • PIB 3.13.2

          CET1 Capital consists of the sum of the following capital elements:

          (a) capital instruments, provided the conditions laid down in PIB Rule 3.13.3 are fully met;
          (b) share premium accounts related to the instruments referred to in (a);
          (c) retained earnings;
          (d) accumulated other comprehensive income, as defined in the International Financial Reporting StandardsG ; and
          (e) other reserves which are required to be disclosed under International Financial Reporting StandardsG , excluding any amounts already included in accumulated other comprehensive income or retained earnings.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • PIB 3.13.3

          (1) For the purposes of PIB Rule 3.13.2(a), a capital instrument is eligible for inclusion in CET1 Capital where all the following conditions are met:
          (a) the instruments are issued directly by the Authorised FirmG with the prior approval of the shareholders of the Authorised FirmG ;
          (b) the instruments are fully paid up and their purchase is not funded directly or indirectly by the Authorised FirmG ;
          (c) the instruments meet all the following conditions as regards their classification:
          (i) they qualify as equity capital within the meaning of the DIFCG Companies Law;
          (ii) they are classified as equity within the meaning of the International Financial Reporting StandardsG ; and
          (iii) they are classified as equity capital for the purposes of determining balance sheet insolvency, under the DIFCG Insolvency Law;
          (d) the instruments are clearly and separately disclosed on the balance sheet in the financial statements of the Authorised FirmG ;
          (e) the instruments are perpetual;
          (f) the principal amount of the instruments may not be reduced or repaid, except in either of the following cases:
          (i) the liquidation of the Authorised FirmG ; or
          (ii) discretionary repurchases of the instruments or other discretionary means of reducing capital, where the Authorised FirmG has notified the DFSAG of its intention to do so, in writing, at least 30 days prior to taking such steps;
          (g) the provisions governing the instruments do not indicate expressly or implicitly that the principal amount of the instruments would or might be reduced or repaid other than in the liquidation of the Authorised FirmG , and the Authorised FirmG does not otherwise provide such an indication prior to or at issuance of the instruments;
          (h) the instruments meet the following conditions as regards distributions:
          (i) there are no preferential distributions, including in relation to other CET1 Capital instruments, and the terms governing the instruments do not provide preferential rights to payment of distributions;
          (ii) distributions to holders of the instruments may be paid only out of distributable items;
          (iii) the conditions governing the instruments do not include a cap or other restriction on the maximum level of distributions;
          (iv) the level of distributions is not determined on the basis of the amount for which the instruments were purchased at issuance;
          (v) the conditions governing the instruments do not include any obligation for the Authorised FirmG to make distributions to their holders and the Authorised FirmG is not otherwise subject to such an obligation; and
          (vi) non-payment of distributions does not constitute an event of default of the Authorised FirmG ;
          (i) compared to all the capital instruments issued by the Authorised FirmG , the instruments absorb the first and proportionately greatest share of losses as they occur, and each instrument absorbs losses to the same degree as all other CET1 Capital instruments;
          (j) the instruments rank below all other claims in the event of insolvency or liquidation of the Authorised FirmG ;
          (k) the instruments entitle their owners to a claim on the residual assets of the Authorised FirmG , which, in the event of its liquidation and after the payment of all senior claims, is proportionate to the amount of such instruments issued and is not fixed or subject to a cap;
          (l) the instruments are not secured, or guaranteed by any of the following:
          (i) the Authorised FirmG or its SubsidiariesG ;
          (ii) any ParentG of the Authorised FirmG or its SubsidiariesG ; or
          (iii) any member of its Financial GroupG ; and
          (m) the instruments are not subject to any arrangement, contractual or otherwise, that enhances the seniority of claims under the instruments in insolvency or liquidation.
          (2) The conditions in (1)(i) must be complied with notwithstanding a write down on a permanent basis of the principal amount of AT1 Capital instruments.
          (3) Where any of the conditions in (1) cease to be met:
          (a) the instrument must cease to qualify as a CET1 Capital instrument; and
          (b) the share premium accounts that relate to that instrument must cease to qualify as a CET1 element.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • PIB 3.13.4

          For the purposes of PIB Rule 3.13.2(c), an Authorised FirmG may include interim or year-end net profits in CET1 Capital before the Authorised FirmG has approved its annual audited accounts confirming its final profit or loss for the year, but only where:

          (a) those profits have been reviewed by the External AuditorG of the Authorised FirmG , who is responsible for auditing its accounts; and
          (b) the Authorised FirmG is fully satisfied that any foreseeable charge or dividend has been deducted from the amount of those net profits.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

          • PIB 3.13.4 Guidance

            The review of the interim or year-end profits of the Authorised FirmG referred to in PIB Rule 3.13.4 should provide an adequate level of assurance that those profits have been evaluated in accordance with the principles set out in the International Financial Reporting StandardsG . The DFSAG may request an Authorised FirmG to provide it with a copy of its external auditor's opinion on whether the interim profits are reasonably stated.

            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • CET1 Adjustments

          • PIB 3.13.5

            An Authorised FirmG must, in the calculation of CET1 Capital, exclude the following:

            (a) any increase in its equity under the International Financial Reporting StandardsG ; including:
            (i) where such an increase is associated with future margin income that results in a gain on sale for the Authorised FirmG ; and
            (ii) where the Authorised FirmG is the OriginatorG of a securitisation, net gains that arise from the capitalisation of future income from the securitised assets that provide Credit EnhancementG to positions in the securitisation;
            (b) the amount of cash flow hedge reserve related to gains or losses on cash flow hedges of financial instruments that are not valued at fair value, including projected cash flows; and
            (c) all unrealised gains or losses on liabilities of the Authorised FirmG that are valued at fair value, and which result from changes in the Authorised Firm'sG own credit quality, except when such gains or losses are offset by a change in the fair value of another financial instrument which is measured at fair value and resulting from changes in the Authorised Firm'sG own credit quality.
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

          • PIB 3.13.6

            Except for the items referred to in PIB Rule 3.13.5, an Authorised FirmG must not make any adjustments to remove from its Capital ResourcesG unrealised gains or losses on their assets or liabilities measured at fair value.

            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

            • PIB 3.13.6 Guidance

              An Authorised FirmG is expected to follow the guidance provided in respect of prudent valuation in PIB section 2.4 and in PIB App2, in valuing all its assets measured at fair value while calculating its Capital ResourcesG .

              Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • CET1 Deductions

          • PIB 3.13.7

            Subject to the following Rules in this section, an Authorised FirmG must deduct the following from the calculation of its CET1 Capital:

            (a) losses for the current financial year;
            (b) goodwill and other intangible assets as defined in the International Financial Reporting StandardsG ;
            (c) deferred tax assets that rely on future profitability;
            (d) defined benefit pension fund assets of the Authorised FirmG ;
            (e) the applicable amount, by reference to PIB Rule 3.13.12, of direct and indirect holdings by an Authorised FirmG of its own CET1 Capital instruments including instruments under which an Authorised FirmG is under an actual or contingent obligation to effect a purchase by virtue of an existing contractual obligation;
            (f) holdings of the CET1 Capital instruments of Relevant EntitiesG where those entities have a reciprocal cross holding with the Authorised FirmG which have the effect of artificially inflating the Capital ResourcesG of the Authorised FirmG ;
            (g) the applicable amount, by reference to PIB Rule 3.13.13, of direct and indirect holdings by the Authorised FirmG of CET1 Capital instruments of Relevant EntitiesG where the Authorised FirmG does not have a significant investment in those entities;
            (h) the applicable amount, by reference to Rules PIB 3.13.13 and PIB 3.13.18, of direct and indirect holdings by the Authorised FirmG of the CET1 Capital instruments of Relevant EntitiesG where the Authorised FirmG has a significant investment in those entities;
            (i) the amount of items required to be deducted from the calculation of AT1 Capital in accordance with the relevant RulesG under PIB section 3.14, that exceeds the AT1 Capital of the Authorised FirmG ;
            (j) the ExposureG amount of the following items which qualify for a risk weight of 1000%, where the Authorised FirmG deducts that ExposureG amount from CET1 Capital as an alternative to applying a risk weight of 1000%;
            (i) Qualifying HoldingsG ;
            (ii) securitisation positions, in accordance with relevant RulesG in PIB chapter 4; and
            (iii) free deliveries, in accordance with the RulesG in PIB section A4.6; and
            (k) for an Authorised FirmG which is a PartnershipG or Limited Liability PartnershipG , the amount by which the aggregate of the amounts withdrawn by its partners or members exceeds the profits of that firm.
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • CET1 Deductions Relating to Intangible Assets

          • PIB 3.13.8

            For the purposes of PIB Rule 3.13.7(b), an Authorised FirmG must determine the intangible assets to be deducted in accordance with the following:

            (a) the amount to be deducted must be reduced by the amount of associated deferred tax liabilities that would be extinguished if the intangible assets became impaired or were derecognised under the International Financial Reporting StandardsG ; and
            (b) the amount to be deducted must include goodwill included in the valuation of significant investments of the Authorised FirmG .
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • CET1 Deductions Relating to Deferred Tax Assets

          • PIB 3.13.9

            (1) For the purposes of PIB Rule 3.13.7(c), and subject to (2), the amount of deferred tax assets that rely on future profitability must be calculated without reducing it by the amount of the associated deferred tax liabilities of the Authorised FirmG .
            (2) The amount of deferred tax assets that rely on future profitability may be reduced by the amount of the associated deferred tax liabilities of the Authorised FirmG , provided the following conditions are met:
            (a) those deferred tax assets and associated deferred tax liabilities both arise from the tax law of the same tax jurisdiction; and
            (b) the taxation authority of that tax jurisdiction permits the offsetting of deferred tax assets and the associated deferred tax liabilities.
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

            • PIB 3.13.9 Guidance

              1. Associated deferred tax liabilities of the Authorised FirmG used for the purposes of PIB Rule 3.13.9 may not include deferred tax liabilities that reduce the amount of intangible assets or defined benefit pension fund assets required to be deducted. The amount of associated deferred tax liabilities referred to in this guidance should be allocated between the following:
              a. deferred tax assets that rely on future profitability and arise from temporary differences that are not deducted as part of a threshold exemption for deductions from CET1 Capital; and
              b. all other deferred tax assets that rely on future profitability.
              2. An Authorised FirmG should allocate the associated deferred tax liabilities according to the proportion of deferred tax assets that rely on future profitability that the items referred to in GuidanceG note 1a and b represent.
              Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

          • PIB 3.13.10

            (1) An Authorised FirmG must apply a risk weight in accordance with PIB chapter 4 as applicable, to deferred tax assets that do not rely on future profitability.
            (2) For the purpose of (1), deferred tax assets that do not rely on future profitability comprise the following:
            (a) overpayments of tax by the Authorised FirmG for the current year;
            (b) current year tax losses of the Authorised FirmG carried back to previous years that give rise to a claim on, or a receivable from, a central government, regional government or local tax authority; and
            (c) deferred tax assets arising from temporary differences which, in the event the Authorised FirmG incurs a loss, becomes insolvent or enters liquidation, are replaced, on a mandatory and automatic basis in accordance with the applicable national law, with a claim on the central government of the jurisdiction in which the Authorised FirmG is incorporated which must absorb losses to the same degree as CET1 Capital instruments on a going concern basis and in the event of insolvency or liquidation of the Authorised FirmG .
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • Deductions Relating to Defined Benefit Pension Fund Assets

          • PIB 3.13.11

            For the purposes of PIB Rule 3.13.7(d), the amount of defined benefit pension fund assets to be deducted from CET1 Capital must be reduced by the following:

            (a) the amount of any associated deferred tax liability which could be extinguished if the assets became impaired or were derecognised under the International Financial Reporting StandardsG ; and
            (b) the amount of assets in the defined benefit pension fund which the Authorised FirmG has an unrestricted ability to use where the Authorised FirmG has provided adequate advance notification of its intention to use those assets to the DFSAG . Those assets used to reduce the amount to be deducted must receive a risk weight in accordance with PIB chapter 4 of PIBG .
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • Deductions Relating to Holdings of Own CET1 Capital Instruments

          • PIB 3.13.12

            For the purposes of PIB Rule 3.13.7(e), an Authorised FirmG must calculate holdings of its own CET1 Capital instruments on the basis of gross long positions subject to the following exceptions:

