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  • Prudential — Investment, Insurance Intermediation and Banking Module (PIB) [VER33/02-19]

    • PIB 1 Application, Interpretation and Categorisation

      • PIB 1.1 Application

      • PIB 1.2 Glossary for PIB

        • PIB 1.2 Guidance

          Set out under PIB Rule 1.2.1 are a number of mainly technical definitions used solely in PIBG . Such definitions do not also appear in GLOG unless they are used elsewhere in the RulebookG . GLOG also contains definitions of abbreviations, terms and phrases used in PIBG and those are also included in PIB 1.2.1 for convenience purposes where such definitions are embedded in PIBG specific definitions. Commonly used definitions such as "Authorised FirmsG ", "Domestic FirmsG ", and "Financial ServicesG " appear only in GLOG .

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

        • PIB 1.2.1

          The following terms and abbreviations bear the following meanings for the purpose of this module:

          Alternative Standardised ApproachG The manner in which the Operation RiskG Capital RequirementG is calculated in accordance with sections PIB 6.11 and PIB A6.3.
          Annual Audited ExpenditureG The expenditure calculated in accordance with PIB Rule 3.7.3.
          Asset-Backed Commercial PaperG (ABCPG ) Programme A programme that predominately issues commercial paper with an Original MaturityG of one year or less that is backed by assets or other ExposuresG held in a bankruptcy-remote SPE.
          AT1 Additional tier 1
          AT1 Capital Has the meaning given in PIB section 3.14.
          Available Stable Funding (ASF) The amount, calculated in accordance with PIB Rule A9.4.1, representing the relative stability of an Authorised Firm'sG available funding sources.
          ASF Category The applicable category, listed in the table to PIB Rule A9.4.1, to which the carrying value of a liability or capital instrument of an Authorised FirmG is assigned.
          ASF Factor The applicable factor, listed in the table to PIB Rule A9.4.1, used to multiply the carrying value of a liability or capital instrument of an Authorised FirmG .
          Base Capital RequirementG Has the meaning given in PIB section 3.6.
          Basel Committee The Basel CommitteeG on Banking SupervisionG .
          Basic Indicator ApproachG The manner in which the Operational RiskG Capital RequirementG is calculated in accordance with sections PIB 6.11 and PIB A6.1.
          Capital Buffer In relation to an Authorised FirmG , means the sum of the following (to the extent applicable to the firm):
          (a) Capital Conservation BufferG ;
          (b) Countercyclical Capital BufferG ; and
          (c) HLA Capital BufferG .
          Capital Buffer Requirement Means a requirement to maintain any one or more of the following:
          (a) Capital Conservation BufferG ;
          (b) Countercyclical Capital BufferG ; or
          (c) an HLA Capital BufferG .
          Capital Conservation Buffer The Capital BufferG that an Authorised FirmG must maintain under section 3.9.
          Capital Conservation Buffer Requirement The requirement to maintain a Capital Conservation Buffer under section 3.9.
          Capital RequirementG The amount of capital an Authorised FirmG must hold, calculated in accordance with sections PIB 3.3, PIB 3.4, PIB 3.5, PIB 3.9, PIB 3.9A or PIB 3.9B as applicable.
          Capital ResourcesG The total Capital ResourcesG of an Authorised FirmG calculated in accordance with PIB section 3.11.
          CategoryG A prudential grouping of Authorised FirmsG which determines the application of the RulesG in this Module.
          CCF Credit conversion factor
          CCP Central CounterpartyG
          CEAG Credit equivalent amountG
          CET1 Common equity tier 1
          CET1 Capital Has the meaning given in PIB section 3.13.
          Clean-Up CallG An option that permits the SE ExposuresG (e.g. asset-backed SecuritiesG ) to be called before all of the underlying ExposuresG or SE ExposuresG have been repaid. In the case of Traditional SecuritisationsG , this is generally accomplished by repurchasing the remaining SE ExposuresG once the pool balance or outstanding SecuritiesG have fallen below some specified level. In the case of a synthetic ExposureG , the Clean-Up CallG may take the form of a clause that extinguishes the credit protection.
          Close LinksG A PersonG (PersonG A) has Close LinksG with a PersonG (PersonG B) if:
          (a) PersonG B:
          (i) is a Holding CompanyG of PersonG A;
          (ii) is a SubsidiaryG of PersonG A;
          (iii) is a Holding CompanyG of the SubsidiaryG of PersonG A;
          (iv) is a SubsidiaryG of a Holding CompanyG of PersonG A; or
          (v) owns and controls 20% or more of the voting rights or shares of PersonG A; or
          (b) PersonG A owns and controls 20% or more of the voting rights or shares of PersonG B.
          Closely RelatedG Has the meaning given in PIB Rule A4.11.5.
          CollateralG Any form of asset, guarantee, or indemnity which is held or controlled by an Authorised FirmG and is subject to a security interest or arrangement in favour of that firm.
          Collective Investment FundG Risk Capital RequirementG A component of Market Risk Capital RequirementG calculated in accordance with PIB section 5.9.
          Commodities Risk Capital RequirementG A component of the Market Risk Capital RequirementG to cover the risk of holding or taking positions in commodities, including precious metals, but excluding gold, calculated in accordance with PIB section 5.7.
          Concentration RiskG The risk faced by an Authorised FirmG arising out of its Large ExposuresG .
          ConnectedG In relation to a PersonG (A), a PersonG which has or has at any relevant time had the following relationship to A:
          (a) a member of A's GroupG ;
          (b) a ControllerG of A;
          (c) a member of a partnership of which A is a member;
          (d) an employee or former employee of A;
          (e) if A is a company:
          (i) an officer or manager of A or of a parent of A;
          (ii) an agent of A or of a parent of A;
          (f) if A is a partnership is or has been a member, manager or agent of A; or
          (g) if A is an unincorporated association of persons which is not a partnership, is or has been an officer, manager or agent of A.
          Connected CounterpartiesG Has the meaning given in PIB Rule A4.11.7.
          Contingency Funding Plan (CFP) The plan referred to in PIB Rule 9.2A.6.
          Controlled Early AmortisationG Early AmortisationG that meets the conditions in PIB Rule 4.14.58.
          Countercyclical Capital Buffer (CCyB) The countercyclical capital buffer that an Authorised FirmG must maintain under section 3.9A.
          CCyB Authority
          (1) For the StateG , means the Central BankG ; and
          (2) For any other jurisdiction, means the authority in that jurisdiction responsible for setting CCyB Rates.
          CCyB Rate A rate expressed as a percentage of Risk Weighted AssetsG that applies under PIB Rules 3.9A.7 to 3.9A.9.
          CCyB Requirement The requirement to maintain a Countercyclical Capital BufferG under PIB section 3.9A.
          CounterpartyG Means any person with or for whom an Authorised FirmG carries on, or intends to carry on, any regulated business or associated business. In this context, CounterpartyG includes an individual, unincorporated body, company, government, local authority or other public body.
          Counterparty RiskG The risk that an Authorised Firm'sG CounterpartyG does not perform its obligations under the terms of a contract.
          CR ExposureG The ExposureG value or amount for a Credit RiskG ExposureG .
          Credit DerivativeG Any contract which transfers the Credit RiskG of a reference obligation or set of reference obligations from the protection buyer to the protection seller, such that the protection seller has an ExposureG to the reference obligation(s).
          Credit EnhancementG A contractual arrangement in which the Authorised FirmG retains or assumes an SE ExposureG and, in substance, provides some degree of added protection to other parties to the transaction.
          Credit Quality GradeG A credit quality step in a credit quality assessment scale. A credit quality assessment scale is a scale onto the credit assessments of an ECAIG or an expert credit agency are mapped.
          Credit RiskG In relation to an Authorised FirmG , the risk of loss if another party fails to perform on its financial obligation to the Authorised FirmG .
          Credit Risk Capital Requirement (CRCOM)G The requirement calculated in accordance with PIB section 4.6.
          Credit-Enhancing Interest-Only StripG An on-balance sheet asset that:
          (i) represents a valuation of cash flows related to future margin income; and
          (ii) is subordinated.
          CRW Credit risk weight for an ExposureG .
          CV Contracted value for delivery.
          DeltaG The measure of an Option'sG sensitivity to a change in value of the underlying investment, asset or property.
          Displaced Commercial Risk Capital RequirementG The requirement calculated in accordance with IFR chapter 5.
          Domestic Systemically Important Bank (D-SIB) An Authorised FirmG designated by the DFSAG under PIB section 1.4 as a domestic systemically important bank.
          Duration MethodG A measure of General Market RiskG calculated in accordance with PIB Rule A5.2.19.
          E An ExposureG value or amount
          E* An ExposureG value or amount adjusted in the manner provided in the relevant RuleG
          EAE The ExposureG value or amount for an Early AmortisationG ExposureG
          Early AmortisationG A mechanism that, once triggered, allows investors to be paid out prior to the originally stated maturity of the securities issued. For risk-based capital purposes, an Early AmortisationG provision will be considered either controlled or non-controlled.
          ECAIG A CRA or an external credit rating agency approved by the DFSAG for the purpose of this Module.
          Equity Risk Capital RequirementG A component of Market Risk Capital RequirementG and calculated in accordance with PIB section 5.5.
          Evergreening Evergreening refers to the practice by some banks to roll over or renew their non-performing loans or potentially nonperforming loans, so that they can avoid recognising them as non-performing loans in their accounts and consequently avoid provisioning for them.
          Excess SpreadG Gross finance charge collections and other income received by the trust or SPE minus certificate interest, servicing fees, charge-offs, and other senior trust or SPE expenses.
          Expenditure Based Capital MinimumG A Capital RequirementG calculated in accordance with PIB section 3.7.
          ExposureG The maximum loss that an Authorised FirmG (and where applicable its PSIAG holders) might suffer if:
          (a) a CounterpartyG or a group of Connected CounterpartiesG fail to meet their obligations; or
          (b) it realises assets or off-balance sheet positions.
          An ExposureG also includes any asset or off-balance sheet item, which could result in a potential loss to the Authorised FirmG due to Market RiskG or Operational RiskG or any other risk factor.
          FCCA Financial CollateralG Comprehensive Approach as described in PIB Rule 4.9.5.
          FCSA Financial CollateralG Simplified ApproachG as described in PIB Rule 4.9.5.
          Financial GroupG A group of entities which includes an Authorised FirmG and:
          (a) any ParentG incorporated in the DIFCG ;
          (b) any Financial InstitutionG subsidiaries (whether direct or indirect) of the ParentG or ParentsG in (a) or of the Authorised FirmG ;
          (c) any Financial InstitutionG in which the ParentG or ParentsG in (a), the Financial InstitutionG subsidiaries in (b) or the Authorised FirmG (whether direct or indirect) hold 20% or more of the voting rights or capital; and
          (d) any entity which the DFSAG directs the Authorised FirmG to include in accordance with PIB Rule 8.1.2 or PIN Rule 8.1.2.
          Financial Group Capital RequirementG The Capital RequirementG of a Financial GroupG calculated in accordance with PIB Rule 8.3.3 or PIN Rule 8.3.3.
          Financial Group Capital ResourcesG The Capital ResourcesG of a Financial GroupG calculated in accordance with PIB Rule 8.3.4 or PIN 8.3.4.
          First Loss PositionG Represents the first level of support provided to the special purpose entity or vehicle that should bear all, or a significant part of, the risk associated with the items held by the special purpose entity or vehicle.
          Foreign Exchange Risk Capital RequirementG A component of the Market Risk Capital RequirementG and as calculated in accordance with PIB section 5.6.
          GammaG The measure of the rate of change of DeltaG .
          General Market RiskG
          (1) For the purposes of the Interest Rate Risk Capital RequirementG , means the risk that losses may arise from price changes in SecuritiesG caused by parallel or non-parallel shifts in the yield curve or from price movements in the equity market for a given country;
