For purposes of this Regulation—
"capital"
means, in relation to a central counterparty, subscribed capital on the annual accounts and consolidated accounts of the central counterparty in so far as it has been paid up ordinary shares, plus the related share premium accounts, if applicable, which is of a permanent nature and able to fully absorb losses in going concern situations, and, in the event of insolvency or liquidation, it ranks after all other claims;
"qualifying capital"
includes capital, retained earnings and reserves, but no amount relating to any profit or earnings of a central counterparty constitutes qualifying capital unless the controlling body of the central counterparty formally appropriated the amount by way of a resolution to constitute retained earnings of the central counterparty.1
| (1) |
A central counterparty must deduct from its qualifying capital— |
| (a) |
the relevant amount, net of any associated deferred tax liability which would be extinguished if the relevant intangible asset becomes impaired or is derecognised in terms of the relevant requirements specified in International Financial Reporting Standards issued from time to time, related to goodwill, including any goodwill included in the valuation of significant investments in the qualifying capital of the central counterparty; |
| (b) |
the relevant amount related to intangible assets other than goodwill, net of any associated deferred tax liability which would be extinguished if the relevant intangible asset becomes impaired or is derecognised in terms of the relevant requirements specified in Financial Reporting Standards issued from time to time; |
| (c) |
the relevant amount related to deferred tax assets that rely on future profitability of the central counterparty to be realised, provided that— |
| (i) |
the central counterparty distinguishes between the component of deferred tax assets that relates to temporary differences and other deferred tax assets; |
| (ii) |
a deferred tax asset may be netted against an associated deferred tax liability only if the asset and liability relate to taxes levied by the same taxation authority and offsetting is explicitly permitted by that relevant taxation authority, provided that the deferred tax liabilities that may be netted against the relevant amount of deferred tax assets excludes any amount that has been netted against the deduction of goodwill, intangible assets other than goodwill and defined benefit pension assets; and |
| (iii) |
any relevant amount related to current year tax losses that gives rise to a claim or receivable amount from the government or local tax authority, typically classified as a current tax assets, must be assigned the relevant sovereign risk weight; |
| (d) |
any relevant positive amount related to a cash flow hedge reserve that relates to the hedging of items that are not fair valued on the balance sheet, including any relevant amount related to projected cash flows, provided that any relevant negative amount related to a cash flow hedge reserve must also be derecognised, that is, added back as qualifying capital; |
| (e) |
any unrealised gain resulting from changes in the fair value of liabilities due to changes in the central counterparty’s own credit risk, provided that— |
| (i) |
the central counterparty also derecognises from its qualifying capital any relevant amount related to any unrealised loss due to changes in the central counterparty’s own credit risk; |
| (ii) |
with regard to any relevant derivative liability, the central counterparty derecognises all relevant accounting valuation adjustments arising from the central counterparty's own credit risk; and |
| (iii) |
the central counterparty in no case applies any netting or offsetting between valuation adjustments arising from the central counterparty own credit risk and those arising from its counterparties’ credit risk; |
| (f) |
any relevant amount related to a defined benefit pension fund constituting an asset on the balance sheet, net of any associated deferred tax liability which would be extinguished if the asset should become impaired or derecognised in terms of the relevant requirements specified in International Financial Reporting Standards, provided that— |
| (i) |
subject to the prior written approval of, and such conditions as may be determined by the Authority, assets in the fund to which the central counterparty has unrestricted and unfettered access may offset the relevant deduction; |
| (ii) |
offsetting assets as envisaged in subparagraph (i) must be assigned the risk weight that would have applied were the assets owned directly by the central counterparty; and |
| (iii) |
any amount related to a defined benefit pension fund liability, as included on the balance sheet, must be fully recognised in the calculation of the central counterparty’s qualifying capital and may not be increased through the de-recognition of any defined benefit pension fund liability; |
| (g) |
the relevant amount related to any reciprocal cross holding of shares qualifying as capital of any other central counterparty, bank, insurance company or other regulated financial institution that is subject to minimum capital requirements; |
| (h) |
the relevant amount related to any direct or indirect investment in or direct or indirect funding provided for direct or indirect investment in the central counterparty or controlling entity’s own qualifying capital; |
| (i) |
any instrument or share that qualifies as capital of the central counterparty and for which the central counterparty has received no value; and |
(j) accumulated losses.
(2)
| (a) |
A central counterparty may not without the prior written approval of the Authority or otherwise than in accordance with conditions approved by the Authority in writing repay any of its common equity or reduce appropriated profits. |
| (b) |
A written application by a central counterparty for the approval of the Authority to repay any of its capital or reduce any appropriated profits must include written confirmation by the controlling body of the central counterparty that— |
| (i) |
the relevant qualifying capital, after the repayment of the capital or the reduction of appropriated profits of the central counterparty concerned, must be at least 10% higher than the required qualifying capital specified in Regulation 22(2) without relying on any new capital issues to ensure continued compliance by the central counterparty with Regulation 22; |
| (ii) |
the repayment of capital or the reduction of appropriated profits is consistent with the central counterparty’s strategic and operating plans; |
| (iii) |
the repayment of capital or the reduction of appropriated profits has duly been taken into account in the central counterparty’s management processes for liquidity risk; |
| (iv) |
all shares acquired back by the central counterparty from the repayment of capital must immediately be cancelled. |
1 The controlling body of the central counterparty must formally consider the amount and resolve that such profit or earnings constitutes retained earnings to be included in the capital base of the central counterparty, which profit or earnings is subsequently available to absorb losses on a going concern basis that may arise from risks pertaining to the particular nature of such central counterparty, and the profit or earnings is disclosed as such in the published financial statements of the central counterparty
Statistics Act, 1999
