The principle that financial institutions should have, and be seen to have, a certain amount of capital relative to the amount of business which they undertake and the commercial risk associated with that business. UK banks and investment firms authorised by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) are required to have specified ratios of capital in comparison to the amount of their assets. If the assets fall in value, the amount of capital required to be maintained by the ratio should ensure that the firm has sufficient capital to absorb such losses and still repay its creditors and depositors. Capital adequacy requirements for UK firms are set out in the FCA Handbook, the PRA Rulebook and in directly applicable EU legislation.