            (a) an Authorised FirmG must calculate the amount of holdings of own CET1 Capital instruments in the Trading BookG on the basis of the net long position, provided the long and short positions are in the same underlying ExposureG and the short positions involve no CounterpartyG Credit RiskG ;
            (b) an Authorised FirmG must determine the amount to be deducted for indirect holdings in the Trading BookG that take the form of holdings of index SecuritiesG by calculating the underlying ExposureG to own CET1 Capital instruments included in the indices; and
            (c) an Authorised FirmG must net gross long positions in own CET1 Capital instruments in its Trading BookG resulting from holdings of index SecuritiesG against short positions in own CET1 Capital instruments resulting from short positions in the underlying indices, including where those short positions involve CounterpartyG Credit RiskG .
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • CET1 Deductions Relating to Significant Investment in a Relevant Entity

          • PIB 3.13.13

            For the purposes of PIB Rule 3.13.7(g) and (h), an investment by an Authorised FirmG in a Relevant Entity must be considered as a significant investment if it meets any of the following conditions:

            (a) the Authorised FirmG owns more than 10% of the CET1 Capital instruments issued by that entity;
            (b) the Authorised FirmG has Close LinksG with that entity and owns CET1 Capital instruments issued by that entity; and
            (c) the Authorised FirmG owns CET1 Capital instruments issued by that entity and the entity is not included in consolidation pursuant to PIB chapter 8 but is included in the same accounting consolidation as the Authorised FirmG for the purposes of financial reporting under the International Financial Reporting StandardsG .
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • Deductions Relating to CET1 Capital Instruments in Relevant Entities

          • PIB 3.13.14

            For the purposes of PIB Rule 3.13.7(f), (g) and (h), the amount of holdings of CET1 Capital instruments and other capital instruments of Relevant EntitiesG to be deducted, must be calculated, subject to PIB Rule 3.13.15, on the basis of the gross long positions.

            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

          • PIB 3.13.15

            For the purposes of PIB Rule 3.13.7(g) and (h), an Authorised FirmG must make the deductions in accordance with the following:

            (a) the holdings in the Trading BookG of the capital instruments of Relevant EntitiesG must be calculated on the basis of the net long position in the same underlying ExposureG provided the maturity of the short position matches the maturity of the long position or has a residual maturity of at least one year; and
            (b) the amount to be deducted for indirect holdings in the Trading BookG of the capital instruments of Relevant EntitiesG that take the form of holdings of index SecuritiesG must be determined by calculating the underlying ExposureG to the capital instruments of the Relevant EntitiesG in the indices.
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

          • PIB 3.13.16

            (1) For the purposes of PIB Rule 3.13.7(g), the amount to be deducted is calculated by multiplying the amount referred to in (a) by the factor derived from the calculation referred to in (b):
            (a) the aggregate amount by which the direct, indirect and synthetic holdings by the Authorised FirmG of the CET1, AT1 and T2 Capital instruments of Relevant EntitiesG , in which the Authorised FirmG does not have a significant investment, exceeds 10% of the CET1 items of the Authorised FirmG calculated after applying the following to CET1 items:
            (i) all of the adjustments referred to in Rules PIB 3.13.5 and PIB 3.13.6;
            (ii) the deductions referred to in PIB Rule 3.13.7(a) to (f) and (h) to (j), excluding the amount to be deducted for deferred tax assets that rely on future profitability and arise from temporary differences; and
            (iii) the deductions referred to in Rules PIB 3.13.14 and PIB 3.13.15;
            (b) the amount of direct and indirect holdings by the Authorised FirmG of the CET1 Capital instruments of Relevant EntitiesG divided by the aggregate amount of direct and indirect holdings by the Authorised FirmG of the CET1, AT1 and T2 Capital instruments issued by those Relevant EntitiesG .
            (2) An Authorised FirmG must exclude UnderwritingG positions held for 5 working days or fewer from the amount referred to in (1)(a) and from the calculation of the factor referred to in (1)(b).
            (3) The amount to be deducted pursuant to (1) must be apportioned across each CET1 Capital instrument held. An Authorised FirmG must determine the portion of holdings of CET1 Capital instruments that is to be deducted pursuant to (1) by dividing the amount specified in (a) by the amount specified in (b):
            (a) the amount of holdings required to be deducted pursuant to (1)(a);
            (b) the aggregate amount of direct and indirect holdings by the Authorised FirmG of all the capital instruments of Relevant EntitiesG in which the Authorised FirmG does not have a significant investment.
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

          • PIB 3.13.17

            (1) The amount of holdings referred to in PIB Rule 3.13.7(g) that is equal to or less than 10% of the CET1 items of the Authorised FirmG after applying the provisions laid down in (1)(a)(i) to (iii) must not be deducted and must be subject to the applicable risk weights in accordance with PIB chapter 4.
            (2) An Authorised FirmG must determine the portion of holdings of all the capital instruments that is risk weighted by dividing the amount specified in (a) by the amount specified in (b):
            (a) the amount of holdings required to be risk weighted pursuant to PIB Rule 3.13.17(1);
            (b) the aggregate amount of direct and indirect holdings by the Authorised FirmG of all the capital instruments of Relevant EntitiesG in which the Authorised FirmG does not have a significant investment.
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

          • PIB 3.13.18

            For the purposes of PIB Rule 3.13.7(h), the amount to be deducted from CET1 elements must exclude UnderwritingG positions held for 5 working days or fewer and must be determined in accordance with Rules PIB 3.13.14 and PIB 3.13.15.

            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • CET1 Exemptions from Deductions

          • PIB 3.13.19

            (1) In making the deductions required pursuant to PIB Rule 3.13.7(c) and (h), an Authorised FirmG must not deduct the items listed in (a) and (b), where in aggregate they are equal to or less than 15% of CET1 Capital:
            (a) deferred tax assets that are dependent on future profitability and arise from temporary differences, and in aggregate are equal to or less than 10% of the CET1 items of the Authorised FirmG calculated after applying the following:
            (i) adjustments referred in Rules PIB 3.13.5 and PIB 3.13.6; and
            (ii) deductions referred to in (a) to (g) and (i) to (j) of PIB Rule 3.13.7, excluding deferred tax assets that rely on future profitability and arise from temporary differences.
            (b) where an Authorised FirmG has a significant investment in a Relevant EntityG , the direct and indirect holdings of that Authorised FirmG of the CET1 Capital instruments of those entities that in aggregate are equal to or less than 10% of the CET1 items of the Authorised FirmG calculated after applying the following:
            (i) adjustments referred in Rules PIB 3.13.5 and PIB 3.13.6; and
            (ii) deductions referred to in (a) to (h) and (i) to (j) of PIB Rule 3.13.7 excluding deferred tax assets that rely on future profitability and arise from temporary differences.
            (2) Items that are not deducted pursuant to (1) must be risk weighted at 200% and subject to the requirements of PIB chapter 4, as applicable.
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 3.14 Additional Tier 1 Capital (AT1 Capital)

        • PIB 3.14.1

          The AT1 Capital constitutes the sum of AT1 Capital elements in PIB Rule 3.14.2, subject to the deductions stipulated later in this section.

