CP13/6 - CRD IV for Investment Firms - Financial Conduct Authority

CRD IV for Investment Firms
CP13/6
Table 4
Implementation of current CRD in the FCA
Handbook
Adequacy of financial resources requirement
(GENPRU 1.2)
Internal capital adequacy standards (BIPRU 2.2)
The Directive
Internal capital (Articles 73, 79 - 87)
Level of application of internal capital adequacy
assessment process (Article 108)
Internal capital adequacy standards (BIPRU 2.2) Supervisory review and evaluation (Article 97)
3.5 We propose that the current GENPRU material on adequacy of financial resources and the
current BIPRU material on internal capital adequacy standards will be retained and copied
across to IFPRU with some adjustments to improve clarity and to remove possible duplications.
No substantive changes are proposed to this longstanding policy, which is mostly written as
guidance. We will, however, consider alternative approaches to Pillar 2 as part of our overall
preparations for the review of an appropriate prudential regime for the investment firm sector,
which the EU Commission is required to undertake by end 2015.
3.6 Any Individual Capital Guidance (ICG) given to firms will therefore continue to be the sum of
the minimum own funds requirements (‘Pillar 1’) and the additional own funds requirement
under Pillar 2 (previously named ‘Pillar 2A’).
Q2: Given there are no proposed substantive changes to the
existing Pillar 2 regime do you agree that existing GENPRU
and BIPRU Pillar 2 guidance should be copied across to
IFPRU? If not, please explain why not, including alternative
approaches and the rationale for those approaches.
Capital buffers
Capital Conservation and Countercyclical Buffers
3.7 The Directive introduces capital buffers as a response to the financial crisis, both to provide
a greater ‘cushion’ to absorb losses and to help address the pro-cyclical mechanisms that
contributed to its origins and aggravated its effect. There are up to five possible different
capital buffers, which together make up the Combined Buffer (CB) requirement; this must then
be met by holding Common Equity Tier 1 (CET 1) capital.
3.8 Two of these buffers are: (i) the Capital Conservation Buffer (CCoB), which is a fixed amount
to provide a ‘cushion’, and (ii) the Countercyclical Buffer (CCyB), which is variable (and can be
zero where no specific amount is set). This aims to ensure that firms accumulate capital during
periods of economic growth that can then be released during less favourable conditions.
These two buffers apply – on an institution, sub-consolidated and consolidated level – to all
investment firms that have permission to deal on their own account, and/or underwrite financial
instruments and/or placing of financial instruments on a firm commitment basis. 4 There is an
exemption from both the CCoB and CCyB for limited licence firms caught by the CRD IV. 5
4 MIFID – Directive 2004/39/EC Annex 1 Section A points 3 and 6.
5 Directive, article 128.
Financial Conduct Authority July 2013
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