DFSA authorisation
DFSA capital requirements
In short
An Authorised Firm must hold the higher of its base capital requirement, set by prudential category, and its expenditure based capital minimum, calculated as a number of weeks of annual audited expenditure. For most new firms with a real cost base, the expenditure test is the binding one.
How the expenditure test works
Take annual audited expenditure, deduct the permitted exclusions such as variable profit shares and certain non-recurring items, divide by 52 and multiply by the number of weeks that applies to your category. Six weeks for the lighter categories, thirteen or eighteen for those holding client assets or dealing as principal.
A Category 4 adviser with US$1.5 million of annual expenditure needs roughly US$173,000 against a base capital requirement of US$10,000. The base capital figure is almost irrelevant for that firm.
Plan for the capital to sit there
Capital is held, not spent. It has to remain available and the firm must be able to demonstrate compliance continuously, not just at year end. Firms that fund exactly to the requirement breach it the moment costs rise.
Build headroom. The DFSA expects firms to notify it when capital approaches the requirement, and a firm operating permanently at the line attracts supervisory attention it does not want.
Questions
Which capital test applies to my firm?
Both. You hold the higher of the base capital requirement for your category and the expenditure based capital minimum. For a firm with meaningful operating costs, the expenditure test usually produces the larger number.
Can capital be used for working capital?
The capital requirement is a level the firm must maintain, not a ring-fenced deposit. Funds are in the business, but the firm has to stay above the requirement at all times, which in practice means the capital cannot be consumed by losses without being replenished.
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