UPRU 1
UCITS firms
UPRU 1.1
Introduction
- 01/01/2007
Application
UPRU 1.1.1
See Notes
This sourcebook and any provisions of the Interim Prudential sourcebook for investment businesses incorporated into this sourcebook by reference, apply to every UCITS firm.
- 01/01/2007
UPRU 1.1.2
See Notes
Firms are reminded that a UCITS management company can be either:
- (1) a UCITS firm; or
- (2) a UCITS investment firm.
- 01/01/2007
UPRU 1.1.3
See Notes
- This sourcebook only applies to UCITS firms. UCITS investment firms are BIPRU limited licence firms and the prudential requirements for those firms are set out in the Prudential sourcebook for banks, building societies and investment firms and the General prudential sourcebook. The difference between the two types of UCITS management companies is that a UCITS investment firm in addition to carrying on the activities permitted by Article 5.2 of the UCITS Directive (scheme management), may also carry on the activities permitted by Article 5.3 such as portfolio management.
- (2) IFPRU limited licence firms and the prudential requirements for those firms are set out in the Prudential sourcebook for Investment Firms and the EU CRR.
- The difference between the two types of UCITS management companies is that a UCITS investment firms in addition to carrying on the activities permitted by Article 6(2) of the UCITS Directive (scheme management), may also carry on the activities permitted by Article 6(3) such as portfolio management.
UPRU 1.2
Purpose
- 01/01/2007
UPRU 1.2.1
See Notes
- (1) The purpose of this sourcebook is to amplify Principle 4 (Financial prudence) which requires a firm to maintain adequate financial resources to meet its designated investment business commitments and to withstand the risks to which its business is subject. This assists in the achievement of the regulatory objectives of consumer protection and market confidence.
- (2) This sourcebook also implements certain requirements of the UCITS Directive as amended by the amending Council Directive 2001/107/EC which among other matters imposes capital requirements on a UCITS management company.
UPRU 2
Prudential requirements
UPRU 2.1
Financial resources and financial resources requirements
- 01/01/2007
Financial resources
UPRU 2.1.1
See Notes
A firm must ensure that it has at all times financial resources which equal or exceed the applicable financial resources requirement.
- 01/01/2007
Financial resources requirement
UPRU 2.1.2
See Notes
The financial resources requirement for a firm is the higher of:
- (1) subject to a maximum requirement of €10,000,000:
- (a) initial capital requirement of €125,000; plus
- (b) if the funds under management exceed €250,000,000, an additional amount of 0.02% of the excess; or
- (2) 13/52 of its annual audited fixed expenditure.
- 01/01/2007
Annual audited fixed expenditure
UPRU 2.1.3
See Notes
For the purposes of this sourcebook, a firm's annual audited fixed expenditure is:
- (1) the amount described as total expenditure in the most recent annual financial return, less the following items (if they are included within that expenditure):
- (a) staff bonuses, except to the extent that they are guaranteed;
- (b) employees' and directors' shares in profits, except to the extent that they are guaranteed;
- (c) other appropriations of profits;
- (d) shared commission and fees payable which are directly related to commission and fees receivable which are included within total revenue;
- (e) interest charges in respect of borrowings made to finance the acquisition of the firm's readily realisable investments;
- (f) interest paid to customers on client money;
- (g) interest paid to counterparties;
- (h) fees, brokerage and other charges paid to clearing houses, exchanges and intermediate brokers for the purposes of executing, registering or clearing transactions;
- (i) foreign exchange losses;
- (j) other variable expenditure; or
- (2) where the previous accounting period does not include twelve months' trading, an amount calculated in accordance with (1) pro-rated to an equivalent annual amount; or
- (3) where a firm has not prepared an annual financial return or annual accounts since the commencement of its permitted business, an amount based on forecast expenditure included in the budget for the first twelve months' trading, as submitted with its application for authorisation.
