(NOTES) 1 Regulatory business
Financial Services Authority
Change of legal status
Investment manager – financial resources form – notes
Application
for Authorisation
Please take time to read these notes carefully. They will help you to fill in the supplement form correctly.
Change
of legal
status:
Investment
manager
When completing
the application
forms
you will need to the
Handbook:
www.fshandbook.info/FS/html/handbook/.
-financial
resources form notes
If after reading these notes you need more help, please:

check our website;

consult the Handbook: www.fshandbook.info/FS/index.jsp.

call our Customer Contact Centre: 0845 606 9966; or

email fcc@ffca.org.uk
These notes, while aiming to help you, do not replace the rules and guidance in the Handbook. It is the
responsibility of the applicant firm to take the necessary action to ensure that its authorisation is
appropriate for its business.
Terms in this form
These notes use the following terms:

'you' refers to the person(s) signing the form on behalf of the applicant firm;

'the applicant firm' refers to the firm applying for authorisation;

‘the FCA' ,'we', ‘us’ or 'our' refers to the Financial Conduct Authority;

FSMA refers to the Financial Services and Markets Act 2000; and

words in italics are defined terms which you can find in our Glossary of Terms at:
www.fshandbook.info/FS/html/handbook/Glossary.
Important information
At the point of authorisation we expect the applicant firm to be ready, willing and able to start
business.
Contents of these notes
1
Financial resources
2
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(NOTES) 1 Financial resources
1
Financial resources
Prudential sub-category
The Capital Requirements Regulations, (CRR), the Capital Requirements
Directive (CRD) and the Markets in Financial Instruments Directive (MiFID)
Broadly speaking, the CRR/CRD only applies to firms which MiFID applies. The prudential rules
these firms need to follow are contained in the Prudential Sourcebook for Banks, Building
Societies and Investment Firms (BIPRU), the Prudential Sourcebook for Investment Firms
(IFPRU) and the General Prudential Sourcebook (GENPRU).
Applicant firms using the supplement for Investment managers may be applying for permission to
carry on regulated activities covered by MiFID. MiFID instruments include shares, debentures,
government and public securities, warrants, certificates representing certain securities, units, and
derivatives where they relate to financial instruments and certain commodity derivatives.
Guidance on MiFID and CRR/CRD categorisation and whether firms will be affected by either
directive is set out in the Handbook, see PERG 13:
http://fshandbook.info/FS/html/handbook/PERG/13.
Full requirements for prudential sub-categories
The full requirements for each prudential sub-category of investment management firm are
contained in GENPRU, IFPRU and BIPRU rules or IPRU (INV) rules, as applicable. Broadly, UK
firms to which MiFID applies will be subject to BIPRU, IFPRU and/or GENPRU. There is also one
other category of firm to which MiFID applies which benefits from a special regime under the
CRD, namely exempt CAD firms (see notes to 3.1 below). These firms and investment
management firms not subject to MiFID are generally subject to the relevant rules in IPRU (INV).
A high-level summary of the provisions that apply to those investment management firms subject
to IPRU (INV) is set out below:
Firm Category
IPRU (INV) chapters
Investment management firm (which is not a
MiFID investment firm)
1&5
An exempt CAD firm
1,5 & 9
The applicant firm can use the notes to question 3.1, below, in conjunction with the Handbook, to
help to work out its prudential requirements.
Prudential sub-category
1.1 Which prudential requirements/ sub-category applies to the applicant firm?
Section A
IFPRU Investment Firm
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(NOTES) 1 Financial resources
Base Capital Resources Requirement
€50K
€125K
€730K
An IFPRU 50K firm is one which

is not authorised to deal for own account in, or underwrite issues of
financial instruments on a firm commitment basis;

offers one or more of the following services:
o
reception and transmission of orders;
o
execution of orders; or
o
management of individual portfolios of investments;

does not hold client's money and/or securities and is not authorised to
do so; and is not a UCITS investment firm;

and does not operate a multi-lateral trading facility.
An IFPRU 125K firm is one which

is not authorised to deal for own account in, or underwrite issues of,
financial instruments on a firm commitment basis;

offers one or more of the following services:
o
reception and transmission of orders;
o
execution of orders;
o
management of individual portfolios of investments;

can hold client money or securities, or is authorised to do so; and is not
a UCITS investment firm;

