IPRU-INV 5.6 Qualifying subordinated loans

A long term qualifying subordinated loan (IPRU-INV 5.8.1R Item 11) must have the following characteristics:

1. (a)

   the loan is repayable only on maturity or on the expiration of a period of notice in accordance with paragraph (c) below or on the winding up of the firm;

2. (b)

   in the event of the winding up of the firm, the loan ranks after the claims of all other creditors and is not to be repaid until all other debts outstanding at the time have been settled;

3. (c)

   either

   1. (i)

      the minimum original maturity of the loan is 5 years; or

   2. (ii)

      the loan does not have a minimum or fixed maturity but requires 5 years notice of repayment; and

4. (d)

   the loan is fully paid-up.

A firm may only take into account the paid-up amount of a long term qualifying subordinated loan in the calculation of its own funds. This amount must be amortised on a straight-line basis over the five years prior to the date of repayment.

A short term qualifying subordinated loan (IPRU-INV 5.8.1R item 15) must have the characteristics set out in IPRU-INV 5.6.1R save that the minimum period set out in IPRU-INV 5.6.1R(c) shall be two years.

A firm must not make any payment of principal or interest which would result in a breach of IPRU-INV 5.2.2R.

A qualifying subordinated loan must be in the form prescribed by the FCA for the purposes of this rule.

A firm wishing to include a qualifying subordinated loan in its calculation of liquid capital must:

1. (a)

   provide the FCA with a copy of the agreement not less than 10 business days before the loan is to be made; and

2. (b)

   certify to the FCA that the loan agreement complies with the FCA's prescribed subordinated loan agreement.

A firm including a qualifying subordinated loan in its calculation of liquid capital must not:

1. (a)

   secure all or any part of the loan;

2. (b)

   redeem, purchase or otherwise acquire any of the liabilities of the borrower in respect of the loan;

3. (c)

   amend or concur in amending the terms of the loan agreement;

4. (d)

   repay all or any part of the loan otherwise than in accordance with the terms of the loan agreement; or

5. (e)

   take or omit to take any action whereby the subordination of the loan or any part thereof might be terminated, impaired or adversely affected.