UPRU 2.1.4
See Notes
A firm's financial resources requirement will be recalculated and audited annually when its annual financial return is prepared. The firm should maintain financial resources sufficient to meet its new financial resources requirement from the date on which the annual financial return is approved by the auditor. The annual audited fixed expenditure applicable at the accounting reference date to which the annual financial return is prepared will be that based on the previous year's figures. This will usually be the same as that used in the fourth quarter's quarterly financial return prepared to the same accounting reference date.
UPRU 2.2
Method of calculation of financial resources
- 01/01/2007
UPRU 2.2.1
See Notes
| PART I | ||||
| A firm must calculate its financial resources as shown below, subject to the detailed requirements set out in Part II. | ||||
| Financial resources | Category | Part II | ||
| Para | ||||
| TIER 1 | ||||
| (1) | Paid-up share capital (excluding preference shares) | A | 2 | |
| (2) | Share premium account | |||
| (3) | Audited reserves | 3 | ||
| (4) | Non-cumulative preference shares | |||
| (5) | Eligible LLP members' capital | 4 | ||
| (6) | Investments in own shares | B | ||
| (7) | Intangible assets | 5 | ||
| (8) | Material current year losses | 6 | ||
| (9) | Material holdings in credit and financial institutions | 7 | ||
| Initial capital = (A-B) = | C | 1(b) | ||
| TIER 2 | 1 | |||
| (10) | Revaluation reserves | D | ||
| (11) | Fixed term cumulative preference share capital | 1(a) | ||
| (12) | Long-term Qualifying Subordinated Loans | 1(a); 8 | ||
| (13) | Other cumulative preference share capital and debt capital | |||
| (14) | Qualifying arrangements | 9 | ||
| Own funds = (C+D) = | E | |||
| TIER 3 | ||||
| (15) | Illiquid assets | F | 11 | |
| Financial resources = (E - F) = | G | |||
| PART II DETAILED REQUIREMENTS |
|||
| 1 | Ratios | ||
| (Items 11 and 12) | |||
| (a) | the total of fixed term cumulative preference shares (item 11) and long-term qualifying subordinated loans (item 12) that may be included in Tier 2 capital is limited to 50 per cent of Tier 1 capital ; | ||
| (b) | Tier 1 capital must equal or exceed €125,000 at all times; and | ||
| (c) | Tier 2 capital must not exceed 100 per cent of Tier 1 capital. | ||
| 2 | Non corporate entities | ||
| (a) | In the case of partnerships or sole traders, the following terms should be substituted, as appropriate, for items 1 to 4 in Tier 1 capital: | ||
| (i) | partners' capital accounts (excluding loan capital); | ||
| (ii) | partners' current accounts (excluding unaudited profits and loan capital); | ||
| (iii) | proprietor's account (or other term used to signify the sole trader's capital but excluding unaudited profits). | ||
| (b) | Loans other than qualifying subordinated loans shown within partners' or proprietors' accounts must be classified as Tier 2 capital under item 13. | ||
| (c) | For the calculation of financial resources, partners' current accounts figures are subject to the following adjustments in respect of a defined benefit occupational pension scheme: | ||
| (i) | a firm must derecognise any defined benefit asset: | ||
| (ii) | a firm may substitute for defined benefit liability the firm's deficit reduction amount. The election must be applied consistently in respect of any one financial year. | ||
| Note | |||
| A firm should keep a record of and be ready to explain to its supervisory contacts in the FSA the reasons for any difference between the deficit reduction amount and any commitment the firm has made in any public document to provide funding in respect of a defined benefit occupational pension scheme. | |||
| 3 | Audited Reserves | ||
| For the calculation of financial resources, the following adjustments apply to the audited reserves figure: | |||
| (a) | a firm must deduct any unrealised gains or, where applicable, add back in any unrealised losses on cash flow hedges of financial instruments measured at cost or amortised cost: | ||
| (b) | in respect of a defined benefit occupational pension scheme, a firm must derecognise any defined benefit asset; | ||
