Calculation of Own Funds Requirements Based on Fixed Costs

Circular
Calculation of Own Funds Requirements Based on Fixed Costs

CIRCULAR:
10/2014
DATE:
09.10.2014
THE CIRCULAR APPLIES TO:
Securities firms
Management companies for investment funds
Managers of alternative investment funds (AIF managers)

FINANS TILSYNET
Postboks 1187 Sentrum
0107 Oslo

Calculation of Own Funds Requirements Based on Fixed Costs 2 | Finanstilsynet

Introduction
This circular applies to securities firms calculating their own funds requirements in accordance with the Capital Requirements Regulation § 41-2, management companies for investment funds calculating their own funds requirements in accordance with the Investment Funds Regulation § 2-2 fifth paragraph, and managers of alternative investment funds (AIF managers) calculating their own funds requirements in accordance with the Act on Alternative Investment Funds § 2-7 first paragraph letter b.

This circular replaces Circular 16/2002.

Finanstilsynet assumes that the firms mentioned above inform their auditors about this circular.

Calculation of Fixed Costs
Finanstilsynet assumes that the following calculation method shall be used when calculating fixed costs:
a. Sum the firm's revenues. b. Add the negative result before tax.
c. Add 35 percent of the fees to agents' activities on behalf of the firm, cf. the Securities Trading Act (vphl.) § 2-4 (3), regardless of whether the fees are accounted for in the firm.
d. From the sum of a., b., and c., the following items may be deducted:
i. positive result before tax
ii. fully variable remuneration to employees, management, etc.
iii. other distributions of the firm's profit before tax, provided that these are fully variable
iv. accounted-for brokerage or other variable remuneration paid to order-executing or order-routing institutions, provided that the costs depend on the routing of orders
v. variable fees to stock exchanges, authorized market places, securities registers, and clearing houses
vi. interest expenses related to the storage of client funds
vii. one-off costs related to extraordinary activities after approval from Finanstilsynet
e. Fixed costs that have arisen on behalf of the firm in other ways than through agents, cf. vphl. § 2-4 (3), shall be added to the sum of the calculation in points a. to d. f. If the firm's annual accounts for the previous year are based on activities for fewer than 12 months, the result of the calculation in points a. to e. shall be divided by the number of months with activities and multiplied by twelve.

If there is a significant change in a firm's activities compared to the previous year, Finanstilsynet may adjust the own funds requirement based on fixed costs. A significant change will be considered to have occurred:

Calculation of Own Funds Requirements Based on Fixed Costs Finanstilsynet | 3

1. For firms with a capital requirement based on fixed costs in the previous year at an amount in Norwegian kroner corresponding to 125,000 euros or more: When the budgeted fixed costs for the current year deviate by 20 percent or more from the actual fixed costs in the previous year, or when the budgeted fixed costs for the current year deviate by an amount in Norwegian kroner corresponding to 2,000,000 euros or more from the actual fixed costs in the previous year.
2. For firms with a capital requirement based on fixed costs in the previous year at an amount in Norwegian kroner corresponding to less than 125,000 euros: When the budgeted fixed costs for the current year deviate by 100 percent or more from the actual fixed costs in the previous year.

If such a significant change occurs, and this indicates an increase in the capital requirement, the firm shall notify Finanstilsynet without undue delay. If such a significant change indicates a reduction in the capital requirement, and the firm wishes such a reduction, the firm must apply to Finanstilsynet for permission to use the new capital requirement. In such notification or application, the firm must document that the criteria for adjusting the capital requirement are met.

Finanstilsynet generally considers that a budget approved by the board for the current year, including minutes from the board meeting where the budget was approved, and auditor certification of the firm's calculation of fixed costs from the previous year, constitute sufficient documentation in this context. Based on this documentation and other relevant circumstances, Finanstilsynet will decide whether the firm's own funds requirement based on fixed costs should be adjusted.

Anne Merethe Bellamy director for market supervision Geir Holen
section chief

Contact persons:
Advisor Anders Overgård Hauglund, tel. 22 93 99 87, e-mail: anh@finanstilsynet.no Senior Advisor Jaan-Herluf Steenberg, tel. 22 93 98 77, e-mail: jhs@finanstilsynet.no

FINANS TILSYNET
Postboks 1187 Sentrum
0107 Oslo
POST@FINANS TILSYNET.NO
WWW.FINANS TILSYNET.NO