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

CRD IV for Investment Firms
CP13/6
Q4: Do you agree with our initial view that, in light of the
review by the EU Commission on the prudential regime
for all investment sector firms required by end 2015,
that the discretion to accelerate the five year transition
timetables for the capital conservation buffer and
the countercyclical buffer should not be exercised by
whoever is the designated responsible authority? If not,
please explain why not including alternative transition
approaches and the rationale for those approaches.
Systemic buffers
3.14 The other three buffers that make up the Combined Buffer (CB) are designed to address
systemic risks. These are:
• the Globally Systemically Important Institutions Buffer (G-SIIB);
• the Other Systemically Important Institutions Buffer (O-SIIB); and
• the Systemic Risk Buffer (SRB).
3.15 These three buffers also only apply to 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.
3.16 The G-SIIB and the O-SIIB (Article 131 of the Directive) are institution specific buffers. Unlike with
the CCoB and CCyB, there is no explicit discretion to exempt investment firms that are SMEs,
but this should not be necessary in practice. Indeed given the very nature of these buffers, we
would expect only PRA regulated firms or groups to be deemed systemic on a global basis and
hence subject to the G-SIIB, and probably the same on a domestic level as regards the O-SIIB.
However, as noted below, it is not yet possible to provide greater clarity on this.
3.17 The SRB is intended to prevent and to mitigate long term non-cyclical systemic or macroprudential
risks not covered by the CRR. It specifically addresses the risk of disruption to the
financial system and the potential for serious negative consequences to the UK real economy.
The SRB (Article 133 of the Directive) is not decided on an individual firm basis, but rather is to
be applied either to the whole financial sector, or one or more sub-sets of it.
3.18 CRD IV provides some parameters on how the above three systemic buffers interact (e.g. solo,
sub-consolidation and consolidation), how the result should be used with the other buffers (i.e.
CCoB and CCyB) to determine the total CB, and the quality of the capital required to be held
against this. However, considerable amounts of detail remain outstanding (e.g. scope, buffer
rate and which UK (and EU) authorities will be designated responsibility for setting them). Once
this has been decided, we will provide further information on how we believe the buffers will
work, including consultation on any rules that the FCA may be required to make to fulfil its
legal responsibilities in this area.
Financial Conduct Authority July 2013
23