          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • PIB 3.14.2

          AT1 Capital consists of the sum of the following capital elements:

          (a) capital instruments which meet the eligibility criteria laid down in PIB Rule 3.14.3; and
          (b) the share premium accounts related to the instruments referred to in (a).
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • PIB 3.14.3

          (1) For the purposes of PIB Rule 3.14.2(a), a capital instrument is eligible for inclusion in AT1 Capital where all the following conditions are met:
          (a) the instruments are issued and paid up;
          (b) the instruments are not purchased by any of the following:
          (i) the Authorised FirmG or its SubsidiariesG ; or
          (ii) an UndertakingG in which the Authorised FirmG has participation in the form of ownership, direct or by way of control, of 20% or more of the voting rights or capital of that UndertakingG ;
          (c) the purchase of the instruments is not funded directly or indirectly by the Authorised FirmG ;
          (d) the instruments rank below T2 Capital instruments in the event of the insolvency of the Authorised FirmG ;
          (e) the instruments are not secured, or guaranteed by any of the following:
          (i) the Authorised FirmG or its SubsidiariesG ;
          (ii) any ParentG of the Authorised FirmG or their SubsidiariesG ;
          (iii) any member of its Financial GroupG in accordance with PIB chapter 8; or
          (iv) any UndertakingG that has Close LinksG with entities referred to in (i) to (iii);
          (f) the instruments are not subject to any arrangement, contractual or otherwise that enhances the seniority of the claim under the instruments in insolvency or liquidation;
          (g) the instruments are perpetual and the provisions governing them include no incentive for the Authorised FirmG to redeem them;
          (h) where the provisions governing the instruments include one or more call options, the option to call may be exercised at the sole discretion of the issuer;
          (i) the instruments may be called, redeemed or repurchased only where the Authorised FirmG has notified the DFSAG of its intention to call, redeem or repurchase the instruments in writing and well in advance, and not before 5 years after the date of issuance of the respective instruments;
          (j) the provisions governing the instruments do not indicate explicitly or implicitly that the instruments would or might be called, redeemed or repurchased and the Authorised FirmG does not otherwise provide such an indication;
          (k) the Authorised FirmG does not indicate explicitly or implicitly that the DFSAG would not object to a plan to call, redeem or repurchase the instruments;
          (l) distributions under the instruments meet the following conditions:
          (i) they are paid out of distributable items;
          (ii) the level of distributions made on the instruments will not be modified based on the credit standing of the Authorised FirmG or any of its ParentsG or any entities in its Financial GroupG ;
          (iii) the provisions governing the instruments give the Authorised FirmG full discretion at all times to cancel the distributions on the instruments for an unlimited period and on a non-cumulative basis, and the Authorised FirmG may use such cancelled payments without restriction to meet its obligations as they fall due;
          (iv) cancellation of distributions does not constitute an event of default of the Authorised FirmG ; and
          (v) the cancellation of distributions imposes no restrictions on the Authorised FirmG ;
          (m) the instruments do not contribute to a determination that the liabilities of an Authorised FirmG exceed its assets, where such a determination constitutes a test of insolvency under the DIFCG Insolvency Law;
          (n) the provisions governing the instruments require the principal amount of the instruments to be written down, or the instruments to be converted to CET1 Capital instruments, upon the occurrence of a trigger event;
          (o) the provisions governing the instruments include no feature that could hinder the recapitalisation of the Authorised FirmG ; and
          (p) where the instruments are not issued directly by the Authorised FirmG or by an operating entity within the Financial GroupG to which the Authorised FirmG belongs, or by the ParentG of the Authorised FirmG , the proceeds are immediately available without limitation in a form that satisfies the conditions laid down in this RuleG to any of the following:
          (i) the Authorised FirmG ;
          (ii) an operating entity within the Financial GroupG to which the Authorised FirmG belongs; or
          (iii) any ParentG of the Authorised FirmG .
          (2) For the purposes of (1)(l)(v) and (1)(o), the provisions governing AT1 Capital instruments must not include the following:
          (a) a requirement for distributions on the instruments to be made in the event of a distribution being made on an instrument issued by the Authorised FirmG that ranks to the same degree as, or more junior than, an AT1 Capital instrument;
          (b) a requirement for the payment of distributions on CET1, AT1 or T2 Capital instruments to be cancelled in the event that distributions are not made on those AT1 Capital instruments; or
          (c) an obligation to substitute the payment of interest or dividend by a payment in any other form.
          (3) For the purposes of (1)(n), the following provisions apply to AT1 Capital instruments:
          (a) a trigger event occurs when the CET1 Capital of the Authorised FirmG falls below either of the following:
          (i) 66.25% of its Capital RequirementG ; or
          (ii) a level higher than 66.25%, where determined by the Authorised FirmG and specified in the provisions governing the instrument;
          (b) where the provisions governing the instruments require them to be converted into CET1 Capital instruments upon the occurrence of a trigger event, those provisions must specify either of the following:
          (i) the rate of such conversion and a limit on the permitted amount of conversion; or
          (ii) a range within which the instruments will convert into CET1 Capital instruments;
          (c) where the provisions governing the instruments require their principal amount to be written down upon the occurrence of a trigger event, the write down must reduce all the following:
          (i) the claim of the holder of the instrument in the liquidation of the Authorised FirmG ;
          (ii) the amount required to be paid in the event of the call of the instrument; and
          (iii) the distributions made on the instrument.
          (4) The following must apply where, in the case of an AT1 Capital instrument, the conditions laid down in this RuleG cease to be met:
          (a) that instrument must cease to qualify as an AT1 Capital instrument; and
          (b) the part of the share premium accounts that relates to that instrument must cease to qualify as an AT1 Capital element.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • AT1 Regulatory Deductions

