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R02 Capital Adequacy Computation Return

Prudential and financial

Status: Specified. Minimum capital by category, early warning floor, and audit treatment require supervisor confirmation. Template: R02 v2.4 Version: 0.1 Date: 2026-08-11

Attributes

Attribute Specification
Frequency Quarterly, and annually audited
Applicable entities Applicable securities market intermediaries
Purpose Minimum capital, liquid capital, deductions, and early warning indicators
Legal basis Directive on Capital Adequacy for Securities Market Intermediaries
Submission workflow Maker prepares, internal approver certifies, supervisor receives, reviewer validates, queries may be raised, final status issued
Late filing treatment Overdue flag and configurable penalty workflow, subject to supervisor policy
Due date policy Period end + 45 days, adjusted to the next working day (to be confirmed)

R02 is the return the platform is designed around. It has the most derived figures, the hardest threshold, and a mandatory cross-return reconciliation. If Kovent handles R02 well it handles the catalogue.

Relationship to R01

R02 is not independent. Its inputs must agree with the R01 return for the same period and licence:

R02 field Must equal Tolerance
R02-X01 Total assets R01-X01 Exact
R02-X02 Total liabilities R01-X02 Exact
R02-X04 Liquid assets R01-X04 Exact

This is the cross-return consistency case driving the open question in Assay. Where R01 has not yet been filed, V10 evaluates as PENDING and re-runs on its arrival, so the reviewer can see the rule exists and is waiting rather than not seeing it at all.

Core fields

As R01 — CORE-01 through CORE-09 are common to every template.

Return-specific fields

Financial position

Id Field Type Mode Validation
R02-X01 Total assets CURRENCY input Non-negative; must equal R01-X01; variance above tolerance requires explanation
R02-X02 Total liabilities CURRENCY input Non-negative; must equal R01-X02
R02-X03 Shareholders equity CURRENCY derived R02-X01 - R02-X02
R02-X04 Liquid assets CURRENCY input Non-negative; cannot exceed R02-X01; must equal R01-X04

Capital adequacy computation

Every figure in this section except R02-X05 and R02-X06 is platform-derived. The UI marks the section read-only.

Id Field Type Mode Validation
R02-X05 Regulatory deductions CURRENCY input Non-negative; itemised in the supporting schedule
R02-X06 Required minimum capital CURRENCY input From MIN_CAPITAL_BY_CATEGORY, set by licence category
R02-X07 Capital surplus / (deficit) CURRENCY derived R02-X03 - R02-X05 - R02-X06
R02-X08 Early warning ratio RATIO derived (R02-X03 - R02-X05) / R02-X06; floor 1.00, advisory band below 1.20
R02-X09 Audited adjustment CURRENCY input Annual audited return only; may be negative
R02-X10 Capital restoration plan FILE input Mandatory when R02-X07 is negative

Exceptions and remediation

Id Field Type Mode Validation
R02-F06 Exceptions count INTEGER input Non-negative
R02-F07 Largest exposure CURRENCY input Non-negative
R02-F08 Number of breaches INTEGER input Above zero raises a supervisory alert
R02-F09 Management explanation NARRATIVE input Mandatory when exceptions exist or variance exceeds tolerance
R02-F10 Remediation owner TEXT input Required when breaches exist
R02-F11 Remediation due date DATE input Required when breaches exist

Derived figures

eligible capital           = R02-X03 − R02-X05
                             (shareholders equity less regulatory deductions)

R02-X03  shareholders equity       = R02-X01 − R02-X02
R02-X07  capital surplus/(deficit) = eligible capital − R02-X06
R02-X08  early warning ratio       = eligible capital ÷ R02-X06

The ratio and the surplus say the same thing two ways, which is deliberate: the surplus is the amount, the ratio is the margin. A supervisor scanning a sector reads the ratio; a supervisor writing a directive quotes the amount.