          (2) For the purposes of the Equity Risk Capital RequirementG , means the risk that losses may arise from a price movement in the equity market for a given country; or
          (3) For the purposes of internal models, means both of the above risks.
          Global Systemically Important Bank (G-SIB) An Authorised FirmG designated by the DFSAG under PIB section 1.4 as a global systemically important bank.
          GroupG Means a group of entities which includes an entity (the 'first entity') and:
          (a) any ParentG of the first entity; and
          (b) any subsidiaries (direct or indirect) of the ParentG or ParentsG in (a) or the first entity.
          Group RiskG The risk of loss to the Authorised FirmG as a result of its membership of, or linkages within a GroupG .
          High Quality Liquid Assets (HQLA) Liquid assets that meet the conditions in Rules PIB Rule A9.2.2 to PIB Rule A9.2.9 of App 9.
          HLA Capital Buffer A higher loss absorbency capital buffer that a SIB must maintain under PIB section 3.9B.
          HLA Capital Buffer Requirement The requirement to maintain a higher loss absorbency capital buffer under PIB section 3.9B.
          HLA Ratio In relation to a SIB, means the ratio determined by the DFSAG under PIB Rule 3.9B.6 for that SIB.
          ICR (Individual Capital Requirement) Individual capital requirement
          Implicit Support Arises when an Authorised FirmG provides support to a securitisation in excess of its predetermined contractual obligation.
          Individual Liquidity Requirement An individual liquidity requirement imposed by the DFSAG under PIB Rule 9.3.6.
          Interest Rate Risk Capital RequirementG A component of Market Risk Capital RequirementG and calculated in accordance with PIB section 5.4.
          Internal Capital Adequacy Assessment ProcessG (ICAAPG ) The internal capital adequacy assessment process prescribed in PIB chapter 10.
          Internal Risk Assessment ProcessG (IRAPG ) The internal risk assessment process prescribed in PIB section 10.3.
          Investment GradeG A credit rating which is a Credit Quality GradeG of 1, 2 or 3.
          Large ExposureG An ExposureG , whether in an Authorised Firm'sG Non-Trading BookG or Trading BookG , or both, to a CounterpartyG or group of Closely RelatedG CounterpartiesG or a group of CounterpartiesG ConnectedG to the Authorised FirmG which in aggregate equals or exceeds 10% of the Authorised Firm'sG Capital ResourcesG .
          LCR Requirement The LCR required to be maintained by an Authorised FirmG under PIB Rule 9.3.4 or, if applicable, under PIB Rule 9.3.6.
          Leverage Ratio The amount expressed as a percentage that is calculated in accordance with the Rules in section PIB 3.18.
          Leverage Ratio Exposure Measure The value of an Authorised FirmG 's exposures calculated in accordance with PIB Rule 3.18.3 to detemine its Leverage Ratio.
          Liquidity Coverage Ratio (LCR) The amount expressed as a percentage that is calculated in accordance with PIB Rule 9.3.5 and section PIB A9.2 of App 9.
          Liquidity RiskG The risk of loss to an Authorised FirmG as a result of inability to meet its obligations as they fall due.
          Market RiskG The risk of loss that arises from fluctuations in the values of, or income from, assets or in interest or exchange rates.
          Market Risk Capital RequirementG The requirement calculated in accordance with PIB Rule 5.3.1.
          Matched PrincipalG Has the meaning described in PIB Rule 1.3.3(2).
          Maturity LadderG A table that ordinally ranks the maturity time bands and assets and liabilities within them.
          Maturity MethodG This is an advanced approach that an Authorised FirmG may use to measure the risk of holding or taking positions in debt SecuritiesG and other interest rate-related instruments, calculated in accordance with PIB Rule A5.2.17.
          MDB Multilateral development bankG
          Modified DurationG The time period calculation for the purposes of the Duration MethodG in accordance with PIB Rule A5.2.21.
          MV Market value
          Net Stable Funding Ratio (NSFR) The amount, expressed as a percentage, calculated in accordance with PIB Rule 9.3.12, or, if applicable, PIB Rule 9.3.6.
          NettingG A process by which the claims and obligations between two CounterpartiesG are offset against each other to leave a single net sum.
          Non-Financial Private Sector Credit Exposure A Credit Risk Exposure to a party other than:
          (a) a sovereign;
          (b) a regional, provincial or municipal government;
          (c) a public sector entity;
          (d) a multilateral development bank; or
          (e) a bank.
          Non-Trading BookG Describes positions, ExposuresG and on-and off-balance sheet items, which are not in the Trading BookG .
          NP Nominal principal amount.
          NSFR Requirement The requirement for an Authorised FirmG to maintain a minimum NSFRG under PIB Rule 9.3.12(1) or, if applicable, PIB Rule 9.3.6.
          OSB< Off-balance sheet.
          OBS Exposure An ExposureG of an Authorised FirmG that is off-balance sheet..
          OBS-RSF Category A category, listed in Table 2 to PIB Rule A9.4.2, to which carrying value of an OBS ExposureG (or potential liquidity ExposureG ) is assigned..
          OBS-RSF Factor The factor, listed in Table 2 to PIB Rule A9.4.2, used to multiply the carrying value of an OBS ExposureG (or a potential liquidity ExposureG )..
          Operational RiskG The risk of loss resulting from inadequate or failed internal processes, people and systems or from external events, including legal risk.
          Operational RiskG Capital RequirementG The requirement calculated in accordance with PIB section 6.11.
          Option Risk Capital RequirementG A component of the Market Risk Capital RequirementG and calculated in accordance with PIB section 5.8.
          Original MaturityG
          (1) The time period between the date an offer is made and the date it expires or lapses.
          (2) In relation to DebenturesG , the interval between its issue date and the date on which it becomes due and payable.
          OriginatorG
          (a) an entity which, either itself or through related entities, directly or indirectly, creates the ExposureG being securitised; or
          (b) any entity which purchases or advises or causes an SPE to purchase the ExposuresG of a third party, which are then used in a securitisation (for avoidance of doubt, selling credit protection such that the entity or the SPE has a long position in the Credit RiskG of the obligor is equivalent to purchasing ExposuresG );
          Where an entity lends to an SPE with a view to enabling that SPE to make loans which are then used in a securitisation, the entity will generally be deemed to be acting as an OriginatorG .
          OTC Over the counter
          Potential Future Credit ExposureG (PFCE) An amount calculated by multiplying the nominal principal amount of an OTC derivative contract by a specified percentage dependent on the nature and residual maturity of the contract.
          PSE Public sector enterpriseG
          PSIAG Profit sharing investment accountG .
          Qualifying HoldingG Any holding in the capital of a non-financial UndertakingG of which the Authorised FirmG is a controller.
          Related PersonG Has the meaning given in PIB Rule 4.4.6.
          Relevant EntityG Means any of the following:
          (a) another Authorised FirmG ;
          (b) a Regulated Financial InstitutionG ;
          (c) any unregulated Financial InstitutionG ; or
          (d) any financial holding company.
          Required Stable Funding (RSF)G The amount, calculated in accordance with PIB Rule A9.4.2, representing the stable funding required by an Authorised FirmG .
          RSF CategoryG A category, listed in Table 1 to PIB Rule A9.4.2, to which the carrying value of an Authorised Firm's asset is assigned.
          RSF FactorG The applicable factor, listed in Table 1 to PIB Rule A9.4.2, used to multiply the carrying value of an asset of an Authorised FirmG .
          Re-securitisationG Has the meaning given in PIB section 4.14.
          Restricted PSIAG (PSIArG ) A PSIAG in respect of the investment account holder imposes certain restrictions as to where, how and for what purpose his funds are to be invested.
          Revolving SecuritisationG A Traditional or Synthetic SecuritisationG in which the specified items consist of revolving assets such as loan facilities or credit card balances which permit borrowers to vary the drawn amount within an agreed limit, or the scheme itself is revolving.
          RhoG The measure of an Option'sG sensitivity to a change in interest rates.
          Risk Capital RequirementG Has the meaning given in PIB Rule 3.8.1A.
          Risk Weighted Assets (RWA)G The risk weighted assets of an Authorised FirmG calculated in accordance with PIB Rule 3.8.2.
          SE ExposureG The ExposureG value or amount for a securitisation ExposureG .
          SecuritiesG UnderwritingG Capital RequirementG A component of the Market Risk Capital RequirementG defined in PIB section 5.10.
          ServicerG A PersonG that administers the securitised items.
          SFT SecuritiesG financing transactions, such as repo, reverse repo, security lending and borrowing, and margin lending transactions.
          Simplified ApproachG An alternative application of the provisions of PIB chapter 4 for an Authorised FirmG in CategoryG 2 and 3A, as described in sections PIB 4.7 and PIB A4.12.
          Special Purpose Entity (SPE) A corporation, trust, or other entity organised for a specific purpose, the activities of which are limited to those appropriate to accomplish the purpose of the SPE, and the structure of which is intended to isolate the SPE from the Credit RiskG of an OriginatorG or seller of ExposuresG . SPEs are commonly used as financing vehicles in which ExposuresG are sold to a trust or similar entity in exchange for cash or other assets funded by debt issued by the trust.
          Specific RiskG The risk that losses on an Authorised Firm'sG net long or short position in an individual equity or SecurityG may arise from a negative or positive price movement of that equity or SecurityG relative to the relevant market generally.
          SponsorG An Authorised FirmG that repackages third party assets directly into a securitisation scheme. Where an Authorised FirmG repackages non-Investment GradeG third party assets, it may fall within the definition of an OriginatorG unless it originates or repackages no more than 10% of the scheme's total assets.
          Standardised ApproachG The manner in which the Operational RiskG Capital RequirementG is calculated in accordance with sections PIB 6.11 and PIB A6.2.
          Supervisory Review and Evaluation ProcessG (SREPG ) The supervisory review and evaluation process prescribed in PIB chapter 10.
          Synthetic SecuritisationG Has the meaning given in PIB Rule 4.14.2(b).
          Systemically Important Bank (SIB) An Authorised FirmG designated by the DFSAG under PIB section 1.4 to be either or both of the following:
          (a) a D-SIB; or
          (b) a G-SIB.
          T Trade date, which is the date on which a transaction is entered into.
          T1 Tier 1
          T1 Capital Has the meaning given in PIB Rule 3.12.1.
          T2 Tier 2
          T2 Capital Has the meaning given in PIB Rule 3.15.1.
          ThetaG The ratio of the change in an OptionG price to the decrease in time to expiration. ThetaG can also be referred to as time decay.
          Total Net Cash Outflow Has the meaning given in PIB Rule A9.2.13
          Total Return SwapG A contract under which two parties exchange their positive or negative returns on a notional amount of a reference asset for a specified period of time.
          Trading BookG The positions and ExposuresG including, on and off-balance sheet items eligible for inclusion in the Trading BookG , as described in PIB section 2.2.
          Traditional SecuritisationG Has the meaning given in PIB Rule 4.14.2(a).
          Unrestricted PSIAG (PSIAuG ) A PSIAG in respect of which the investment account holder authorises the Authorised FirmG to invest the account holder's funds in a manner which the Authorised FirmG deems appropriate without laying down any restrictions as to where, how and for what purpose the funds should be invested.
          Unsettled TransactionG A transaction where delivery of an instrument is due to take place against the receipt of cash but remains outstanding.
          VegaG The measure of the sensitivity of the value of the OptionG to a change in the volatility of the underlying asset.
          Walkaway ClauseG A provision which permits a non-defaulting party to make payments, or no payments at all, to the estate of the defaulter, even if the defaulter is a net creditor.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
          [Amended] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]
          [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