| (c) | a firm may substitute for a defined benefit liability the firm's deficit reduction amount. The election must be applied consistently in respect of any one financial year. | ||
| Note | |||
| A firm should keep a record of and be ready to explain to its supervisory contacts in the FSA the reasons for any difference between the deficit reduction amount and any commitment the firm has made in any public document to provide funding in respect of a defined benefit occupational pension scheme. | |||
| (d) | a firm must not include any unrealised gains from investment property. | ||
| Note | |||
| Unrealised gains from investment property should be reported as part of revaluation reserves. | |||
| (e) | where applicable, a firm must deduct any asset in respect of deferred acquisition costs and add back in any liability in respect of deferred income (but excluding from the deduction or addition any asset or liability which will give rise to future cash flows), together with any associated deferred tax. | ||
| 4 | Eligible LLP members' capital (Item 5) | ||
| Members' capital of a limited liability partnership may only be included in Tier 1 of the calculation (see item 5) if the conditions in IPRU(INV) Annex A 2.2R (Specific conditions for eligibility) and IPRU(INV) Annex A 2.3R (General conditions for eligibility) are satisfied. | |||
| 5 | Intangible assets (Item 7) | ||
| Intangible assets comprise: | |||
| (a) | formation expenses to the extent that these are treated as an asset in the firm's accounts; | ||
| (b) | goodwill, to the extent that it is treated as an asset in the firm's accounts; and | ||
| (c) | other assets treated as intangibles in the firm's accounts. | ||
| 6 | Material current year losses (Item 8) | ||
| Losses in current year operating figures must be deducted when calculating Tier 1 capital if such losses are material. For this purpose profits and losses must be calculated quarterly, as appropriate. If this calculation reveals a net loss it shall only be deemed to be material for the purposes of this Table if it exceeds 10 per cent of the firm's Tier 1 capital. | |||
| 7 | Material holdings in credit and financial institutions (Item 9) | ||
| Material holdings comprise: | |||
| (a) | where the firm holds more than 10 per cent of the equity share capital of the institution, the value of that holding and the amount of any subordinated loans to the institution and the value of holdings in qualifying capital items or qualifying capital instruments issued by the institution; | ||
| (b) | in the case of holdings other than those mentioned in (a) above, the value of holdings of equity share capital in, and the amount of subordinated loans made to, such institutions and the value of holdings in qualifying capital items or qualifying capital instruments issued by such institutions to the extent that the total of such holdings and subordinated loans exceeds 10 per cent of the firm's own funds calculated before the deduction of item 9. | ||
| 8 | Long term qualifying subordinated loans (Item 12) | ||
| Loans having the characteristics prescribed by IPRU(INV) 5.2.5(1) R may be included in item 12, subject to the limits set out in paragraph (1) above. | |||
| 9 | Qualifying arrangements (Item 14) | ||
| A firm may only include a qualifying undertaking or other arrangement in item 14 if it is a qualifying capital instrument or a qualifying capital item. | |||
| 10 | Interim profits | ||
| Non-trading book interim profits may only be included in Tier 1 of the calculation if they have been independently verified by the firm's external auditors. | |||
| For this purpose, the auditor should normally undertake at least the following: | |||
| (a) | satisfy himself that the figures forming the basis of the interim profits have been properly extracted from the underlying accounting records; | ||
| (b) | review the accounting policies used in calculating the interim profits so as to obtain comfort that they are consistent with those normally adopted by the firm in drawing up its annual financial statements; | ||
| (c) | perform analytical review procedures on the results to date, including comparisons of actual performance to date with budget and with the results of prior periods; | ||
