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

CRD IV for Investment Firms
CP13/6
Application of liquidity standards and Liquidity reporting
4.4 Article 6(4) of the Regulation requires investment firms which carry out MIFID activities (3)
dealing on own account, and (6) underwriting of financial instruments and/or placing of
financial instruments on a firm commitment basis, to comply with the liquidity requirements in
Part Six of CRR. However, Article 6(4) of the Regulation allows competent authorities to exempt
these investment firms from Part Six liquidity requirements, ‘taking in to account the nature,
scale and complexity of the investment firm’s activities.’
4.5 While most solely FCA regulated firms within the UK subject to the CRD IV package are SMEs
executing relatively simple investment business, liquidity risk is pertinent in this industry, and
the ability to meet liabilities as they fall due is essential in order for a firm to operate as a going
concern.
4.6 We perceive the current BIPRU 12 UK liquidity regime (including Individual Liquidity Standards
(ILAS)) for a set of large full scope investment firms) to be broadly appropriate and we recognise
that firms have invested resources in implementing the UK’s liquidity regime within their
businesses. Therefore, as permitted under Article 412(5) of the CRR, we intend to maintain
the existing domestic liquidity regime until binding minimum standards for liquidity coverage
requirements are specified and fully introduced in the CRR in 2015 (when the discretion in
Article 412(5) of the Regulation falls away). Accordingly, we intend to include guidance in IFPRU
Chapter 7 (Liquidity) referring firms to the BIPRU 12 regime and we do not intend to change
the scope of captured FCA firms subject to IFPRU 7.
Q9: Do you agree with our proposal to continue the UK’s
liquidity regime (including ILAS) until binding minimum
standards for liquidity coverage requirements are
implemented in the CRR in 2015? If not, please explain
why not and propose alternative approaches and the
rationale for those approaches.
4.7 However, we note that there are some more complex firms that pose significant prudential
risk to financial markets within the solely FCA regulated CRD IV population. Accordingly, we
propose to require a small number of firms to be subject to the liquidity standards in the CRR
in addition to their compliance with the ILAS regime, taking into account the nature, scale and
complexity of the investment firm’s activities.
4.8 In keeping with the definition of significant firms outlined in Chapter 5, we intend to apply
from 2014 CRD IV liquidity reporting (and from 2015 binding liquidity requirements) to those
firms that meet this definition and also exceed the threshold to be an ILAS firm. This is set
at having a balance sheet size of equal to or greater than £50m, and being full scope in the
investment firm’s activities. 8
4.9 Currently, there are circa 60 full ILAS firms within the solely FCA regulated CRD IV population.
We estimate that circa 20 of these exceed the thresholds for the proposed definition of
significant discussed in Chapter 5, and so expect that this number of firms would be required to
submit CRD IV COREP liquidity reporting templates on an individual basis under our proposals
(as well as existing FSA0xx liquidity templates). Firms that meet both the significant definition
and £50m net assets balance sheet size criteria will also have to meet CRR binding liquidity
requirements on an individual basis from 2015 onwards.
8 It should be noted that whilst CRD IV liquidity templates must be reported from 1 January 2014, the CRD IV binding liquidity
requirements do not come into force until 2015 (see CRR Article 460).
Financial Conduct Authority July 2013
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