      • PIB 1.3 Categories of Authorised Firms

        • PIB 1.3 Guidance

          1. Authorised FirmsG are divided into CategoriesG to provide a clear framework for determining which specific RulesG in PIBG apply to each Authorised FirmG . The RulesG in this section enable an Authorised FirmG to determine into which CategoryG it falls.
          2. The table in PIB A1.1 of PIB App1 sets out the categorisation process diagrammatically. In that table, an emboldened box indicates the Financial ServiceG that is determinative of the CategoryG into which an Authorised FirmG falls. An Authorised FirmG may, if authorised under its LicenceG to do so, conduct any number of Financial ServicesG specified under any lower CategoryG than the one that applies to the Authorised FirmG in accordance with this section (For this purpose CategoryG 5 is considered to be equivalent to CategoryG 1). For example, a CategoryG 1 firm could conduct any of the Financial ServicesG specified under CategoriesG 2, 3A, 3B, 3C or 4 (if authorised to do so). However, a CategoryG 4 firm may only conduct any of the Financial ServicesG listed under CategoryG 4 for which it is authorised.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • Category 1

          • PIB 1.3.1

            An Authorised FirmG is in CategoryG 1 if:

            (a) its LicenceG authorises it to carry on one or more of the Financial ServicesG of Accepting DepositsG or Managing a PSIAuG ; and
            (b) it does not meet the criteria of CategoryG 5.
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

            • PIB 1.3.1 Guidance

              A CategoryG 1 Authorised FirmG may be authorised to conduct other Financial ServicesG , but it is the authorisation for Accepting DepositsG or Managing a PSIAuG that is determinative of its belonging to CategoryG 1.

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

        • Category 2

          • PIB 1.3.2

            An Authorised FirmG is in CategoryG 2 if:

            (a) its LicenceG authorises it to carry on one or more of the Financial ServicesG of Providing CreditG or Dealing in Investments as PrincipalG ; and
            (b) its dealing activities are not limited in scope as provided in PIB Rule 1.3.3(1)(a)(i); and
            (c) it does not meet the criteria of CategoriesG 1 or 5.
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

            • PIB 1.3.2 Guidance

              1. A CategoryG 2 Authorised FirmG may be authorised to conduct other Financial ServicesG , but it is the authorisation for Dealing in Investments as PrincipalG (not only as a Matched PrincipalG ) or authorisation for Providing CreditG , and the absence of authorisation for the activities specified in PIB Rule 1.3.1, that are determinative of its belonging to CategoryG 2.
              2. Where the dealing activities of a firm are limited to acting only as Matched PrincipalG , the activities fall in the scope of CategoryG 3A in accordance with PIB Rule 1.3.3(1). A definition of "Matched PrincipalG " is in PIB Rule 1.3.3(2).
              Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • Category 3A

          • PIB 1.3.3

            (1) An Authorised FirmG is in CategoryG 3A if:
            (a) its LicenceG authorises it to carry on one or more of the Financial ServicesG of:
            (i) Dealing in Investments as PrincipalG (where it does so only as a Matched PrincipalG ); or
            (ii) Dealing in Investments as AgentG ; and
            (b) it does not meet the criteria of CategoriesG 1, 2 or 5.
            (2) For the purposes of PIBG , an Authorised FirmG Deals in InvestmentsG as a "Matched PrincipalG " if:
            (a) it enters into transactions as a principal only for the purpose of fulfilling its Clients'G orders;
            (b) it holds positions for its own account ("positions") only as a result of a failure to match Clients'G orders;
            (c) the total market value of the positions it holds is no more than 15% of the Firm's Tier 1 Capital ResourcesG ; and
            (d) the positions are incidental in nature and are strictly limited to the time reasonably required to carry out a transaction of that nature.
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

            • PIB 1.3.3 Guidance

              A CategoryG 3A Authorised FirmG may be authorised to conduct other Financial ServicesG , but it is the authorisation for Dealing in Investments as AgentG , or authorisation for Dealing in Investments as PrincipalG where it does so as a Matched PrincipalG , and the absence of authorisation for the activities specified in Rules PIB 1.3.1 and PIB 1.3.2 that are determinative of its belonging to CategoryG 3A.

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

        • Category 3B

          • PIB 1.3.4

            An Authorised FirmG is in CategoryG 3B if:

            (a) its LicenceG authorises it to carry on one or more of the Financial ServicesG of:
            (i) Providing CustodyG (where it does so for a FundG ); or
            (ii) Acting as the Trustee of a FundG ; and
            (b) it does not meet the criteria of CategoriesG 1, 2, 3A or 5.
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

            • PIB 1.3.4 Guidance

              A CategoryG 3B Authorised FirmG may be authorised to conduct other Financial ServicesG , but it is the authorisation for Providing CustodyG for a FundG or Acting as Trustee of a FundG , and the absence of authorisation for the activities specified in Rules PIB 1.3.1, PIB 1.3.2 and PIB 1.3.3 that are determinative of its belonging to CategoryG 3B.

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

        • Category 3C

          • PIB 1.3.5

            An Authorised FirmG is in CategoryG 3C if:

            (a) its LicenceG authorises it to carry on one or more of the Financial ServicesG of:
            (i) Managing AssetsG ;
            (ii) Managing a Collective Investment FundG ;
            (iii) Providing CustodyG (where it does so other than for a FundG );
            (iv) Managing a PSIAG (which is a PSIArG ); or
            (v) Providing Trust ServicesG (where it is acting as trustee in respect of at least one express trust); and
            (b) it does not meet the criteria of CategoriesG 1, 2, 3A, 3B or 5.
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

            • PIB 1.3.5 Guidance

              A CategoryG 3C Authorised FirmG may be authorised to conduct other Financial ServicesG , but it is the authorisation for Managing AssetsG , Managing a Collective Investment FundG , Providing CustodyG other than for a FundG , Managing a PSIAG which is a PSIArG , or Providing Trust ServicesG (where it is acting as a trustee in respect of at least one express trust), and the absence of authorisation for the activities specified in Rules PIB 1.3.1, PIB 1.3.2, PIB 1.3.3 and PIB 1.3.4 that are determinative of its belonging to CategoryG 3C.

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

        • Category 4

          • PIB 1.3.6

            An Authorised FirmG is in CategoryG 4 if:

            (a) its LicenceG authorises it to carry on one or more of the Financial ServicesG of Arranging Deals in InvestmentsG , Advising on Financial ProductsG , Arranging CustodyG , Insurance IntermediationG , Insurance ManagementG , Operating an Alternative Trading SystemG , Providing Fund AdministrationG , Providing Trust ServicesG (where it is not acting as trustee in respect of an express trust), Arranging Credit and Advising on CreditG or Operating a Crowdfunding PlatformG ; and
            (b) it does not meet the criteria of CategoriesG 1, 2, 3A, 3B, 3C or 5.
            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 1.3.6 Guidance

              An Authorised FirmG in CategoryG 4 may not be authorised to conduct any other Financial ServiceG beyond those listed in PIB Rule 1.3.6(a); if it were so authorised it would belong to another CategoryG .

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

        • Category 5

          • PIB 1.3.7

            An Authorised FirmG is in CategoryG 5 if it:

            (a) is an Islamic Financial InstitutionG ; and
            (b) Manages a PSIAuG .
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

            • PIB 1.3.7 Guidance

              Authorised FirmsG in CategoriesG 1 to 4 may also carry out Islamic Financial BusinessG , but only those Authorised FirmsG in CategoriesG 1 or 5 may Manage a PSIAuG . They will not fall within CategoryG 5 unless the whole of the business is conducted in accordance with Shari'a and they Manage a PSIAuG .