| (d) | discuss with management the overall performance and financial position of the firm; | ||
| (e) | obtain adequate comfort that the implications of current and prospective litigation, all known claims and commitments, changes in business activities and provisions for bad and doubtful debts have been properly taken into account in arriving at the interim profits; and | ||
| (f) | follow up problem areas of which the auditors are already aware in the course of auditing the firm's financial statements. | ||
| A firm wishing to include interim profits in Tier 1 capital in a financial return should submit to the FSA with the financial return a verification report signed by its auditor which states whether the interim results are fairly stated. | |||
| Profits on the sale of capital items or arising from other activities which are not directly related to the designated investment business of the firm may also be included within the calculation of financial resources if they can be separately verified by the firm's auditors. In such a case, such profits can form part of the firm's Tier 1 capital as audited profits. | |||
| 11 | Illiquid assets (Item 15) | ||
| Illiquid assets comprise: | |||
| (a) | tangible fixed assets; | ||
| Note | |||
| In respect of tangible fixed assets purchased under finance leases the amount to be deducted as an illiquid asset shall be limited to the excess of the asset over the amount of the related liability shown on the balance sheet. | |||
| (b) | holdings in, including subordinated loans to, credit or financial institutions which may be included in the own funds of such institutions unless they have been deducted under item 9; | ||
| (c) | any investment in undertakings other than credit institutions and other financial institutions where such investments are not readily realisable; | ||
| (d) | any deficiency in net assets of a subsidiary; | ||
| (e) | deposits not available for repayment within 90 days or less (except for payments in connection with margined futures or options contracts); | ||
| Note | |||
| Where cash is placed on deposit with a maturity of more than 90 days but is repayable on demand subject to the payment of a penalty, then this is not required to be deducted as an illiquid asset but a deduction is required for the amount of the penalty. | |||
| (f) | loans, other debtors and accruals not falling due to be repaid within 90 days or which are more than one month overdue by reference to the contractual payment date; | ||
| (g) | physical stocks; | ||
| (h) | prepayments to the extent that the period of prepayment exceeds thirteen weeks; and | ||
| (i) | if not otherwise covered, any holding in eligible capital instruments of an insurance undertaking, insurance holding company, or reinsurance undertaking that is a subsidiary or participation. Eligible capital instruments include ordinary share capital, cumulative preference shares, perpetual securities and long-term subordinated loans, that are eligible for insurance undertakings under GENPRU 2 or, as the case may be, INSPRU 7. | ||
UPRU 2.3
Application of certain rules in the interim prudential sourcebook for investment businesses
- 01/01/2007
UPRU 2.3.1
See Notes
- (1) The following rules in the Interim Prudential sourcebook for investment businesses apply to a firm in respect of qualifying subordinated loans, qualifying undertakings and records:
- (a) IPRU(INV) 5.2.5(1), (2) and (4) to (7) R;
- (b) IPRU(INV) 5.2.6(3) R; and
- (c) IPRU(INV) 5.3.1(1) R and IPRU(INV) 5.3.1(4) to 5.3.1(6) R.
- (2) References in those rules to:
- (a) IPRU(INV) Table 5.2.2(1) R are to be construed as references to UPRU Table 2.2.1 R;
- (b) IPRU(INV) 5.2.3(1) R are to be construed as references to UPRU 2.1.1 R;
- (c) IPRU(INV) 5.3.1(3) R are to be construed as references to UPRU 2.4.1 R; and
- (d) IPRU(INV) 5.2.1(2) are to be construed as references to UPRU 2.1.1 R.
- 01/01/2007
UPRU 2.4
Records
- 01/01/2007
UPRU 2.4.1
See Notes
A firm must ensure that proper accounting records are kept in English to show and explain the firm's own account transactions.
