The FOR is one of the own funds requirements as referred to in Article 11 of the IFR and the solvency requirement referred to in Section 3:57 of the Wft. For more detailed information about other own funds requirements or solvency requirements for Investment firms, investment holding companies, investment fund managers and undertakings for collective investment in transferable securities (UCITS) managers, please refer to the following Open Book Supervision page: Prudential assessment in the context of investment firm licensing. The FOR also impacts the liquidity requirement of investment firms. Investment firms must hold one third of the FOR in liquid assets. See IFR - Liquidity requirement for investment firms for more information. In addition to the IFR requirement following from Article 13 of the IFR, the European Commission has drafted Commission Delegated Regulation (EU) 2022/1455 of 11 April 2022 supplementing Regulation (EU) 2019/2033 of the European Parliament and of the Council with regard to regulatory technical standards for own funds requirement for investment firms based on fixed overheads, in which the FOR is further elaborated.
FOR amount
Pursuant to Article 13 of the IFR, the FOR must be at least one quarter (25%) of the fixed overheads minus the deductions applied in the audited financial statements of the previous year. This means all relevant balance sheets and profit and loss items, i.e. the total expenses and deductions, must be based on the most recent audited financial statements.
The FOR is calculated as follows:
25% of (‘total costs in accordance with the financial statements’ + ‘expenses by third parties on behalf of the firm that have not been charged onwards’ - ‘deductions’).
Total costs
When determining ‘total costs’, it is important to include not only fixed overheads, but also the total costs after profit sharing incurred by the firm in a financial year.
Firms that have been operating for less than a full year may use the estimated fixed overheads for the first twelve months as submitted with their licence application.
Expenses by third parties for the firm that have not been charged onwards
This concerns expenses by third parties on behalf of the firm, insofar as these have not yet been included in the firm's total costs. If a breakdown of the expenses of the third party is available, the firm only includes the share of third-party expenses in its total costs that is applicable to the firm. If such a breakdown is not available, the firm only includes the share of third-party expenses in its total costs that is shown in the firm's business plan. Third-party expenses may include expenses for accommodation, IT or shared staff that are not charged onwards to the firm and are therefore not included in the firm’s audited annual statements.
Deductions
In calculating the FOR, some balance sheet or profit and loss account items may be deducted from the total costs. The application of such deductions is subject to specific conditions following from applicable legislation and regulations. It is the firm’s responsibility to substantiate these deductions. The deductions are included in Article 11 of the IFR and Articles 1 and 2 of Delegated Regulation (EU) 2022/1455.
They must be broken down by item in the firm’s supervisory reports. In the Reporting Manual (see Investment firms and fund managers) you can find more detailed information on the conditions for reporting deductions and some examples.
Material change in activities
In the case of a material change in the activities of investment firms, DNB may adjust the FOR as prescribed by Article 13(2) of the IFR. A material change in activities is determined on the basis of the following conditions set out in Article 3 of Delegated Regulation (EU) 2022/145:
- a change (increase or decrease) in the business activity of the firm results in a change of 30% or greater in the firm’s projected fixed overheads of the current year.
- a change (increase or decrease) in the business activity of the firm results in changes in the firm’s own funds requirements based on projected fixed overheads of the current year equal to or greater than €2 million.
To gain insight into significant material changes in firms, in addition to the fixed overheads from the financial statements, the estimated fixed overheads for the current financial year must also be entered in the FOR reporting form. If your fixed overheads for the current financial year deviate significantly from the most recent audited financial statements, you can submit a substantiated request to DNB for an interim adjustment of the FOR. Please note that we are not obliged under the IFR to adjust the FOR in the event of a significant decrease of the costs. The decision on such a request lies entirely with DNB and depends on the circumstances of the specific case.