          • PIB 3.14.4

            Subject to the following RulesG in this section, an Authorised FirmG must deduct the following from the calculation of its AT1 Capital:

            (a) direct and indirect holdings by an Authorised FirmG of own AT1 Capital instruments including instruments under which an Authorised FirmG is under an actual or contingent obligation to effect a purchase by virtue of an existing contractual obligation;
            (b) holdings of the AT1 Capital instruments of Relevant EntitiesG where those entities have a reciprocal cross holding with the Authorised FirmG which have the effect of artificially inflating the Capital ResourcesG of the Authorised FirmG ;
            (c) the amount determined in accordance with PIB Rule 3.14.8 of direct and indirect holdings by the Authorised FirmG of the AT1 Capital instruments of Relevant EntitiesG where the Authorised FirmG does not have a significant investment in those entities ;
            (d) direct and indirect holdings by the Authorised FirmG of the AT1 Capital instruments of Relevant EntitiesG where the Authorised FirmG has a significant investment in those entities, excluding UnderwritingG positions held for 5 working days or fewer; and
            (e) the amounts required to be deducted from T2 Capital pursuant to PIB Rule 3.15.4 that exceed the T2 Capital of the Authorised FirmG .
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • Deductions Relating to Holdings of Own AT1 Capital Instruments

          • PIB 3.14.5

            For the purposes of PIB Rule 3.14.4(a), an Authorised FirmG must calculate holdings of its own AT1 Capital instruments on the basis of gross long positions subject to the following exceptions:

            (a) an Authorised FirmG must calculate the amount of holdings of own AT1 Capital instruments in the Trading BookG on the basis of the net long position provided the long and short positions are in the same underlying ExposureG and the short positions involve no CounterpartyG Credit RiskG ;
            (b) an Authorised FirmG must determine the amount to be deducted for indirect holdings in the Trading BookG of own AT1 Capital instruments that take the form of holdings of index SecuritiesG by calculating the underlying ExposureG to own AT1 Capital instruments in the indices; and
            (c) an Authorised FirmG must net gross long positions in own AT1 Capital instruments in the Trading BookG resulting from holdings of index SecuritiesG may be netted by the Authorised FirmG against short positions in own AT1 instruments resulting from short positions in the underlying indices, including where those short positions involve CounterpartyG Credit RiskG .
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • Deductions Relating to AT1 Capital Instruments in Relevant Entities

          • PIB 3.14.6

            For the purposes of PIB Rule 3.14.4(b), (c) and (d), the amount of holdings of AT1 Capital instruments of Relevant EntitiesG to be deducted, must be calculated, subject to PIB 3.14.7, on the basis of the gross long positions.

            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

          • PIB 3.14.7

            For the purposes of PIB Rule 3.14.4(c) and (d), an Authorised FirmG must make the deductions in accordance with the following:

            (a) the holdings in the Trading BookG of the capital instruments of Relevant EntitiesG must be calculated on the basis of the net long position in the same underlying ExposureG provided the maturity of the short position matches the maturity of the long position or has a residual maturity of at least one year; and
            (b) the amount to be deducted for indirect holdings in the Trading BookG of the capital instruments of Relevant EntitiesG that take the form of holdings of index SecuritiesG must be determined by calculating the underlying ExposureG to the capital instruments of the Relevant EntitiesG in the indices.
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • AT1 Deductions Relating to Significant Investment in a Relevant Entity

          • PIB 3.14.8

            (1) For the purposes of PIB Rule 3.14.4(c), an Authorised FirmG must calculate the applicable amount to be deducted by multiplying the amount referred to in (a) by the factor derived from the calculation referred to in (b):
            (a) the amount referred to in PIB Rule 3.13.16(1)(a);
            (b) the amount of direct and indirect holdings by the Authorised FirmG of the AT1 Capital instruments of Relevant EntitiesG divided by the aggregate amount of all direct and indirect holdings by the Authorised FirmG of the CET1, AT1 and T2 Capital instruments of those Relevant EntitiesG .
            (2) An Authorised FirmG must exclude UnderwritinG g positions held for 5 working days or fewer from the amount referred to in PIB Rule 3.13.16(1)(a) and from the calculation of the factor referred to in (1)(b).
            (3) An Authorised FirmG must determine the portion of holdings of AT1 Capital instruments that is to be deducted pursuant to (1) by dividing the amount specified in (a) by the amount specified in (b):
            (a) the amount of holdings required to be deducted pursuant to (1)(a);
            (b) the aggregate amount of direct and indirect holdings by the Authorised FirmG of all the capital instruments of Relevant EntitiesG in which the Authorised FirmG does not have a significant investment.
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 3.15 Tier 2 capital (T2 Capital)

        • PIB 3.15.1

          The T2 Capital constitutes the sum of T2 Capital elements in PIB Rule 3.15.2, subject to the deductions stipulated later in this section.

          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • PIB 3.15.2

          T2 Capital consists of the sum of the following elements:

          (a) capital instruments which meet the eligibility criteria laid down in PIB Rule 3.15.3 ; and
          (b) the share premium accounts related to the instruments referred to in (a).
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • PIB 3.15.3