- 01/01/2007
Transitional Provisions and Schedules
UPRU TP 1
Transitional Provisions for UPRU
| (1) | (2) Material to which the transitional provision applies |
(3) | (4)Transitional provision | (5) Transitional provision: dates in force |
(6) Handbook provision: coming into force |
| 1. | This sourcebook | R | An operator of a UCITS scheme authorised on or before 12 February 2004 need not comply with the provisions in this sourcebook until 12 February 2007 provided it continues to comply instead with the provisions in IPRU(INV) 5 and it continues to restrict its activities to those specified under CIS 16.5.1 R (1) to (3) or COLL 6.9.9 R (1) to (3), as appropriate. | From 01/01/07 to 12/02/07 | 01/01/07 |
- 01/01/2007
- Future version of UPRU TP 1 after 06/05/2009
UPRU Sch 1
Record keeping requirements
- 01/01/2007
UPRU Sch 1.1
See Notes
| Handbook reference | Subject of record | Contents of record | When record must be made | Retention period |
| UPRU 2.4.1 R | accounting records | proper accounting records to show and explain the firm's own account transactions | not specified | not specified |
- 01/01/2007
UPRU Sch 2
Notification requirements
- 01/01/2007
UPRU Sch 2
See Notes
| There are no reporting requirements in this sourcebook. |
- 01/01/2007
UPRU Sch 3
Fees and other required payments
- 01/01/2007
UPRU Sch 3
See Notes
| There are no requirements for fees or other payments in this sourcebook. |
- 01/01/2007
UPRU Sch 4
Powers exercised
- 01/01/2007
UPRU Sch 4.1
See Notes
| The following powers and related provisions in or under the Act have been exercised by the FSA to make the rules in UPRU: | |
| Section 138 (General rule-making power) | |
| Section 140 (Restrictions on managers of authorised unit trust schemes) | |
| Section 156 (General supplementary powers) | |
| Section 242 (Applications for authorisation of unit trust schemes) | |
| Section 247 (Trust scheme rules) | |
| Section 248 (Scheme particulars rules) | |
| Regulations 6 (FSA rules) and 12 (Applications for authorisation) of the Open-Ended Investment Companies Regulations 2001 (SI 2001/1228) | |
- 01/01/2007
UPRU Sch 4.2
See Notes
- 01/01/2007
UPRU Sch 5
Rights of action for damages
- 01/01/2007
UPRU Sch 5.1
See Notes
The table below sets out the rules in this sourcebook contravention of which by an authorised person may be actionable under section 150 of the Act (Actions for damages) by a person who suffers loss as a result of the contravention.
| 1. | If a Yes appears in the column headed For private person, the rule may be actionable by a private person under section 150 unless a Yes appears in the column headed Removed. A Yes in the column headed Removed indicates that the FSA has removed the right of action under section 150(2) of the Act. If so, a reference to the rule in which it is removed is also given. | |
| 2. | In accordance with The Financial Services and Markets Act 2000 (Rights of Action) Regulations 2001 (SI 2001\2256), a private person is: | |
| (1) | any individual, except when acting in the course of carrying on a regulated activity; and | |
| (2) | any person who is not an individual, except when acting in the course of carrying on business of any kind; but does not include a government, a local authority or an international organisation. |
|
| 3. | The column headed "For other person?" indicates whether the rule is actionable by a person other than a private person, in accordance with those Regulations. If so, an indication of the type of person by whom the rule is actionable is given. | |
- 01/01/2007
UPRU Sch 5.2
See Notes
Actions for damages: the Prudential sourcebook for UCITS Firms
| Right of action under section 150 | ||||||
| Chapter/Appendix | Section/Annex | Paragraph | For private person | Removed | For other person? | |
| All rules in this sourcebook | No | No | No | |||
- 01/01/2007
UPRU Sch 6
Rules that can be waived
- 01/01/2007
UPRU Sch 6.1
See Notes
| 1. | The rules in this sourcebook can be waived by the FSA under section 148 or 250 of the Act (Modification or waiver of rules) or regulation 7 of the OEIC Regulations (Modification or waiver of FSA rules). |
| 2. | Although the FSA has the formal power of waiver under the Act in relation to these rules, much of this sourcebook implements the requirements of the UCITS Directive by ensuring that UCITS firms as UCITS management companies comply with such requirements. Accordingly, while formal power may exist to waive such UCITS Directive derived rules, the FSA's ability to do so is severely constrained. |
- 01/01/2007