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

      • PIB 1.4 Systemically Important Banks (SIBs)

        • PIB 1.4 Guidance

          1. This section provides for the DFSA to be able to designate an Authorised Firm as a Systemically Important Bank (SIB). A SIB is a bank whose impact, if it were to fail, could cause significant disruption to the financial system and the broader economy. To address the additional risks that SIBs pose, SIBs are subject to specific regulatory and supervisory measures, including higher capital charges in the form of an additional buffer (an HLA Capital Buffer) and more intensive supervision.
          2. The DFSA will base its approach to identifying SIBs, and the measures that it applies to SIBs, on the framework issued by the Basel Committee.
          3. In accordance with the Basel Committee framework, this section provides for the DFSA to designate two types of SIBs: global systemically important banks (G-SIBs) and domestic systemically important banks (D-SIBs). The main difference between the two types of SIBs, is that G-SIBs are capable of having a significant impact on the effective working and stability of the global financial system, while the potential impact of D-SIBs is on the local or regional financial system. The differences in the requirements that apply to each are explained later in this section.
          4. In appropriate cases, the DFSA may designate an Authorised Firm as both a G-SIB and a D-SIB if its failure could have a significant impact on both the global and regional financial systems. If the DFSA designates a firm as both a G-SIB and a D-SIB, the HLA Capital Buffer that applies will be whichever is the higher of the amount calculated for it as a G-SIB and the amount calculated for it as a D-SIB (see PIB Rule 3.9B.3). If a firm is a G-SIB, it does not automatically mean that it will be a D-SIB. For example, a firm may be systemically important globally, but it may not conduct significant business locally or regionally.
          Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

        • Global Systemically Important Banks (G-SIBs)

          • PIB 1.4.1

            The DFSAG will designate an Authorised FirmG as a G-SIB if:

            (a) it is a Domestic FirmG in Category 1 or 5;
            (b) it is a member of a GroupG that is included on the list of global systemically important banks published by the Financial Stability BoardG ; and
            (c) the DFSAG is the overall consolidated supervisor of that GroupG .
            Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

          • PIB 1.4.2

            The DFSAG may designate an Authorised FirmG as a G-SIB if:

            (a) the conditions in paragraphs (a) and (b) of Rule 1.4.1 are met in relation to the Authorised FirmG ; and
            (b) the DFSAG is not the overall consolidated supervisor of the GroupG but it considers that it is appropriate to treat the Authorised FirmG as a G-SIB.
            Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

            • PIB 1.4.2 Guidance

              1. The Financial Stability BoardG (FSB), in consultation with the Basel CommitteeG , identifies and periodically publishes a list of global systemically important banks.
              2. If the DFSA is the consolidated supervisor of a GroupG included on the FSB list of global systemically important banks, it will designate an Authorised FirmG in the GroupG that is a bank as a G-SIB (see Rule 1.4.1).
              3. If an Authorised FirmG that is a bank is part of a GroupG included on the FSB list, but the DFSAG is not the consolidated supervisor of that Group, the DFSAG may designate that Authorised FirmG as a G-SIB if it considers it is appropriate to do so in all the circumstances (see Rule 1.4.2). If the DFSAG proposes to designate an Authorised FirmG as a G-SIB where it is not the consolidated supervisor of the relevant GroupG , it will normally consult first with the consolidated supervisor to ensure that the supervisors are taking a co-ordinated approach.
              4. A G-SIB, in addition to being subject to more intensive supervision, must maintain an extra capital buffer (the HLA Capital Buffer) under PIB section 3.9B. At the consolidated GroupG level, a G-SIB also has to publish quantitative indicators relating to its systemic importance (see PIB Rule 11.1.3 and App 11 Table 15) and carry out recovery and resolution planning.
              Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

        • Domestic Systemically Important Banks (D-SIBs)

          • PIB 1.4.3

            The DFSAG may designate an Authorised FirmG as a D-SIB if:

            (a) it is a Domestic Firm or Branch in Category 1, 2 or 5; and
            (b) the DFSAG considers that the risks associated with the Authorised FirmG are such that, if it were to fail, it could have a significant impact on the effective working and stability of the banking or financial system locally or regionally.
            Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

            • PIB 1.4.3 Guidance

              1. The DFSA will, in assessing if it should designate an Authorised FirmG as a D-SIB, take into account the factors suggested by the Basel CommitteeG in its framework for domestic systemically important banks. Those factors include the size, interconnectedness, substitutability and complexity of the firm. The DFSA will publish the general assessment methodology it applies in assessing if it should designate a firm as a D-SIB.
              2. The DFSAG may designate an Authorised FirmG as a D-SIB whether it is a Domestic FirmG or a BranchG . However, the measures that apply to a D-SIB that is a BranchG will be less extensive than those that apply to a D-SIB that is a Domestic FirmG . For example, while both are subject to more intensive supervision, a D-SIB that is a BranchG will not be subject to the HLA Capital Buffer RequirementG . This is because most capital requirements in chapter 3 do not apply to a BranchG as it is subject to capital requirements applied by its home state regulator.
              Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

        • Procedures for designating SIBs

          • PIB 1.4.4

            (1) The DFSAG may amend or cancel a designation made under this section.
            (2) The DFSAG must publish a copy of any designation made under this section or any amendment or cancellation of that designation.
            (3) The procedures in Schedule 3 to the Regulatory LawG apply to a DFSA decision to designate an Authorised FirmG as a SIB or to amend the designation.
            (4) If the DFSAG decides to designate an Authorised FirmG as a SIB or to amend the designation, the Authorised FirmG may refer the matter to the FMT for review.
            (5) Paragraphs (3) and (4) do not apply to a DFSA decision to designate a G-SIB under PIB Rule 1.4.1 or to amend the designation.
            Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

            • PIB 1.4.5 Guidance

              The Schedule 3 procedures and the right of review by the FMT do not apply to the designation of a G-SIB under Rule 1.4.1 (see Rule 1.4.4(5)). This is because the DFSAG , under Rule 1.4.1, will designate a bank as a G-SIB if it is included on the list of global systemically important banks published by the Financial Stability Board.

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

    • PIB 2 General Requirements

      • Introduction

        • PIB 2 Guidance

          This chapter details the threshold conditions for the mandatory maintenance of a Trading BookG , periodic prudential reporting requirements to the DFSAG , and guidance on prudent valuation practices. PIB Appendix 2 includes detailed RulesG on the positions to be included in the Trading BookG , the valuation of such positions, prudent valuation practices and associated issues related to the identification and treatment of Trading BookG positions. PIB Appendix 2 also specifies the DFSA'sG expectations with regard to the need for a documented Trading BookG policy and risk management systems and controls for the Trading BookG . PIB Appendix 2 also presents in a tabular fashion, detailed specifications on periodic prudential reporting requirements for different categories of Authorised FirmsG .

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

      • PIB 2.1 Application

        • PIB 2.1.1

          This chapter applies to an Authorised FirmG in any CategoryG .

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

      • PIB 2.2 Trading Book

        • PIB 2.2.1

          An Authorised FirmG must have a Trading BookG if:

          (a) it has positions that must be included in a Trading BookG in accordance with PIB section A2.1 of PIB App2;
          (b) those positions are held with trading intent in accordance with PIB Rule A2.1.5; and
          (c) the total value of the positions eligible for inclusion in the Trading BookG pursuant to (a) and (b):
          (i) normally exceeds $15 million or 5% of its combined on and off-balance sheet positions; or
          (ii) has exceeded $20 million or 6% of its combined on and off-balance sheet positions at any time in the preceding twelve month period.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • PIB 2.2.2

          An Authorised FirmG that must have a Trading BookG in accordance with PIB Rule 2.2.1 must:

          (a) comply with the requirements of PIB section A2.1 of PIB App2; and
          (b) differentiate its business between Trading BookG activity and Non-Trading BookG activity on a consistent basis.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • PIB 2.2.3

          An Authorised FirmG which has a Trading BookG must have adequate systems and controls to:

          (a) monitor the size of its Trading BookG ; and
          (b) ensure that positions are included consistently in its Trading BookG and Non-Trading BookG so that:
          (i) the inclusion of hedging positions in the Trading BookG or the Non-Trading BookG at all times reflects the intent of the Authorised FirmG in holding the position; and
          (ii) adequate records are made if positions are transferred between Trading and Non-Trading BooksG so that the transfers may be identified.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 2.3 Reporting to the DFSA

        • PIB 2.3.1

          (1) An Authorised FirmG must comply with the accounting and prudential reporting requirements set out in this chapter and PRUG which apply to it.
          (2) The DFSAG may impose additional reporting requirements on an Authorised FirmG .
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • PIB 2.3.2

          An Authorised FirmG must, subject to PIB Rule 2.3.3:

          (a) prepare its returns in accordance with the RulesG in this chapter, the instructional guidelines in PRUG , and the requirements of the DFSA'sG electronic prudential reporting system; and
          (b) submit the returns to the DFSAG using the electronic prudential reporting system.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

          • PIB 2.3.2 Guidance

            The returns and instructional guidelines are provided in PRUG and the DFSA'sG electronic prudential reporting system.

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

        • PIB 2.3.3

          The DFSAG may by way of a written notice direct an Authorised FirmG to submit its returns in a form, manner or frequency other than as prescribed in PIB Rule 2.3.2. An Authorised FirmG must continue to submit its returns in accordance with this direction until the DFSAG by way of written notice directs otherwise.

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

        • PIB 2.3.4

          (1) The submission of any return must be accompanied by a Form B100 (Declaration by Authorised FirmsG ) signed by the Authorised FirmG in the manner set out in (2) or (3) as applicable.
          (2) In relation to an annual return the form must be signed by two officers of the Authorised FirmG each of whom is a DirectorG , PartnerG or individual previously approved by the DFSAG for that purpose.
          (3) In relation to a quarterly return the form must be signed by one officer of the Authorised FirmG who is a DirectorG , PartnerG or individual previously approved by the DFSAG for that purpose.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • PIB 2.3.5

          An original signed hard copy of Form B100 (Declaration by Authorised FirmsG ), together with a copy of the return submitted to the DFSAG must be kept for at least 6 years for inspection by the DFSAG .

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

        • PIB 2.3.6

          If the DFSAG notifies an Authorised FirmG , or the Authorised FirmG itself forms the view, that a return that has been submitted to the DFSAG appears to be inaccurate or incomplete, the Authorised FirmG must consider the matter and within a reasonable time it must correct any inaccuracies and make good any omissions, and re-submit the relevant parts of the return.

