MIFIDPRU 3.1A Application, purpose and interpretation

This chapter applies to:

1. (1)

    a MIFIDPRU investment firm; and

2. (2)

    a UK parent entity that is required by MIFIDPRU 2.5.7R to comply with MIFIDPRU 3 on the basis of its consolidated situation.

This chapter also applies to a parent undertaking that is subject to the group capital test in accordance with MIFIDPRU 2.6.5R, but with the following modifications:

(1) the definitions in MIFIDPRU 2.6.2R apply when calculating the own funds instruments of the parent undertaking for the purposes of the group capital test; and

(2) MIFIDPRU 3.2A.4R and MIFIDPRU 3.2A.5R do not apply, but MIFIDPRU 3.7A applies instead.

For the purposes of this chapter:

(1) where this chapter applies to a parent undertaking that is not a firm, reference to a ‘MIFIDPRU investment firm’ or a ‘firm’ includes a reference to that parent undertaking; and

(2) where this chapter applies on the basis of the consolidated situation of an entity under MIFIDPRU 3.1A.1R(2), a reference in this chapter to a ‘firm’ is a reference to the hypothetical single MIFIDPRU investment firm created under the consolidated situation.

This chapter contains requirements for the calculation of a MIFIDPRU investment firm'sown funds. Own funds is the term the FCA commonly uses to describe a firm's regulatory capital.

By requiring a firm to maintain an appropriate level of own funds, the FCA helps ensure that:

(1) a firm can absorb losses while continuing to operate as a going concern;

(2) a firm can absorb losses in liquidation in an orderly way that minimises harm to clients, markets and the wider financial system; 

(3) own funds are calculated consistently and transparently, allowing the FCA and other stakeholders to assess a firm's loss-absorbing capacity; and

(4) the interests of a firm's owners are appropriately aligned with the long-term interests of the firm itself.

A firm must categorise and value its assets and off-balance sheet items in accordance with the applicable accounting framework, unless a rule specifies otherwise.

Every provision in the Handbook must be interpreted in the light of its purpose (GEN 2.2.1R). A firm must therefore look beyond the legal form of its capital arrangements and consider their economic substance. This includes considering matters not set out in the terms of a capital instrument.

The FCA recognises that a mutual society may require modification of certain requirements in this chapter. The FCA will generally use the own funds rules for mutual societies in the PRA rulebook as the starting point for such modifications, but will discuss this with relevant mutual societies.