and does not operate a multi-lateral trading facility.
An IFPRU730K firm is an investment firm subject to the recast CAD but is
not an IFPRU 50K firm, an IFPRU 125K firm or a UCITS investment firm.
For further information, see PERG 13, questions 60-62.
UCITS
investment
firm
A UCITS investment firm should hold base capital of €125,000 plus an
additional amount of own funds, in accordance with the UCITS Directive,
equal to 0.02% of the amount by which the value of portfolios under
management exceed €250,000,000 (subject to an overall maximum base
capital requirement of €10,000,000).
For further information, see PERG 13, question 63.
Capital Resources Requirement
For full scope IFPRU investment firms, the minimum capital resources requirement will
be calculated as the higher of the base requirement or the sum of the credit, market and
operational risk requirements.
For IFPRU limited activity firms, the minimum capital resources requirement will be
calculated as the higher of the base requirement or the sum of the credit, market risk
and the fixed overheads requirement (FOR).
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(NOTES) 1 Financial resources
For IFPRU limited licence firms, the minimum capital resources requirement will be
calculated as the higher of the base requirement or the sum of credit and market risk
requirements or the FOR.
Full scope
IFPRU
investment
firm
an investment firm that is neither a IFPRU limited activity firm nor
a IFPRU limited licence firm.
IFPRU
limited
activity
firm
an investment firm that deals on own account only for the
purpose of fulfilling or executing client orders, or gaining
entrance to a clearing and settlement system or a recognised
exchange when acting in an agency capacity or executing a
client order.
IFPRU
limited
licence
firm
an investment firm that is not authorised to provide the
investment services of dealing on own account or underwriting
and/or placing financial instruments on a firm commitment basis,
or a UCITS investment firm and which generally may be either a
IFPRU 50K firm or a IFPRU 125K firm or a BIPRU firm.
For further details, see PERG 13 Q64-66.
Section B – MiFID firms not generally subject to GENPRU, IFPRU and/or BIPRU
Exempt CAD firm
For guidance for exempt CAD firms, see PERG 13, Q58 and 59. See Chapters 1,5 and 9 IPRU
(INV) for the prudential requirements for exempt CAD firms.
Exempt CAD firms that also conduct other non-MiFID scope activities that are within the
scope of regulation will still need to meet the financial resource requirments of other
applicable chapters of IPRU (INV) that appropriately reflect their non-MiFID business.
Section C – Non-MiFID firms
Non MiFID investment management firms follow the prudential rules set out in IPRU
(INV) chapter 5
Section D – Non-MiFID firms
If it is a UCITS firm an applicant firm will not be subject to MiFID. See, generally UPRU
for prudential requirements.
Section E – BIPRU firms
Some investment firms can stay on the FCA rules that implement CRD III (e.g. BIPRU,
GENPRU) and be classified as a BIPRU firm, rather than the stricter CRD IV rules, and
be subject to IFPRU. Whether or not a firm qualifies depends on which investment
services and activities they carry out, as defined in the Markets in Financial Instruments
Directive (MiFID).
Such a firm cannot carry out any of the following MiFID investment services and
activities:
 (3) dealing on own account
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(NOTES) 1 Financial resources

(6) underwriting of financial instruments and/or placing of financial instruments
on a firm commitment basis
 (7) placing of financial instruments without a firm commitment basis
 (8) operation of Multilateral Trading Facilities
Also, a firm cannot:
 carry out MiFID ancillary service (1) safekeeping and administration of financial
instruments for the account of clients, including custodianship and related
services such as cash/collateral management, or
 be permitted to hold money or securities belonging to their client
For information about how MiFID investment services and activities correspond with the
regulated activities set out in the Regulated Activities Order, please refer to PERG 13 in
the FCA Handbook: http://www.fshandbook.info/FS/html/FCA/PERG/13
if you are a BIPRU firm, you are subject to base capital resources requirement of
€50,000 (see GENPRU 2.1.48R) and for the calculation of the variable capital
requirement for a BIPRU firm (see GENPRU 2.1.45R).
Credit Risk/ICAAP (the following question is only relevant to IFPRU and BIPRU
investment firms)
1.2
As a BIPRU investment firm in accordance with GENPRU 1.2, IFPRU 2.2 and
BIPRU 2.2 you will be required to develop and maintain an Internal Capital
Adequacy Assessment Process (ICAAP). Please tick the boxes below to confirm
you have complied with the following requirements:
 Yes
 Yes
We have undertaken an ICAAP and we have written evidence of this
process; and
The level of internal capital we will hold is consistent with our risk
profile and strategy.
You are not required to send your ICAAP documentation with this application but
you must be able to produce a copy, if we ask you to, at any time while we are
assessing the application or in the future.
The Pillar 2 Handbook chapters:
GENPRU 1.2
BIPRU 2.2
IFPRU 2.2
Documents
1.3
Applicant firms must provide the following.
In brief, we need:

A financial reporting return. This contains a balance sheet to be prepared as at
the start of your trading as an authorised firm. See, generally, appendices A, B
and C.

A closing financial reporting return. This contains a balance sheet which must
show the financial position of the applicant firm as it is forecasted to be after 12
months of trading. See, generally, appendices A, B and C.

A monthly cash flow forecast for the first 12 months of trading.

A monthly profit and loss forecast for the first 12 months of trading. A profit and
loss account shows the firm’s income and expenditure for a set period. You
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(NOTES) 1 Financial resources
must send us 12 forecast profit and loss accounts, one for each of the first 12
months of trading as an authorised firm. These must show as a minimum:
o
gross income split, from regulated activities and unregulated activities;
o
all business expenditure, relevant annual expenditure and a
breakdown of how major overheads will be paid for (for example, rent
and rates);
o
what is expected to be profit before taxation; and
o
the projected regulatory capital and regulatory capital requirement
calculations.
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