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

        • PIB 2.3.7

          (1) An Authorised FirmG must prepare and submit returns in accordance with Table 1 in PIB section A2.4 of PIB App2, which forms part of these RulesG .
          (2) All returns must be completed in thousands of dollars ($).
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
          [Amended] DFSA RM135/2014 (Made 21st August 2014). [VER22/06-14]

        • PIB 2.3.8

          (1) An Authorised FirmG must submit to the DFSA any annual return required by Table 1 in PIB section A2.4 of PIB App2, within four months of the end of the Authorised Firm'sG financial year.
          (2) An Authorised FirmG must submit to the DFSAG any other return required by Table 1 in PIB section A2.4 of PIB App2, within one month after the end of the reporting period to which the return relates.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
          [Amended] DFSA RM135/2014 (Made 21st August 2014). [VER22/06-14]

        • PIB 2.3.9 [Deleted]

          [Deleted] DFSA RM209/2017 (Made 4th July 2017). [VER28/08-17]

          • PIB 2.3.9 Guidance [Deleted]

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

      • PIB 2.4 Prudent Valuation Practices

        • PIB 2.4 Guidance

          1. This section and related PIB section A2.5 in PIB App2 provide Authorised FirmsG with GuidanceG on prudent valuation for positions that are accounted for at fair value, whether they are in the Trading BookG or in the Non-Trading BookG (also known as the banking book).
          2. A framework for prudent valuation practices should at a minimum include adequate systems and controls and valuation methodologies. The DFSA'sG expectations in this regard are set out in PIB section A2.5 PIB App2.
          3. The GuidanceG is especially important for positions without actual market prices or observable inputs to valuation, as well as less liquid positions which raise supervisory concerns about prudent valuation. The GuidanceG is not intended to require Authorised FirmsG to change valuation procedures for financial reporting purposes.
          4. The DFSAG will assess an Authorised Firm'sG valuation procedures for consistency with the GuidanceG . The DFSAG may impose a valuation adjustment if there is a material degree of inconsistency between the Authorised Firm'sG valuation procedures and the GuidanceG .
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • 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]

    • PIB 4 Credit Risk

      • Introduction

        • PIB 4 Guidance

          1. PIB chapter 4 deals with the prudential requirements relating to the management of Credit RiskG by an Authorised FirmG . Credit RiskG refers to risk of incurring losses due to failure on the part of a borrower or a counterparty to fulfil their obligations in respect of a financial transaction.
          2. This chapter aims to ensure that an Authorised FirmG holds sufficient regulatory capital of acceptable quality so that it can absorb unexpected losses arising out of its Credit RiskG exposures, should the need arise and that it continues to operate in a sustainable manner.
          3. This chapter requires an Authorised FirmG to:
          a. appropriately apply a risk-weight to all on-balance sheet assets and off-balance sheet exposures for capital adequacy purposes. A risk-weight is based on a Credit Quality GradeG aligned with the likelihood of counterparty default;
          b. calculate the Credit Risk Capital RequirementG for its on-balance sheet assets and off-balance sheet exposures; and
          c. reduce the Credit Risk Capital RequirementG for its on-balance sheet assets and off-balance sheet exposures where the exposure is covered fully or partly by some form of eligible Credit RiskG mitigant.
          4. PIB Appendix 4 provides detailed requirements, parameters, calculation methodologies and formulae in respect of the primary requirements outlined in PIB chapter 4.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 4 Part 1 — Application

        • PIB 4.1 Application

          • PIB 4.1.1

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

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

            • PIB 4.1.1 Guidance

              1. This chapter imposes systems and controls pertaining to Credit RiskG , and prescribes the manner of calculation of the Credit Risk Capital RequirementG (also referred to in this module as CRCOMG ).
              2. Rules PIB 3.8.2 and PIB 3.8.3 provide that the CRCOMG is a component in the calculation of the overall Risk Capital RequirementG of an Authorised FirmG , and that the CRCOMG is to be calculated in accordance with this PIB chapter 4.
              3. The RulesG in PIB section 4.8 provide that the Authorised Firm'sG CRCOMG is 8% of the Credit RWAG of the firm, which in turn is calculated as the sum of:
              a. the RWAG for Credit RiskG ExposuresG (CR ExposuresG ); and
              b. the RWAG for securitisation ExposuresG (SE ExposuresG ).
              4. This chapter sets out the manner in which each of those components must be calculated, monitored and controlled by an Authorised FirmG .
              5. In addition to complying with the applicable RulesG in this chapter, an Authorised FirmG investing in or holding Islamic ContractsG whether or not for the purpose of a PSIAG will need to take account of the provisions under IFRG RulesG IFR 5.4.6 and IFR 5.4.7 to calculate the Credit RiskG for those Islamic ContractsG .
              Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
              [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

      • PIB 4 Part 2 — Credit Risk Systems and Controls

        • PIB 4.2 Application of this part

          • PIB 4.2.1

            This part applies to an Authorised FirmG in CategoryG 1, 2, 3A or 5 with respect to both its Non-Trading BookG and Trading BookG transactions.

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

        • PIB 4.3 Credit Risk Management Systems

          • PIB 4.3.1

            An Authorised FirmG must implement and maintain comprehensive Credit RiskG management systems which:

            (a) are appropriate to the firm's type, scope, complexity and scale of operations;
            (b) enable the firm to effectively identify, assess, monitor and control Credit RiskG and to ensure that adequate Capital ResourcesG are available to cover the risks assumed; and
            (c) ensure effective implementation of the Credit RiskG strategy and policy.
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

            • PIB 4.3.1 Guidance

              1. Credit RiskG is the risk that a borrower or CounterpartyG fails to meet its obligations. It exists in both the Non-Trading BookG and the Trading BookG , and both on and off the balance sheet of an Authorised FirmG .
              2. Obviously, Credit RiskG arises from loans but there are other sources of Credit RiskG such as.
              a. trade finance and acceptances;
              b. interbank transactions;
              c. commitments and guarantees;
              d. interest rate, foreign exchange and Credit DerivativesG (including swaps, options, forward rate agreements and financial futures);
              e. bond and equity holdings; and
              f. settlement of transactions.
              3. The objective of the Credit RiskG management system must be to ensure that every Authorised FirmG holds adequate capital to cover Credit RiskG and absorb any potential losses arising from that risk. Since Authorised FirmsG need to provide credit as part of their usual business, this needs to be achieved by effectively managing the Credit RiskG assumed by the Authorised FirmG as part of its credit business.
              4. Failure to manage Credit RiskG effectively could cause an Authorised FirmG to face a situation of inadequate capital, which would threaten its safety and soundness. Such problems normally arise from:
              a. lax credit standards for borrowers and CounterpartiesG ;
              b. poor portfolio risk management; and
              c. failure to identify in good time changes in economic or other conditions that may impair the financial strength of borrowers and CounterpartiesG .
              5. Therefore, it is essential for Authorised FirmsG involved in the business of providing credit to design, implement and maintain comprehensive and effective systems to manage Credit RiskG .
              Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

          • PIB 4.3.2

            The Credit RiskG management framework of an Authorised FirmG must have at least the following principal elements effectively implemented to ensure that the Credit RiskG ExposuresG of the Authorised FirmG are of a sufficiently good quality:

            (a) an appropriate Credit RiskG environment, defined by a documented Credit RiskG strategy and a documented Credit RiskG policy;
            (b) application of the Credit RiskG strategy and policy, where appropriate, on a consolidated basis and at the level of individual subsidiaries;
            (c) sound processes for assuming and managing Credit RiskG ;
            (d) prudent lending controls and limits, including policies and processes for monitoring ExposuresG in relation to limits, and approvals of exceptions to limits;
            (e) adequate appropriately skilled human resources to manage the Credit RiskG function;
            (f) independence of credit approval and review functions from credit initiation functions to avoid any real or potential conflicts of interest;
            (g) prudent procedures for approving credits, defined by a documented credit procedures manual;
            (h) effective systems for credit administration, measurement and monitoring; and
            (i) adequate controls over Credit RiskG .
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

          • PIB 4.3.3

            (1) An Authorised FirmG must ensure that its Governing BodyG retains responsibility for the Credit RiskG management framework and ensure it is appropriate for the nature, scale and complexity of operations, in the context of prevailing market and macro-economic conditions.
            (2) An Authorised FirmG must ensure that its senior management or an appropriate designated body, regularly reviews and understands the implications as well as the limitations of the risk management information that they receive from the Credit RiskG management function, in order to evaluate the suitability and effectiveness of such information in enabling them to provide effective oversight over the Credit RiskG management function.
            (3) An Authorised FirmG must ensure that its Governing BodyG regularly reviews and understands the implications as well as the limitations of Credit RiskG management information and reports presented to it, to ensure that the contents and the format of such reports are suitable for effective Governing BodyG oversight.
            (4) An Authorised FirmG must ensure that its Governing BodyG is responsible for carrying out regular stress testing on the credit portfolio which is appropriate for the nature, scale and complexity of the Credit RisksG assumed by the Authorised FirmG . An Authorised FirmG must ensure that its Governing BodyG annually reviews the stress scenarios and takes action to address any perceived issues arising from those reviews.
            (5) An Authorised FirmG must establish and enforce internal controls and practices so that deviations from policies, procedures, limits and prudential guidelines are promptly reported to the appropriate level of management.
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

            • PIB 4.3.3 Guidance

              1. An Authorised FirmG may structure its credit processes and Credit RiskG management function in a manner which suits its or its Group'sG internal organisational structure, culture and internal practices, provided the key functions and components relevant to Credit RiskG management, as mentioned above, are present, and there must be adequate segregation of functions responsible for critical Credit RiskG management processes. In particular, the credit initiation function must be independent of the credit approval and review functions to avoid any potential conflicts of interest. In cases where an Authorised FirmG finds it necessary to delegate small lending limits to staff in the front office for operational needs, there must be adequate safeguards, e.g. independent review of credits granted, to prevent abuse.
              2. An Authorised Firm'sG senior management or an appropriately delegated body (such as a credit committee) should be responsible for effectively implementing the Credit RiskG strategy and policy approved by the Governing BodyG of the Authorised FirmG . Senior management or such a credit committee will need to establish adequate procedures to identify, quantify, monitor and control the Credit RiskG inherent in the Authorised Firm'sG activities and at the level of both the overall portfolio and individual borrowers/CounterpartiesG .
              3. The appropriate level at which credit decisions are taken will vary according to the type of credit offered and the size and structure of the Authorised FirmG . For some Authorised FirmsG , a credit committee may be appropriate, with formal terms of reference laid down. In other Authorised FirmsG , individuals may be given pre-assigned authority limits. It will usually be appropriate for the final credit approval authority to be given by staff reporting independently from those staff interacting with clients.
              4. As part of its stress testing programme for Credit RiskG measurement, an Authorised FirmG should take into account the realistic recoveries available from security or CollateralG under stressed market and macro-economic conditions.
              5. PIB Rule 4.3.3 (3) requires the Governing BodyG of an Authorised FirmG to review the management information reports presented to it by the senior management of that firm and assess the reports in respect of their utility and effectiveness in enabling the Governing BodyG to effectively discharge their responsibilities towards effective oversight of the firm and its credit risk management.
              Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

          • PIB 4.3.4

            An Authorised FirmG must also consider whether it is prudent to set out specific provisioning requirements for country and transfer risks to which it is exposed.

