RMA D1: Regulatory capital
Q: Why should I complete RMA-D?
A: The purpose of RMA-D is to ensure that a firm is adequately capitalised. It does this by asking a firm to calculate and compare its total capital requirement and its total capital resources. We require a firm's capital resources to be greater than its capital requirement at all times.
Q: Is my firm exempt from capital requirements in relation to any of its retail activities?
A: It is extremely unlikely that a firm – especially one classed as a general insurance intermediary or mortgage broker – would be exempt from these capital requirements.
Mortgage mediation (question 1A): A firm that is required to complete RMAR D1 and is permitted to undertake mortgage mediation activity will only be exempt from this requirement if it is a solo-consolidated subsidiary of a bank or building society. Question 1A should be left blank by firms that are not solo-consolidated subsidiaries of banks or building societies.
Non-investment insurance (question 1B): A firm that is required to complete RMAR D1 and is permitted to undertake non-investment insurance distribution activities will only be exempt from this requirement if it is a solo-consolidated subsidiary of a bank or building society. Question 1B should be left blank by firms that are not solo-consolidated subsidiaries of banks or building societies.
Retail investment activity (question 1C): Investment firms that are not Personal Investment Firms do not need to see RMAR D1. A Personal Investment Firm should leave question 1C blank unless it has a waiver from the financial resources requirements in IPRU INV Chapter 13. If a firm is permitted to undertake life insurance activity and no other retail investment activity, it should contact the appropriate regulator to establish its correct prudential category.
Q: What is my base requirement?
A: If your firm does not hold client money, the base requirement is £5,000.
If your firm holds client money and operates a statutory trust, the base requirement is £10,000.
If your firm operates a non-statutory trust, the base requirement is £50,000.
Q: How do I calculate my ‘adjusted net current assets requirement’ and ‘expenditure based requirement’?
A: B3 low resource firms (i.e. B3 firms with less than 5 appointed representatives and less than 26 investment advisers) are not subject to these tests.
All other B category personal investment firms are subject to these requirements. Please refer to IPRU (Inv) Chapter 13, sections 13.11 and 13.12 if you require assistance in calculating your firm’s ‘adjusted net current assets requirement’ and ‘expenditure based requirement’.
Q: Do I need to use audited figures?
A: Reserves must be audited and interim net profits, general and collective provisions must be verified by the firm’s external auditors unless the firm is exempt from the provisions of Part VII of the Companies Act 1985 (section 249A (exemptions from audit)) or, where applicable, Part 16 of the Companies Act 2006 (section 477 (small companies: conditions for exemption from audit)) relating to the audit of accounts.
Q: What is an eligible subordinated loan?
A: A subordinated loan can only be used as eligible capital to meet FCA statutory capital requirements if it meets all of the conditions as stated in the Handbook which include:
1) a maturity date of 2 years (or 2 years notice of repayment if it does not have a fixed term).
2) it cannot be repaid until a firm has 120% of its capital requirement after the repayment has been made.
3) the subordinated loan agreement must be drafted using the FCA standard template.
Mortgage and general insurance firms should refer to MIPRU 4.4 sections 4.4.7 and 4.4.8 for rules and guidance in relation to subordinated loans.
Personal investment firms should refer to IPRU (Inv) Chapter 13 sections 13.12.4 – 13.12.5A for rules and guidance in relation to subordinated loans.
Q: Can I use personal assets to meet my regulatory capital requirements?
A: Sole traders and partnerships may use personal assets to make up a limited shortfall in regulatory capital unless:
i) these assets are being used to meet liabilities relating to other non-regulatory activities (including personal and other business activities); and
ii) the firm holds client money or other client assets.
Q: Which data do I transfer from RMA-A Balance Sheet to RMA-D1 Regulatory Capital?
A: This example[2] (Excel file) shows how a hypothetical mortgage/general insurance distribution firm (which is a sole trader/partnership that does not hold client money) transfers data from RMA-A to RMA-D1.
This example[3] (Excel file) shows how a hypothetical mortgage/general insurance distribution firm (which is a sole trader/partnership that holds client money) transfers data from RMA-A to RMA-D1.
This example[4] (Excel file) shows how a hypothetical mortgage/general insurance distribution firm (which is a limited company and does not hold client money) transfers data from the RMA-A to RMA-D1.
This example[5] (Excel file) shows how a hypothetical mortgage/general insurance distribution firm (which is a limited company and holds client money) transfers data from RMA-A to RMA-D1.
Please note these examples are for illustrative purposes only.
RMA D2: Financial resources
Q: Which part of RMA-D2 Financial Resources should be completed by a B3 low resource Personal Investment Firm?
A: A B3 low resource Personal Investment Firm is only required to complete the Own Funds test (Test 1). These firms should enter zeros in Test 1A and Test 2.
Q: Which data do I transfer from RMA-A Balance Sheet to RMA-D2 Financial Resources?
A: This example[6] shows how a hypothetical Personal Investment Firm (which is a sole trader / partnership and is a low resource category B3 firm) transfers data from RMA-A to RMA–D2.
This example[7] shows how a hypothetical Personal Investment firm (which is a limited company and is a low resource category B3 firm) transfers data from RMA-A to RMA–D2.
Please note these examples are for illustrative purposes only.
If you have further questions please contact us[8].