Automated validations

Id Rule Severity Citation
V01 Submission must be made by a user authorised for the relevant firm and return FAIL Access control · authorised maker and approver
V02 Period cannot overlap a previously accepted return unless filed as an amendment FAIL Period integrity control
V03 Mandatory numeric fields must be non-negative unless explicitly configured otherwise ADVISORY Numeric field control
V04 Variance against prior period above the configured threshold requires explanation FAIL without explanation, ADVISORY with Variance tolerance · template version
V05 A breach, exception, or deficit automatically creates a supervisory alert FAIL Automated supervisory alert
V06 Missing required attachment prevents final submission FAIL Attachment control
V07 Early warning ratio must hold at or above the configured floor FAIL below 1.00, ADVISORY below 1.20 Directive on Capital Adequacy · early warning control
V10 Position figures must reconcile with R01 for the same period FAIL, or PENDING where R01 is not yet filed Cross-return consistency
V11 Capital restoration plan required when a deficit is reported FAIL Directive on Capital Adequacy · restoration plan
V12 Required minimum capital must match the licence category reference FAIL MIN_CAPITAL_BY_CATEGORY reference table

Reviewer checklist

Item What it means for R02
Completeness Deductions schedule attached and itemised; R02-X10 present if a deficit is reported
Consistency V10 reconciliation with R01; ratio trend against prior periods
Thresholds V07 floor and advisory band; deficit magnitude against the firm's capacity to restore
Evidence Restoration plan is credible and board-approved, with dated milestones — not an intention
Outcome Approve, reject, request clarification, raise a risk flag, or open an enforcement case

The evidence item carries unusual weight here. A restoration plan that is a paragraph of intent is not a plan, and accepting one sets a precedent the supervisor will be held to.

Outcomes

APPROVE · REJECT · CLARIFY · RISK_FLAG · ENFORCE

A sustained deficit across two consecutive periods should escalate to ENFORCE by policy. Whether that escalation is automatic or prompted is an open question below.

Worked examples

Passing — healthy margin

Field Value
R02-X01 Total assets 8,455,000,000
R02-X02 Total liabilities 5,743,400,000
R02-X03 Shareholders equity (derived) 2,711,600,000
R02-X05 Regulatory deductions 243,144,000
R02-X06 Required minimum capital 1,592,000,000
Eligible capital 2,468,456,000
R02-X07 Capital surplus (derived) 876,456,000
R02-X08 Early warning ratio (derived) 1.55

All rules pass. No restoration plan required.

Failing — deficit below the floor

Field Value
R02-X01 Total assets 512,760,000
R02-X02 Total liabilities 319,972,495
R02-X03 Shareholders equity (derived) 192,787,505
R02-X05 Regulatory deductions 14,621,004
R02-X06 Required minimum capital 214,596,383
Eligible capital 178,166,501
R02-X07 Capital surplus (derived) (36,429,882)
R02-X08 Early warning ratio (derived) 0.83
R02-F08 Breaches 5
Prior period total assets 437,269,750 (+17.3%)

Results:

Rule Status Reason
V03 ADVISORY R02-X07 is negative — permitted so a deficit can be declared
V04 ADVISORY +17.3% exceeds the 15% tolerance; explanation supplied in R02-F09
V05 FAIL 5 breaches and a capital deficit raised alerts
V07 FAIL Ratio 0.83 is below the 1.00 floor
V11 FAIL on v1.0, PASS on v1.1 Restoration plan absent at first filing, attached on amendment

Approval remains blocked after the amendment because V05 and V07 are substantive breaches that a resubmission cannot cure. What the amendment achieved was compliance with the restoration plan requirement — moving the matter from unexplained to explained and monitored. The lifecycle walkthrough follows this case through to acceptance.

Open questions

  • Minimum capital by category. MIN_CAPITAL_BY_CATEGORY needs confirmed figures per licence category and the instrument that sets them. Everything downstream — the ratio, the surplus, the risk driver — depends on this table being right.
  • Advisory band at 1.20. Proposed by us, not sourced from an instrument. Either the supervisor adopts it as policy or it comes out.
  • Consecutive-period deficit escalation. Should a second consecutive deficit open a case automatically? Automatic escalation is defensible and fast; it also removes discretion the supervisor may want to keep. Leaning toward a prompted escalation the reviewer must action.
  • Audited annual variant. R02-X09 audited adjustment applies only to the annual audited return, and the audited figures may restate a quarter already accepted. Whether that is an amendment to the quarterly return or a separate annual submission is unresolved and materially affects the version model in Strata.
  • Currency of report. Assumed ZWG with USD equivalents where required. Dual-currency reporting has implications for every threshold in this spec and needs confirmation before configuration.