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

            • PIB 4.3.4 Guidance

              GuidanceG on country and transfer risk ExposureG is set out in PIB section A4.1 (Credit RiskG systems and controls) in PIB App4.

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

          • PIB 4.3.5

            Where an Authorised FirmG avails itself of Credit RiskG mitigations, the Authorised FirmG must have mechanisms in place to regularly assess the net realisable value of such mitigations taking into account prevailing market conditions.

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

            • PIB 4.3.5 Guidance

              1. PIB section 4.13 sets out the principles and methodologies for the recognition of Credit RiskG mitigation in the calculation of Credit RWAG .
              2. Further GuidanceG on Credit RiskG systems and controls (including Credit RiskG mitigation), and on the specific areas which the Credit RiskG policy should cover, is set out in PIB section A4.1.
              Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • PIB 4.4 Credit Risk Strategy, Policy, and Procedures Manual

          • Credit Risk Strategy

            • PIB 4.4.1

              (1) An Authorised FirmG must implement and maintain a Credit RiskG strategy, which prescribes its stated degree of risk tolerance, level of capital available for credit activities, business strategy for credit activities and Credit RiskG management approach.
              (2) The strategy must be:
              (a) documented;
              (b) approved by the Governing BodyG ; and
              (c) regularly reviewed and updated by the Authorised FirmG at periodic intervals and at least annually, as appropriate to the nature, scale and complexity of its activities.
              Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

              • PIB 4.4.1 Guidance

                1. An Authorised Firm'sG Credit RiskG strategy should reflect the aim to achieve sound credit quality while ensuring profit and business growth. Therefore the Credit RiskG strategy should address the Authorised Firm'sG approach towards the decision on an acceptable level of risk/reward relationship, after taking into account resource and capital costs.
                2. An Authorised Firm'sG Credit RiskG strategy should allow for economic cycles and their effects on the credit portfolio during different stages of an economic cycle. For example, it should cater for a higher incidence of defaults in the personal loan and credit card portfolios in times of economic recession.
                Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

          • Credit Risk Policy

            • PIB 4.4.2

              (1) An Authorised FirmG must implement and maintain a Credit RiskG policy which prescribes all the essential elements of the Credit RiskG management system and associated processes.
              (2) The policy must be:
              (a) documented;
              (b) approved by the Governing BodyG ; and
              (c) regularly reviewed and updated by the Authorised FirmG at periodic intervals and at least annually, as appropriate to the firm's current financial performance, credit market conditions in its main markets and its Capital ResourcesG position as well the firm's nature, scale and complexity of its activities.
              (3) Any changes to the Credit RiskG policy and how exceptions to the policy will be dealt with must be approved by the Governing BodyG or an appropriately delegated committee of senior management (such as a credit committee).
              (4) An Authorised FirmG with one or more branches outside the DIFCG must implement and maintain Credit RiskG policies adapted to each local market and its regulatory conditions.
              Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

            • PIB 4.4.3

              The Credit RiskG policy must:

              (a) be consistent with the approved Credit RiskG strategy, considering a range of factors, including but not limited to an approved degree of risk tolerance, capital allocated to Credit RisksG , business strategy and market conditions in its main credit markets;
              (b) provide sound, well-defined Credit RiskG norms and criteria for approval of credit applications;
              (c) clearly specify the ExposureG limits, product types, business segments, nature of target borrowers and the nature of Credit RiskG that the Authorised FirmG wishes to incur;
              (d) set out, where appropriate, the amounts and terms and conditions under which CounterpartiesG or clients may be eligible or ineligible for credit;
              (e) include minimum information that is required to be obtained for processing an application for credit;
              (f) include well defined criteria and policies for approving new ExposuresG as well as renewing and refinancing existing ExposuresG , identifying the appropriate approval authority for the size and complexity of the ExposuresG ;
              (g) include effective credit administration policies, including continued analysis of a borrower's ability and willingness to repay under the terms of the debt, monitoring of documentation, legal covenants, contractual requirements and CollateralG , and a classification system that is consistent with the nature, size and complexity of the Authorised Firm'sG activities or, at the least, with the asset grading system prescribed in PIB Rule 4.5.4;
              (h) include comprehensive policies for reporting ExposuresG on an on-going basis;
              (i) include comprehensive policies for identifying and managing problem assets;
              (j) include a provisioning policy approved by the Governing BodyG which ensures that all loans are promptly and prudently provided for;
              (k) set out limits and approval processes involved for the approval of credit facilities that can be approved by the delegated authorities, and stipulate that the Governing BodyG retains responsibility for the governance of such limits;
              (l) require that major Credit RiskG ExposuresG exceeding a specified amount or at a minimum all Large ExposuresG of the Authorised FirmG are approved by the Authorised Firm'sG senior management or its designated body like credit committee; and
              (m) require that all Credit RiskG ExposuresG that are especially risky or inconsistent with the approved credit strategy of the Authorised FirmG are approved by the Authorised Firm'sG senior management or its designated body such as a credit committee.
              Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

            • PIB 4.4.4

              In relation to conflicts of interest and Related PersonG transactions, the policy must:

              (a) set out adequate procedures for handling conflicts of interest relating to the provision and management of credit, including measures to prevent any PersonG directly or indirectly benefiting from the credit being part of the process of granting or managing the credit;
              (b) subject to PIB Rule 4.4.5, prohibit ExposuresG to Related PersonsG on terms that are more favourable than those available to PersonsG who are not Related PersonsG ; and
              (c) if ExposuresG to Related PersonsG are allowed on terms which are no more favourable than those available to PersonsG who are not Related PersonsG , set out procedures that:
              (i) require such ExposuresG , and any write-off of such ExposuresG , exceeding specific amounts or otherwise posing special risks to the Authorised FirmG , to be made subject to the prior written approval of the firm's Governing BodyG or the Governing Body'sG delegate; and
              (ii) exclude PersonsG directly or indirectly benefiting from the grant or write off of such ExposuresG being part of the approval process.
              Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

            • PIB 4.4.5

              The prohibition in PIB Rule 4.4.4(b) does not apply to providing credit to a Related PersonG under a credit policy on terms (such as for credit assessment, tenor, interest rates, amortisation schedules and requirements for CollateralG ) that are more favourable than those on which it provides credit to PersonsG who are not Related PersonsG , provided the credit policy:

              (a) is an EmployeeG credit policy that is widely available to EmployeesG of the Authorised FirmG ;
              (b) is approved by the Authorised Firm'sG Governing BodyG or the Governing Body'sG delegate;
              (c) clearly sets out the terms, conditions and limits (both at individual and aggregate levels) on which credit is to be provided to such EmployeesG ; and
              (d) requires adequate mechanisms to ensure on-going compliance with the terms and conditions of that credit policy, including immediate reporting to the Governing BodyG or the Governing Body'sG delegate where there is a deviation from or a breach of the terms and conditions or procedures applicable to the provision of such credit for timely and appropriate action.
              Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

              • PIB 4.4.5 Guidance

                1. The requirements in these RulesG do not prevent arrangements such as EmployeeG loan schemes that allow more favourable and flexible loan terms to EmployeesG of the Authorised FirmG than those available under its normal commercial arrangements. However, such a loan scheme must comply with the requirements set out in these RulesG , which are designed to address conflicts of interest that may arise in the grant, approval or management of such loans. Such conflicts are especially likely to arise where one or more of the EmployeesG concerned are DirectorsG , PartnersG or senior managers.
                2. Generally, where an Authorised FirmG has an EmployeeG loan scheme under these RulesG , the DFSAG expects its Governing BodyG to have ensured, before it or its delegate approved that scheme, that the terms, conditions and particularly limits (both at individual and aggregate level) on which credit is to be provided to EmployeesG under the scheme are adequate and effective in addressing the risks arising from such lending. The Authorised FirmG should also be able to demonstrate to the DFSAG that the procedures it has adopted relating to an EmployeeG loan scheme are adequate to address any risks arising from such lending. The DFSAG expects to have access to records relating to lending under an EmployeeG loan scheme upon request or during its supervisory visits. Any significant breach of or deviation from the procedures adopted in relation to an EmployeeG loan scheme may also trigger the reporting requirements to the DFSAG under GEN Rule 11.10.7.
                Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

            • PIB 4.4.6

              For the purposes of the RulesG in this chapter, a PersonG is a "Related PersonG " of an Authorised FirmG if the PersonG :

              (a) is, or was in the past 2 years:
              (i) a member of a GroupG or PartnershipG in which the Authorised FirmG is or was also a member; or
              (ii) a ControllerG of the Authorised FirmG or a Close RelativeG of such a ControllerG ;
              (b) is, or was in the past 2 years, a DirectorG , PartnerG or senior manager of the Authorised FirmG or an entity referred to under (a)(i) or (ii), or a Close RelativeG of such a DirectorG , PartnerG or senior manager; or
              (c) is an entity in which a DirectorG , PartnerG or senior manager of the Authorised FirmG or an entity referred to in (a)(i) or (a)(ii), or a Close RelativeG of such a DirectorG , PartnerG or senior manager has a significant interest by:
              (i) holding 20% or more of the shares of that entity, or a ParentG of that entity, if that entity is a company; or
              (ii) being entitled to exercise 20% or more of the voting rights in respect of that entity;
              except that a PartnerG is not a Related PersonG where that PersonG is a limited partner of a Limited PartnershipG formed under the Limited PartnershipG Law of 2006 or any similar limited partnership constituted under the law of a country or territory outside the DIFCG .
              Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

          • Credit Procedures Manual

            • PIB 4.4.7

              An Authorised FirmG must implement and maintain a documented credit procedures manual, which sets out the criteria and procedures for granting new credits, for approving extensions of existing credits and exceptions, for conducting periodic and independent reviews of credits granted and for maintaining the records for credits granted.

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

            • PIB 4.4.8

              The credit procedures manual must establish:

              (a) sound, well-defined criteria for granting credit, including a thorough understanding of the borrower or CounterpartyG , the purpose and structure of the credit and its source of repayment;
              (b) well defined processes for approving new ExposuresG as well as renewing and refinancing existing ExposuresG ;
              (c) effective credit administration processes, including continued analysis of a borrower's ability and willingness to repay under the terms of the debt, monitoring of documentation, legal covenants, contractual requirements and CollateralG ;
              (d) effective processes for classification and grading of credit assets consistent with the nature, size and complexity of the Authorised Firm'sG activities;
              (e) comprehensive processes for reporting ExposuresG on an ongoing basis; and
              (f) comprehensive processes for identifying problem assets, managing problem assets, monitoring their collections and for estimating required level of provisions.
              Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

              • PIB 4.4.8 Guidance

                The same criteria should be applied to both advised and unadvised facilities and should deal with all Credit RisksG associated with the Authorised Firm'sG business whether in the Non-Trading or Trading BookG or on or off balance sheet.