          (1) For the purpose of PIB Rule 3.15.2(a), a capital instrument is eligible for inclusion in T2 Capital where all the following conditions are met:
          (a) the instruments are issued and fully paid-up;
          (b) the instruments are not purchased by any of the following:
          (i) the Authorised FirmG or its SubsidiariesG ;
          (ii) an UndertakingG in which the Authorised FirmG has participation in the form of ownership, direct or by way of control, of 20% or more of the voting rights or capital of that UndertakingG ;
          (c) the purchase of the instruments is not funded directly or indirectly by the Authorised FirmG ;
          (d) the claim on the principal amount of the instruments under the provisions governing the instruments is wholly subordinated to claims of all non-subordinated creditors;
          (e) the instruments are not secured, or guaranteed by any of the following:
          (i) the Authorised FirmG or its SubsidiariesG ;
          (ii) any ParentG of the Authorised FirmG or their SubsidiariesG ;
          (iii) any member of the Financial GroupG to which the Authorised FirmG belongs; or
          (iv) any UndertakingG that has Close LinksG with entities referred to in (i) to (iii);
          (f) the instruments are not subject to any arrangement that otherwise enhances the seniority of the claim under the instruments;
          (g) the instruments have an Original MaturityG of at least 5 years;
          (h) the provisions governing the instruments do not include any incentive for them to be redeemed by the Authorised FirmG ;
          (i) where the instruments include one or more call options, the options are exercisable at the sole discretion of the IssuerG ;
          (j) the instruments may be called, redeemed or repurchased only where the Authorised FirmG has notified the DFSAG of its intention to call, redeem or repurchase the instruments in writing and well in advance, and not before 5 years after the date of issuance of the respective instruments;
          (k) the provisions governing the instruments do not indicate or suggest that the instruments would or might be redeemed or repurchased other than at maturity and the Authorised FirmG does not otherwise provide such an indication or suggestion;
          (l) the provisions governing the instruments do not give the holder the right to accelerate the future scheduled payment of interest or principal, other than in the insolvency or liquidation of the Authorised FirmG ;
          (m) the level of interest or dividend payments due on the instruments will not be modified based on the credit standing of the Authorised FirmG , its ParentG or any member of its Financial GroupG ; and
          (n) where the instruments are not issued directly by the Authorised FirmG or by an operating entity within its Financial GroupG , or by its ParentG , the proceeds are immediately available without limitation in a form that satisfies the conditions laid down in this RuleG to any of the following:
          (i) the Authorised FirmG ;
          (ii) an operating entity within its Financial GroupG ; or
          (iii) any ParentG of the Authorised FirmG .
          (2) The extent to which T2 Capital instruments can be considered as eligible for inclusion in T2 Capital during the final 5 years of maturity of those instruments is calculated by multiplying the result derived from the calculation in (a) by the amount referred to in (b):
          (a) the nominal amount of the instruments on the first day of the final 5 year period of their contractual maturity divided by the number of calendar days in that period;
          (b) the number of remaining calendar days of contractual maturity of the instruments.
          (3) The following must apply where, in the case of a T2 Capital instrument, the conditions laid down in this RuleG cease to be met:
          (a) that instrument must cease to qualify as a T2 Capital instrument; and
          (b) the part of the share premium accounts that relates to that instrument must cease to qualify as a T2 Capital element.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • T2 Regulatory Deductions and Exclusions

          • PIB 3.15.4

            Subject to the following RulesG in this section, an Authorised FirmG must deduct the following from the calculation of its T2 Capital:

            (a) direct and indirect holdings by an Authorised FirmG of own T2 Capital instruments, including own T2 instruments that an Authorised FirmG could be obliged to purchase as a result of existing contractual obligations;
            (b) holdings of the T2 Capital instruments of Relevant EntitiesG where those entities have a reciprocal cross holding with the Authorised FirmG which have the effect of artificially inflating the Capital ResourcesG of the Authorised FirmG ;
            (c) the amount of direct and indirect holdings by the Authorised FirmG of the T2 Capital instruments of Relevant EntitiesG where the Authorised FirmG does not have a significant investment in those entities; and
            (d) direct and indirect holdings by the Authorised FirmG of the T2 Capital instruments of Relevant EntitiesG where the Authorised FirmG has a significant investment in those entities, excluding UnderwritingG positions held for fewer than 5 working days.
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • Deductions Relating to Holdings of Own T2 Capital Instruments

          • PIB 3.15.5

            For the purposes of PIB Rule 3.15.4(a), an Authorised FirmG must calculate holdings of its own T2 Capital instruments on the basis of the gross long positions subject to the following exceptions:

            (a) an Authorised FirmG may calculate the amount of holdings in the Trading BookG on the basis of the net long position provided the long and short positions are in the same underlying ExposureG and the short positions involve no Counterparty RiskG ;
            (b) an Authorised FirmG must determine the amount to be deducted for indirect holdings in the Trading BookG of own T2 Capital instruments that take the form of holdings of index SecuritiesG by calculating the underlying ExposureG to own T2 Capital instruments in the indices; and
            (c) an Authorised FirmG may net gross long positions in own T2 Capital instruments in the Trading BookG resulting from holdings of index SecuritiesG against short positions in own T2 instruments resulting from short positions in the underlying indices, including where those short positions involve Counterparty RiskG .
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • Deductions Relating to T2 Capital Instruments in Relevant Entities

          • PIB 3.15.6

            For the purposes of PIB Rule 3.15.4(b), (c) and (d), the amount of holdings of T2 Capital instruments and other capital instruments of Relevant EntitiesG to be deducted, must be calculated, subject to 3.15.7, on the basis of the gross long positions.

            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

          • PIB 3.15.7

            For the purposes of PIB Rule 3.15.4(c) and (d), an Authorised FirmG must make the deductions in accordance with the following:

            (a) the holdings in the Trading BookG of the capital instruments of Relevant EntitiesG must be calculated on the basis of the net long position in the same underlying ExposureG provided the maturity of the short position matches the maturity of the long position or has a residual maturity of at least one year; and
            (b) the amount to be deducted for indirect holdings in the Trading BookG of the capital instruments of Relevant EntitiesG that take the form of holdings of index SecuritiesG must be determined by calculating the underlying ExposureG to the capital instruments of the Relevant EntitiesG in the indices.
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • T2 Deductions Relating to Insignificant Investment in a Relevant Entity

          • PIB 3.15.8

            (1) For the purposes of PIB Rule 3.15.4(c), an Authorised FirmG must calculate the applicable amount to be deducted by multiplying the amount referred to in (a) by the factor derived from the calculation referred to in (b):
            (a) the amount referred to in PIB Rule 3.13.16(1)(a);
            (b) the amount of direct and indirect holdings by the Authorised FirmG of the T2 Capital instruments of Relevant EntitiesG divided by the aggregate amount of all direct and indirect holdings by the Authorised FirmG of the CET1, AT1 and T2 Capital instruments of those Relevant EntitiesG .
            (2) An Authorised FirmG must exclude UnderwritingG positions held for 5 working days or fewer from the amount referred to in PIB Rule 3.13.16(1)(a) and from the calculation of the factor referred to in (1)(b).
            (3) An Authorised FirmG must determine the portion of holdings of T2 Capital instruments that is to be deducted by dividing the amount specified in (a) by the amount specified in (b):
            (a) the amount of holdings required to be deducted pursuant to (1)(a);
            (b) the aggregate amount of direct and indirect holdings by the Authorised FirmG of the capital instruments of Relevant EntitiesG in which the Authorised FirmG does not have a significant investment.
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • Exclusion in Relation to Managing a PSIA

          • PIB 3.15.9

            An Authorised FirmG must exclude from T2 Capital any amount by which the total of the Profit Equalisation ReserveG and the Investment Risk ReserveG exceeds the Displaced Commercial Risk Capital RequirementG calculated in accordance with IFR Rule 5.4.4.

