• BANK Subdivision 3.2.D.2 BANK Subdivision 3.2.D.2 Adjustments to common equity tier 1 capital

    • BANK 3.2.23 Form of adjustments

      Adjustments to CET 1 capital must be made in accordance with this Subdivision. Regulatory adjustments are generally in the form of deductions, but they may also be in the form of recognition or derecognition of items in the calculation of a firm’s capital.

      Derived from QFCRA RM/2014-2 (as from 1st January 2015).

    • BANK 3.2.24 Goodwill and intangible assets

      A banking business firm must deduct from CET 1 capital the amount of its goodwill and other intangible assets (except mortgage servicing rights). The amount must be net of any related deferred tax liability that would be extinguished if the goodwill or assets become impaired or derecognised under IFRS or any other relevant accounting standards.

      Note For the treatment of mortgage servicing rights — see rule 3.2.41 (Deductions from common equity tier 1 capital).

      Amended by QFCRA RM/2015-3 (as from 1st January 2016).

    • BANK 3.2.25 Deferred tax assets

      (1) A banking business firm must deduct from CET 1 capital the amount of deferred tax assets (except those that relate to temporary differences) that depend on the future profitability of the firm.
      (2) A deferred tax asset may be netted with a 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 authority. A deferred tax liability must not be used for netting if it has al been netted against a deduction of goodwill, other intangible assets or defined benefit pension assets.

      Note Any deferred tax liability that may be netted must be allocated pro rata between deferred tax assets under this rule and those under the threshold deduction rule. For the treatment of deferred tax assets that relate to temporary differences (for example, allowance for credit losses) — see rule 3.2.41 (Deductions from common equity tier 1 capital).
      Amended by QFCRA RM/2015-3 (as from 1st January 2016).

    • BANK 3.2.26 Cash flow hedge reserve

      In the calculation of CET 1 capital, a banking business firm must derecognise the amount of the cash flow hedge reserve that relates to the hedging of items that are not fair valued on the balance sheet (including projected cash flows).

      Derived from QFCRA RM/2014-2 (as from 1st January 2015).

    • BANK 3.2.27 Cumulative gains and losses from changes to own credit risk

      In the calculation of CET 1 capital, a banking business firm must derecognise all unrealised gains and unrealised losses that have resulted from changes in the fair value of liabilities that are due to changes in the firm’s own credit risk.

      Derived from QFCRA RM/2014-2 (as from 1st January 2015).

    • BANK 3.2.28 Defined benefit pension fund assets

      (1) A banking business firm must deduct from CET 1 capital the amount of a defined benefit pension fund that is an asset on the firm’s balance sheet. The amount must be net of any related deferred tax liability that would be extinguished if the asset becomes impaired or derecognised under IFRS or any other relevant accounting standards.
      (2) The firm may apply to the Regulatory Authority for approval to offset from the deduction any asset in the defined benefit pension fund to which the firm has unrestricted and unfettered access. Such an asset must be assigned the risk-weight that would be assigned if it were owned directly by the firm.
      Derived from QFCRA RM/2014-2 (as from 1st January 2015).

    • BANK 3.2.29 Securitisation gains on sale

      In the calculation of CET 1 capital, a banking business firm must derecognise any increase in equity capital or CET 1 capital from a securitisation or resecuritisation transaction (for example, an increase associated with expected future margin income resulting in a gain-on-sale).

      Derived from QFCRA RM/2014-2 (as from 1st January 2015).

    • BANK 3.2.30 Higher capital imposed on overseas branch

      (1) If a banking business firm has an overseas branch, the firm must deduct from CET 1 capital whichever is the higher of any capital requirement imposed by the Regulatory Authority or the financial regulator in the jurisdiction in which the branch is located.
      (2) This rule does not apply if the overseas branch is a consolidated entity of the banking business firm. A branch is a consolidated entity if it is included in the firm’s consolidated returns.
      (3) Despite subrule (2), if the financial regulator in the jurisdiction in which a branch is located imposes a capital requirement for the foreign branch, a banking firm must deduct from CET 1 capital the amount of any shortfall between the actual capital held by the foreign branch and that capital requirement.
      Derived from QFCRA RM/2014-2 (as from 1st January 2015).

    • BANK 3.2.31 Assets lodged or pledged to secure liabilities

      (1) A banking business firm must deduct from CET 1 capital the amount of any assets lodged or pledged by the firm if:
      (a) the assets were lodged or pledged to secure liabilities incurred by the firm; and
      (b) the assets are not available to meet the liabilities of the firm.
      (2) The Regulatory Authority may determine that, in the circumstances, the amount of assets lodged or pledged need not be deducted from the firm’s CET 1 capital. The determination must be in writing.
      Derived from QFCRA RM/2014-2 (as from 1st January 2015).

    • BANK 3.2.32 Acknowledgments of debt

      (1) A banking business firm must deduct from CET 1 capital the net present value of an acknowledgement of debt outstanding issued by it to directly or indirectly fund instruments that qualify as CET 1 capital.
      (2) This rule does not apply if the acknowledgement is subordinated in rank similar to that of instruments that qualify as CET 1 capital.
      Derived from QFCRA RM/2014-2 (as from 1st January 2015).

    • BANK 3.2.33 Accumulated losses

      A banking business firm must deduct from CET 1 capital the amount of any accumulated losses.

      Derived from QFCRA RM/2014-2 (as from 1st January 2015).