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

        • PIB 4.5 Processes for Credit Assessment

          • PIB 4.5.1

            (1) When utilising external credit rating agencies as part of its credit assessment processes, an Authorised FirmG must:
            (a) maintain an internal credit grading system; and
            (b) stress test its capital position on at least an annual basis to consider the capital implications to the Authorised FirmG of a significant reduction in the credit quality and associated reduction on credit ratings from credit rating agencies for its credit portfolio.
            (2) An Authorised FirmG must not solely use external credit rating agency credit ratings as a basis for its assessment of the risks associated with an ExposureG , in particular in respect of a Large ExposureG , and must at all times conduct its own credit assessment of such an ExposureG .
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

            • PIB 4.5.1 Guidance

              An Authorised FirmG should closely monitor the adequacy of the internal credit assessment processes, in order to assess whether there is an upward bias in internal ratings.

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

          • PIB 4.5.2

            An Authorised FirmG must implement and maintain appropriate policies, processes, systems and controls to:

            (a) administer its credit portfolios, including keeping the credit files current, getting up-to-date financial information on borrowers and other CounterpartiesG , funds transfer, and electronic storage of important documents;
            (b) ensure that the valuations of Credit RiskG mitigants employed by the Authorised FirmG are up-to-date, including periodic assessment of Credit RiskG mitigants such as guarantees and CollateralG ;
            (c) review all material concentrations in its credit portfolio and report the findings of such reviews to the Governing BodyG ; and
            (d) measure Credit RiskG (including to measure Credit RiskG of off-balance sheet products such as DerivativesG in credit equivalent terms) and monitor the condition of individual credits to facilitate identification of problem credits and to determine the adequacy of provisions and reserves.
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

          • PIB 4.5.3

            The Credit RiskG management system and, in particular, the systems, policies and processes aimed at classification of credits, monitoring and identification of problem credits, management of problem credits and provisioning for them must include all the on-balance sheet and off-balance sheet credit ExposuresG of the Authorised FirmG .

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

            • PIB 4.5.3 Guidance

              An Authorised FirmG should ensure that its loan portfolio is properly classified and has an effective early-warning system for problem loans.

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

          • PIB 4.5.4

            (1) An Authorised FirmG must establish clearly defined criteria for identifying its problem credits and/or impaired assets which ensure that credits are classified as impaired in all cases where there is some reason to believe that all amounts due (including principal and interest) will, or may, not be collected in accordance with the contractual terms of the loan agreement.
            (2) For the purpose of (1), and subject to (3), an Authorised FirmG must categorise its credits into five categories as detailed in the following table, where credits in the substandard, doubtful and loss categories must be considered as problem credits:
            Standard includes credits with no element of uncertainty about timely repayment of the outstanding amounts, including principal and interest. Credits are currently in regular payment status with prompt payments.
            Special mention includes credits with deteriorating or potentially deteriorating credit quality which, may adversely affect the borrower's ability to make scheduled payments on time. The credits in this category warrant close attention by the Authorised FirmG .
            Substandard includes credits which exhibit definitive deterioration in credit quality and impaired debt servicing capacity of the borrower.
            Doubtful includes credits which show strong credit quality deterioration, worse than those in substandard category, to the extent that the prospect of full recovery of all the outstanding amounts from the credit is questionable and consequently the probability of a credit loss is high, though the exact amount of loss cannot be determined yet.
            Loss includes credits which are assessed as uncollectable and credits with very low potential for recoverability of amounts due.
            (3) An Authorised FirmG may also have in place a more detailed credit grading system provided it can address the categories detailed in (2).
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

            • PIB 4.5.4 Guidance

              1. With respect to the ratings above, Authorised FirmsG should consider ExposuresG as classified special mention, substandard, doubtful and loss where the loans are contractually in arrears for a minimum number of days of 30, 60, 90-120 and 120-180 days respectively. Authorised FirmsG should also consider the treatments as set out in PIB Rule 4.5.7 (Evergreening).
              2. Credits exhibiting the following categories should be included in the special mention category.
              (a) a declining trend in the operations of the borrower or in the borrower's ability to continue to generate cash required for repayment of the credit;
              (b) any signals which indicate a potential weakness in the financial position of the borrower, but not to the point at which repayment capacity is definitely impaired; or
              (c) business, economic or market conditions that may unfavourably affect the profitability and business of the borrower in the near to medium term.
              3. Credits exhibiting the following categories should be included in the substandard category.
              (a) inability of the borrower to meet contractual repayment terms of the credit facility;
              (b) unfavourable economic and market conditions or operating problems that would affect the profitability and cash flow generation of the borrower;
              (c) weak financial condition or the inability of the borrower to generate sufficient cash flow to service the payments.;
              (d) difficulties experienced by the borrower in servicing its other debt obligations; or
              (e) breach of any financial covenants by the borrower.
              Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

          • PIB 4.5.5

            An Authorised FirmG must have detailed policies, processes and resources for managing problem credits which address the following:

            (a) monitoring of credits and early identification of credit quality deterioration;
            (b) review of classification of problem credits; and
            (c) ongoing oversight of problem credits, and for collecting on past due obligations.
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

          • PIB 4.5.6

            An Authorised FirmG must ensure that each and every credit which qualifies as a Large ExposureG and is classified as an impaired credit is managed individually. This includes valuation, classification and provisioning for such credits on an individual item basis.

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

          • PIB 4.5.7

            Any evergreening exercise involving refinancing of past due credits must not result in their being classified as a higher category. In particular, impaired credits cannot be refinanced with the aim of classifying them as standard or special mention credits.

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

          • PIB 4.5.8

            An Authorised Firm'sG provisioning policy must specify the following minimum provisioning requirements:

            (a) for substandard assets — 20% of the unsecured portion of the credit;
            (b) for doubtful assets — 50% of the unsecured portion of the credit; and
            (c) for loss assets — 100% of the unsecured portion of the credit.
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

          • PIB 4.5.9

            An Authorised FirmG must, on a periodic basis, at a minimum monthly frequency, review its problem credits (at an individual level or at a portfolio level for credits with homogeneous characteristics) and review the asset classification, provisioning and write-offs for each of those problem credits.

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

      • PIB 4 Part 3 — CRDOM

        • PIB 4.6 Application

          • PIB 4.6 Guidance

            1. As indicated in PIB Rule 4.1.1, this PIB chapter 4 (including this part 3) applies to Authorised FirmsG in CategoriesG 1, 2, 3A and 5. However, the provisions in this part are applied in a differentiated manner in that CategoryG 3A firms must, and CategoryG 2 firms may, use the Simplified ApproachG under PIB section 4.7.
            2. The Credit Risk Capital RequirementG (also referred to in this module as CRCOMG ) is a component of the calculation of the overall Capital RequirementG of an Authorised FirmG , as provided in Rules PIB 3.8.2 and PIB 3.8.3. The RulesG in this PIB 4 part 3, supplemented by PIB App4, govern the manner of calculation of the CRCOMG .
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • PIB 4.7 Simplified Approach

          • Category 3A Firms

            • PIB 4.7.1

              (1) This RuleG applies only to an Authorised FirmG in CategoryG 3A.
              (2) Subject to (3) and (4), an Authorised FirmG must apply the Simplified ApproachG as prescribed in PIB section A4.12 in PIB App4.
              (3) An Authorised FirmG is not required to apply the Simplified ApproachG if it obtains prior approval of the DFSAG not to do so.
              (4) After obtaining approval under (3), a firm must not revert to the Simplified ApproachG without further prior approval from the DFSAG .
              Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

              • PIB 4.7.1 Guidance

                1. In effect, the Simplified ApproachG reduces undue regulatory burden on CategoryG 3A firms to reflect more appropriately their risk profile.
                2. In relation to (3) and (4), the DFSAG may consider granting its approval for a change of approach if it is satisfied that there are no regulatory capital arbitrage opportunities. Firms should be able to demonstrate to the DFSAG solid and reasonable grounds to be able to move from one approach to the other. For instance, in assessing whether or not to grant approval, the DFSAG may consider whether or not there has been a material change in the business of the firm.
                Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

          • Category 2 Firms

            • PIB 4.7.2

              (1) This RuleG applies only to an Authorised FirmG in CategoryG 2.
              (2) Subject to (3) and (4), an Authorised FirmG may apply the Simplified ApproachG , as prescribed in PIB section A4.12 in PIB App4, upon obtaining prior approval to do so from the DFSAG .
              (3) After obtaining approval under (2), a firm must not disapply the Simplified ApproachG without further prior approval from the DFSAG .
              (4) The DFSAG may revoke its approval under (2) and require a firm to disapply the Simplified ApproachG , where the DFSAG considers that this is warranted by the firm's business model and risk profile.
              Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

              • PIB 4.7.2 Guidance

                In relation to (3) and (4), the DFSAG may consider granting its approval for a change of approach if it is satisfied that there are no regulatory capital arbitrage opportunities. Firms should be able to demonstrate to the DFSAG solid and reasonable grounds to be able to move from one approach to the other. For instance, in assessing whether or not to grant approval, the DFSAG may consider whether or not there has been a material change in the business of the firm.