            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 3.16 Minority Interests and Instruments Issued by Subsidiaries

        • Minority Interests that Qualify for Inclusion in Consolidated CET1 Capital

          • PIB 3.16.1

            Minority interests must include the CET1 Capital instruments, plus the related retained earnings and share premium accounts, of a SubsidiaryG only where all of the following conditions are met:

            (a) the SubsidiaryG is one of the following:
            (i) an Authorised FirmG ; or
            (ii) a regulated entity,
            (b) the SubsidiaryG is a member of the Financial GroupG and included in the scope of consolidated supervision in accordance with PIB chapter 8; and
            (c) those CET1 Capital instruments are owned by persons other than the UndertakingsG included in the Financial GroupG .
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

          • PIB 3.16.2

            Minority interests that are funded directly or indirectly, through a special purpose entity or otherwise, by the ParentG of the Authorised FirmG or any member of its Financial GroupG must not qualify for inclusion in the consolidated CET1 Capital of the Financial GroupG .

            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

          • PIB 3.16.3

            An Authorised FirmG must determine the amount of minority interests of a SubsidiaryG that is eligible for inclusion in its consolidated CET1 Capital by subtracting from the minority interests of that SubsidiaryG the result of multiplying the amount referred to in (a) by the percentage referred to in (b):

            (a) the CET1 Capital of the SubsidiaryG minus the lesser of the following:
            (i) the amount of CET1 Capital of that SubsidiaryG required to meet the sum of the Subsidiary'sG CET1 Capital requirement (on a solo basis) of 60% of the Risk Capital RequirementG and its Capital Conservation BufferG requirement of 25% of the Risk Capital RequirementG ; or
            (ii) the amount of consolidated CET1 Capital that relates to that SubsidiaryG that is required on a consolidated basis to meet the sum of its Financial Group'sG CET1 Capital requirement of 60% of the Risk Capital RequirementG and its Capital Conservation BufferG requirement of 25% of the Risk Capital RequirementG ;
            (b) the minority interests of the SubsidiaryG expressed as a percentage of all CET1 Capital instruments of that UndertakingG plus the related retained earnings and share premium accounts.
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • Qualifying AT1, T1, T2 Capital and Qualifying Own Funds

          • PIB 3.16.4

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

            (a) the SubsidiaryG is one of the following:
            (i) an Authorised FirmG ; or
            (ii) a regulated entity,
            (b) the SubsidiaryG is a member of the Financial GroupG and included in the scope of consolidated supervision in accordance with PIB chapter 8; and
            (c) those instruments are owned by persons other than the UndertakingsG included in the Financial GroupG .
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

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

          • PIB 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 ResourcesG , as applicable, only where the following conditions are met:

            (a) the SPE issuing those instruments is included fully in the Financial GroupG to which the Authorised FirmG 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 PIB 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 PIB Rule 3.15.3(1) are satisfied; and
            (d) the only asset of the SPE is its investment in the Capital ResourcesG of any of its ParentsG or their SubsidiariesG , which are included fully in the Financial GroupG to which the Authorised FirmG belongs, the form of which satisfies the relevant conditions laid down in PIB Rule 3.14.3(1) or PIB Rule 3.15.3(1), as applicable.
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

            • PIB 3.16.5 Guidance

              If the DFSAG considers the assets of a special purpose entity to be minimal and insignificant for such an entity, the DFSAG may consider waiving the condition specified in PIB Rule 3.16.5(d).

              Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • Qualifying T1 Capital Instruments Included in Consolidated T1 Capital

          • PIB 3.16.6

            An Authorised FirmG must determine the amount of qualifying T1 Capital of a SubsidiaryG that is included in consolidated T1 Capital of the Authorised Firm'sG Financial GroupG by subtracting from the qualifying T1 Capital of that SubsidiaryG 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 SubsidiaryG required to meet the sum of the subsidiary's T1 Capital requirement (on a solo basis) of 80% of the Risk Capital RequirementG and its Capital Conservation BufferG requirement of 25% of the Risk Capital RequirementG ; or
            (ii) the amount of consolidated T1 Capital that relates to the SubsidiaryG that is required on a consolidated basis to meet the sum of its Financial Group'sG T1 Capital requirement of 80% of the Risk Capital RequirementG and its Capital Conservation BufferG requirement of 25% of the Risk Capital RequirementG ;
            (b) the qualifying T1 Capital of the SubsidiaryG expressed as a percentage of all T1 Capital instruments of that SubsidiaryG plus the related retained earnings and share premium accounts.
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • Qualifying T1 Capital Included in Consolidated AT1 Capital

          • PIB 3.16.7

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

            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • Qualifying Capital Resources Included in Consolidated Capital Resources

          • PIB 3.16.8

            An Authorised FirmG must determine the amount of qualifying Capital ResourcesG of a SubsidiaryG that is included in consolidated Capital ResourcesG of its Financial GroupG by subtracting from the qualifying Capital ResourcesG of that SubsidiaryG , 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 ResourcesG of the SubsidiaryG required to meet the sum of the Subsidiary'sG total Capital RequirementG (on a solo basis) of 100% of the Risk Capital RequirementG and its Capital Conservation BufferG requirement of 25% of the Risk Capital RequirementG ; or
            (ii) the amount of Capital ResourcesG that relates to the SubsidiaryG that is required on a consolidated basis to meet the sum of its Financial Group'sG total Capital RequirementG of 100% of the Risk Capital RequirementG and its Capital Conservation BufferG requirement of 25% of the Risk Capital RequirementG ;
            (b) the qualifying Capital ResourcesG of the SubsidiaryG , expressed as a percentage of all Capital ResourcesG instruments of the SubsidiaryG that are included in its CET1, AT1 and T2 Capital items and the related retained earnings and share premium accounts.
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • Qualifying Capital Resources Instruments Included in Consolidated T2 Capital

          • PIB 3.16.9

            An Authorised FirmG must determine the amount of qualifying Capital ResourcesG of a SubsidiaryG that is included in consolidated T2 Capital by subtracting from the qualifying Capital ResourcesG of that SubsidiaryG that are included in consolidated Capital ResourcesG , the qualifying T1 Capital of that subsidiary that is included in consolidated T1 Capital of the Financial GroupG of the Authorised FirmG .

