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

FCA 2013/xx
Price/spread change model
6.3.27 G A firm is advised to amend the price/spread change model used to capture the
profit and loss impact of migration such that the spread changes are calibrated
to long-term averages of differences between spreads for relevant ratings.
These should either be conditioned on actual rating events, or using the entire
history of spreads regardless of migration. Point-in-time estimates are not
considered acceptable, unless they can be shown to be as conservative as
using long-term averages.
Dependence of the recovery rate on the economic cycle
6.3.28 G To achieve a soundness standard comparable to those under the IRB
approach, LGD estimates should reflect the economic cycle. Therefore, the
FCA expects a firm to incorporate dependence of the recovery rate on the
economic cycle into the IRC model. Should the firm use a conservative
parameterisation to comply with the IRB standard of the use of downturn
estimates, evidence of this should be submitted in quarterly reporting to the
FCA, bearing in mind that for trading portfolios, which contain long and short
positions, downturn estimates would not in all cases be a conservative choice.
7 Liquidity
7.1 Application
7.1.1 R IFPRU 7 applies to an IFPRU investment firm.
Purpose
7.1.2 G This section contains rules that exercise the discretion afforded to the FCA as
competent authority under article 6(4) of the EU CRR (Exemption for certain
investment firms).
Application of BIPRU 12 (Liquidity standards)
7.1.3 G The FCA’s liquidity regime and liquidity reporting in BIPRU 12 (Liquidity
standards) and SUP 16 (Reporting requirements) continue to apply to an
IFPRU investment firm until the liquidity coverage requirement in article 412
of the EU CRR becomes applicable in 2015.
7.1.4 G Pending specification of a uniform definition under article 460 of the EU
CRR (Liquidity) of high and extremely high liquidity and credit quality, a
firm should be guided by BIPRU 12 (Liquidity standards) when complying
with article 416 of the EU CRR (Reporting on liquid assets).
Exemption from Part Six of EU CRR on individual basis
7.1.5 R For the purpose of article 6(4) of the EU CRR, a firm is exempt from
compliance with the obligations in Part Six of the EU CRR (Liquidity) on an
Page 135 of 197