MIFIDPRU 3.2A Composition of own funds and initial capital

The FCA divides own funds into categories, or tiers, reflecting differences in the extent to which the capital concerned meets the purposes set out in MIFIDPRU 3.1A.5G.

The own funds of a firm are the sum of its:

(1) common equity tier 1 capital;

(2) additional tier 1 capital; and

(3) tier 2 capital.

The FCA generally prefers a firm to hold common equity tier 1 capital because it provides the highest quality of loss absorption and permanence. Common equity tier 1 capital can be used to meet a firm's capital requirements without limit. Other tiers of capital are subject to limits as set out in MIFIDPRU 3.2A.4R.

A firm must, at all times, have own funds that satisfy all the following conditions:

(1) the firm'scommon equity tier 1 capital must be equal to or greater than 56% of the firm'sown funds requirement under MIFIDPRU 4.3;

(2) the sum of the firm'scommon equity tier 1 capital and additional tier 1 capital must be equal to or greater than 75% of the firm'sown funds requirement under MIFIDPRU 4.3; and

(3) the firm'sown funds must be equal to or greater than 100% of the firm'sown funds requirement under MIFIDPRU 4.3.

A firm'sinitial capital must be made up of own funds.