            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 3.17 Qualifying Holdings Outside the Financial Sector

        • PIB 3.17.1

          (1) Where an Authorised FirmG has a Qualifying HoldingG in an UndertakingG which is not one of the following:
          (a) an UndertakingG that is a Relevant EntityG ; or
          (b) an UndertakingG that carries on activities that are:
          (i) a direct extension of banking;
          (ii) ancillary to banking, or
          (iii) leasing, factoring, the management of unit trusts, the management of data processing services or any other similar activity;
          and the amount of the holding exceeds 15% of the eligible total Capital ResourcesG of the Authorised FirmG , the Authorised FirmG must comply with the requirements in (3).
          (2) The total amount of the Qualifying HoldingsG of an Authorised FirmG in UndertakingsG other than those referred to in (1) that exceeds 60% of its Capital ResourcesG are subject to the requirements in (3).
          (3) An Authorised FirmG must apply the following requirements to Qualifying HoldingsG referred to in (1) and (2):
          (a) a risk weight of 1000% to the following:
          (i) the amount of Qualifying HoldingsG referred to in (1) in excess of 15% of Capital ResourcesG ; and
          (ii) the total amount of Qualifying HoldingsG referred to in (2) in excess of 60% of the Capital ResourcesG of the Authorised FirmG ; and
          (b) must not count Qualifying HoldingsG referred to in (1) and (2) where the amount of those holdings exceeds the percentages of Capital ResourcesG laid down in (1) and (2).
          (4) As an alternative to applying a 1000% risk weight to the amounts in excess of the limits specified in (1) or (2), an Authorised FirmG may deduct those amounts from CET1 Capital.
          (5) SharesG of UndertakingsG to which (1) or (2) do not apply must not be included in calculating the eligible capital limits specified in (1) where any of the following conditions are met:
          (a) those shares are held temporarily during a financial reconstruction or rescue operation,
          (b) the holding of the shares is an underwriting position held for 5 working days or less; or
          (c) those shares are held in the name of the Authorised FirmG on behalf of others.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • PIB 3 Part 5 — Calculating the Leverage Ratio

      • PIB 3.18 Leverage Ratios

        • PIB 3.18.1

          This section applies to an Authorised FirmG in CategoryG 1, 2 or 5.

          [Added] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]

          • PIB 3.18.1 Guidance

            This section is relevant to an Authorised FirmG that is required to report its Leverage Ratio to the DFSAG under PIB chapter 2, or to disclose its Leverage Ratio under PIB chapter 11, of these Rules.

            [Added] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]

        • PIB 3.18.2

          An Authorised FirmG must calculate its Leverage Ratio in accordance with the following formula:

          Leverage Ratio = Capital Measure ÷ Exposure Measure

          where:

          (a) "Capital Measure" represents Tier 1 Capital of the Authorised FirmG calculated in accordance with PIB Rule 3.12.1; and
          (b) "Exposure Measure" represents the value of exposures of the Authorised FirmG calculated in accordance with PIB Rule 3.18.3.
          [Added] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]
          [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

        • PIB 3.18.3

          For the purpose of determining the Exposure Measure, the value of exposures of an Authorised FirmG must be calculated in accordance with the International Financial Reporting Standards (IFRS) subject to the following adjustments:

          (a) on-balance sheet, non-derivative exposures must be net of specific allowances and valuation adjustments (e.g. credit valuation adjustments);
          (b) physical or financial collateral, guarantees or credit risk mitigation purchased must not be used to reduce on-balance sheet exposures; and
          (c) loans must not be netted with deposits.
          [Added] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]

          • PIB 3.18.3 Guidance

            1. The following GuidanceG is intended to illustrate how an Authorised FirmG should calculate its Leverage Ratio under this section.
            2. The Exposure Measure under PIB Rule 3.18.3 should be calculated as the sum of:
            a. on-balance sheet items; and
            b. off-balance sheet items.
            3. In relation to on-balance sheet items:
            a. for SFTs, the exposure value should be calculated in accordance with IFRS and the netting requirements referred to in PIB Rule 4.9.14;
            b. for DerivativesG , including credit protection sold, the exposure value should be calculated as the sum of the on-balance sheet value in accordance with IFRS and an add-on for potential future exposure calculated in accordance with Rules PIB A4.6.14 to PIB A4.6.21 of App 4; and
            c. for other on-balance sheet items, the exposure value should be calculated based on their balance sheet values in accordance with PIB Rule 4.9.3.
            4. In relation to off-balance sheet items:
            a. for commitments that are unconditionally cancellable at any time by the Authorised FirmG without prior notice, the exposure value should be the notional amount for the item multiplied by a CCF of 10%; and
            b. for other off-balance sheet items, including:
            i. direct credit substitutes;
            ii. certain transaction-related contingent items;
            iii. short-term self-liquidating trade-related contingent items and commitments to underwrite debt and equity securities;
            iv. note issuance facilities and revolving underwriting facilities;
            v. transactions, other than SFTs, involving the posting of securities held by the Authorised FirmG as collateral;
            vi. asset sales with recourse, where the credit risk remains with the Authorised FirmG ;
            vii. other commitments with certain drawdown;
            viii. any other commitments; and
            ix. unsettled transactions,
            the exposure value should be the notional amount for each of the items multiplied by a CCF of 100%.
            5. For an Islamic Financial InstitutionG , assets corresponding to Unrestricted PSIAsG will fall within the Exposure Measure and, therefore, are considered for the purpose of the Leverage Ratio calculation.
            6. Further GuidanceG about the method for completing forms relating to Leverage Ratios can be found in PRUG .
            [Added] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]