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

        • PIB 4.8 Calculation of the Crcom

          • PIB 4.8.1

            (1) The Credit Risk Capital RequirementG is calculated as follows:
            CRCOMG = 8% x Credit RWAG
            (2) The Credit RWAG of an Authorised FirmG is the sum of:
            (a) its risk weighted assets (RWAG ) for all its Credit RiskG ExposuresG (referred to in this module as "CR ExposuresG ") calculated in accordance with Rules PIB 4.8.2 and PIB 4.8.3;
            (b) its RWAG for all its securitisation ExposuresG (referred to in this module as "SE ExposuresG ") calculated in accordance with PIB Rule 4.8.4 and PIB section 4.14; and
            (c) its RWAG for its Counterparty RiskG ExposuresG as calculated in accordance with sections PIB A4.6 to PIB A4.8.
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
            [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

          • Calculation of RWA for Credit Risk Exposures (CR Exposures)

            • PIB 4.8.2

              An Authorised FirmG must include in its calculation of RWAG for CR ExposuresG :

              (a) any on-balance sheet asset; and
              (b) any off-balance sheet item;

              but excluding:

              (c) any SE ExposureG ;
              (d) any securitised ExposureG that meets the requirements for the recognition of risk transference in a Traditional SecuritisationG set out in PIB section 4.14; or
              (e) any ExposureG classified as a position or instrument in the Trading BookG in accordance with PIB section A2.1.
              Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

            • PIB 4.8.3

              To calculate its RWAG for CR ExposuresG , an Authorised FirmG must:

              (a) calculate the value of the ExposureG (represented as "E") for every on-balance sheet and every off-balance sheet asset in accordance with the ExposureG measurement methodology specified in PIB section 4.9 and recognising the effects of any applicable Credit RiskG mitigation;
              (b) categorise that ExposureG in accordance with the RulesG in PIB section 4.10;
              (c) allocate an applicable Credit Quality GradeG and risk weight for that ExposureG in accordance with the RulesG in section PIB 4.11 and PIB 4.12;
              (d) calculate the RWAG amount for that ExposureG using the following formula:
              RWA(CR) = E x CRW
              where:
              (i) "RWA(CR)" refers to the risk-weighted ExposureG amount for that CR ExposureG ;
              (ii) "E" refers to the ExposureG value or amount, for that CR ExposureG ; and
              (iii) "CRW" refers to the applicable risk weight for that CR ExposureG determined in accordance with (b) and (c); and
              (e) add the RWAG amounts calculated in accordance with (d) for all its CR ExposuresG .
              Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

          • Calculation of RWA for Securitisation Exposures (SE Exposures)

            • PIB 4.8.4

              To calculate its RWAG for all its SE ExposuresG , an Authorised FirmG must:

              (a) calculate the value of the ExposureG for each of its SE ExposuresG in accordance with ExposureG measurement methodology specified in PIB section 4.9 and recognising the effects of any applicable Credit RiskG mitigation;
              (b) allocate an applicable Credit Quality GradeG for that SE ExposureG in accordance with the RulesG in PIB section 4.11;
              (c) calculate the RWAG amount for each SE ExposureG , except for those SE ExposuresG which the Authorised FirmG is required to include as deductions from any component of Capital ResourcesG , using the following formula:
              RWA(SE) = SE x CRW
              where:
              (i) "RWA(SE)" refers to the risk-weighted ExposureG amount for that securitisation ExposureG ;
              (ii) "SE" refers to the ExposureG value or amount for that SE ExposureG calculated in accordance with (a); and
              (iii) "CRW" refers to the applicable risk weight for that SE ExposureG determined in accordance with (b); and
              (d) add the RWAG amounts calculated in accordance with (c) for all its SE ExposuresG to the RWAG amounts calculated in accordance with PIB Rule 4.8.5 in respect of its Early AmortisationG ExposuresG .
              Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

            • PIB 4.8.5

              To calculate its RWAG for Early AmortisationG ExposuresG , an Authorised FirmG must:

              (a) calculate the value of the ExposureG (EAE) for each of its Early AmortisationG ExposuresG in accordance with ExposureG measurement methodology specified in PIB section 4.9 and recognising the effects of any applicable Credit RiskG mitigation;
              (b) calculate the risk-weighted ExposureG amount for each Early AmortisationG ExposureG using the following formula:
              RWA(EAE) = EAE x CRW
              where:
              (i) "RWA(EAE)" refers to the risk-weighted ExposureG amount for that Early AmortisationG ExposureG ;
              (ii) "EAE" refers to the ExposureG value or amount, for that Early AmortisationG ExposureG calculated in accordance with (a); and
              (iii) "CRW" refers to the applicable risk weight for the underlying ExposureG type as if the ExposureG had not been securitised; and
              (c) add the RWAG amounts calculated in accordance with (b) for all its Early AmortisationG ExposuresG .
              Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

            • PIB 4.8.6

              The aggregate RWAG amount for all of the SE ExposuresG of an Authorised FirmG to a securitisation and ExposuresG arising from Credit RiskG mitigation applied to those SE ExposuresG must not exceed the aggregate RWAG amount corresponding to the underlying ExposuresG of the securitisation had they been on the balance sheet of the Authorised FirmG and included in the calculation of the Credit RWAG of the Authorised FirmG . For avoidance of doubt, the aggregate RWAG amount must not include any deduction for a gain-on-sale or a Credit-Enhancing Interest-Only StripG arising from the securitisation.

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

        • PIB 4.9 Methodology for Measurement of Exposures

          • PIB 4.9.1

            An Authorised FirmG must apply the ExposureG measurement methodology set out in the RulesG in this part to calculate the value or amount of an ExposureG for any CR ExposureG or SE ExposureG .

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

            • PIB 4.9.1 Guidance

              1. The measurement methodology in this section prescribes the manner of calculation of ExposuresG for the purpose of determining the Credit RWAG for Credit RiskG (CR) ExposuresG as provided in PIB Rule 4.8.3 and for securitisation (SE) ExposuresG as provided in PIB Rule 4.8.4.
              2. Due regard should be given to the GuidanceG relating to prudent valuation in PIB section 2.4 and related provisions in PIB A2.5.
              3. An Authorised FirmG should consult with the DFSAG on the appropriate treatment to apply in the measurement of E, for transactions that have not been addressed in this part.
              Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

          • PIB 4.9.2

            An Authorised FirmG must calculate E for any CR ExposureG or SE ExposureG , net of any individual impairment provision attributable to such ExposuresG , as determined in accordance with the International Financial Reporting StandardsG .

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

          • Measurement of E for On-Balance Sheet Assets

            • PIB 4.9.3

              For each on-balance sheet asset, E should be the carrying value of the asset as determined in accordance with the International Financial Reporting StandardsG .

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

              • PIB 4.9.3 Guidance

                1. For any asset, E should be equal to the fair value of that asset presented in the balance sheet except that:
                a. for any asset held at cost, E, should be equal to the cost of the asset presented in the balance sheet; and
                b. for any available-for-sale (AFS) debt security or AFS loan, E, should be equal to the fair value less provision for impairment of that AFS debt security or AFS loan, adjusted by deducting any unrealised fair value gains and adding back any unrealised fair value losses on revaluation (broadly equivalent to the amortised cost of the AFS debt security or AFS loan less any provision for impairment).
                2. In the case of a lease where the Authorised FirmG is exposed to residual value risk (i.e. potential loss due to the fair value of the leased asset declining below the estimate of its residual value reflected on the balance sheet of the Authorised FirmG at lease inception), the Authorised FirmG should calculate (i) an ExposureG to the lessee equivalent to the discounted lease payment stream; and (ii) an ExposureG to the residual value of the leased assets equivalent to the estimate of the residual value reflected in the balance sheet of the Authorised FirmG .
                3. Any foreign exchange transaction or translation gain or loss from a foreign currency-denominated on-balance sheet item as well as interest earned on a fixed income instrument should be allocated to the ExposureG to which it accrues.
                Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

          • Measurement of E for Off-Balance Sheet Items Other than Counterparty Risk Exposures

            • PIB 4.9.4

              (1) For each off-balance sheet item other than a pre-settlement CounterpartyG ExposureG arising from an OTC DerivativeG transaction, long settlement transaction or securities financing transaction (referred to in PIBG as an "SFT"), an Authorised FirmG must calculate E by:
              (a) in the case of an Early AmortisationG ExposureG , multiplying the amount of investors' interest by the applicable CCF set out in Rules PIB A4.2.1 and PIB A4.2.2 in PIB App4; and
              (b) in all other cases, multiplying the notional amount of each item by:
              (i) the applicable CCF set out in PIB Rule A4.2.1 in PIB App4 if that item is a CR ExposureG ; or
              (ii) the applicable CCF set out in PIB Rule A4.2.2 in PIB App4 if that item is an SE ExposureG .
              Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

              • PIB 4.9.4 Guidance

                1. An Authorised FirmG which is exposed to the risk of the underlying SecuritiesG in an OTC DerivativeG transaction, long settlement transaction or SFT which is in substance similar to a forward purchase or credit substitute should calculate E, for such an ExposureG , in accordance with PIB Rule 4.9.4(1).
                2. Investors' interest is defined as the sum of:
                a. investors' drawn balances related to the securitised ExposuresG ; and
                b. E associated with investors' undrawn balances related to the SE ExposuresG . E is determined by allocating the undrawn balances of securitised ExposuresG on a pro-rata basis based on the proportions of the Originator'sG and investor shares of the securitised drawn balances.
                3. For avoidance of doubt, where an Authorised FirmG has provided unfunded credit protection via a total rate of return swap, E should be equal to the notional amount of the underlying reference credit for which the Authorised FirmG is providing protection adjusted for any payments received from or made to the protection buyer and recognised in the profit and loss account of the Authorised FirmG . Where an Authorised FirmG has provided unfunded credit protection via a credit default swap, E should be equal to the notional amount of the underlying reference credit for which the Authorised FirmG is providing protection.
                4. The notional amount of an off-balance sheet item refers to the amount which has been committed but is as yet undrawn. The amount to which the CCF is applied is the lower of the value of the unused committed credit line, and the value which reflects any possible constraining availability of the facility, such as the existence of a ceiling on the potential lending amount which is related to an obligor's reported cash flow. If the facility is constrained in this way, the Authorised FirmG must have sufficient line monitoring and management procedures to support this contention.
                5. Any foreign exchange transaction or translation gain or loss from a foreign currency-denominated off-balance sheet item should be allocated to the ExposureG to which it accrues.
                Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

          • Recognition of Eligible Financial Collateral for On-Balance Sheet Assets and Off-Balance Sheet Items Other Than Counterparty Exposures

            • PIB 4.9.5

              (1) An Authorised FirmG which has taken eligible financial CollateralG for any transaction other than an equity ExposureG , an SE ExposureG , an OTC DerivativeG transaction, long settlement transaction or SFT may recognise the effect of such CollateralG in accordance with Rules PIB 4.9.6 and PIB 4.9.7.
              (2) An Authorised FirmG must use either the:
              (a) Financial CollateralG Simplified ApproachG (FCSA) which adopts the treatment under PIB Rule 4.13.5 in relation to the composition of financial CollateralG ; or
              (b) Financial CollateralG Comprehensive Approach (FCCA) which adopts the treatment under PIB Rule 4.13.6;
              to recognise the effect of eligible financial CollateralG .
              (3) An Authorised FirmG must apply the chosen approach consistently to its entire Non-Trading BookG and must not use a combination of both approaches.
              Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

            • PIB 4.9.6

              An Authorised FirmG using the FCSA may recognise the effect of eligible financial CollateralG in accordance with the RulesG in PIB section 4.13.

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

            • PIB 4.9.7

              An Authorised FirmG using the FCCA may calculate the CR ExposureG adjusted for eligible financial CollateralG (referred to