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

CP13/6
CRD IV for Investment Firms
3.30 Until such EBA guidelines are in place and in line with our overall approach to CRD IV
transposition, we propose that all FCA investment firms subject to CRD IV should carry out – at
least annually – stress tests that are appropriate to the nature, size and complexity of the firm’s
business and of the risks it bears. In particular, we propose that:
• Firms that are ‘significant’ (see Chapter 5 on the definition of ‘significant’ institution) should
carry out a comprehensive stress and scenario analyses (as in current GENPRU 1.2.42R) and
reverse stress testing (as in current SYSC 20.2). These firms should report the results of the
stress tests to the FCA annually;
• Other firms (those that are not ‘significant’ as per the definition) should only carry out
reverse stress testing. These firms do not need to report the stress tests results unless
required by the FCA.
3.31 A common feature of these proposals is the requirement to produce ‘reverse stress testing’. In
our view, this would allow a firm to focus on what can put an investment firm out of business,
how quickly this can happen and how an exit from the market can be achieved in an orderly
manner. We would expect a firm’s senior management to routinely assess such threats to its
business. Implementing the reverse stress testing requirement would also assist firms with the
requirement under article 74(4) in the Directive on recovery and resolution plans (see heading
‘Recovery and Resolution plans’ in this chapter).
3.32 In our view, this represents a proportionate approach by carrying forward a suitable type
of stress test (i.e. ‘reverse stress testing’) and by requiring annual reports on results from
‘significant’ firms.
Q8: Do you agree with our proposed approach on stress testing
and to report results annually in the case of those firms that
are ‘significant’ pending the EBA guidelines on this matter?
If not, please explain why not and propose alternative
approaches and the rationale for those approaches.
Remuneration
Introduction
3.33 CRD IV reproduces to a large extent the remuneration provisions introduced by CRD III. The
relevant provisions can be found in articles 74, 92 – 95 and 161 (in addition to recitals 62–69
and 83) in the Directive; and in article 450 on disclosure in the Regulation.
3.34 It is important to note that the remuneration rules under CRD III were already subject to
the principle of proportionality that is currently being applied through our framework for
investment firms and in particular in relation to rules regarding retained shares, deferral and
performance adjustment (reflecting current BCD and previous CEBS Guidelines). The principle
of proportionality continues to be an important part of the remuneration framework in the
Directive which means the application of certain remuneration requirements may vary in
relation to certain types of investment firms based on ‘their size, internal organisation and the
nature, the scope and the complexity of their activities’ (Directive article 92(2)).
26 July 2013
Financial Conduct Authority