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

CRD IV for Investment Firms
CP13/6
Liquidity reporting: Cost benefit analysis
4.15 We have opted to restrict the scope of CRD IV liquidity requirements (including COREP liquidity
reporting) from the circa 250 firms that carry out MIFID activities 3 and 6 to a sub-category
of more prudentially significant firms. We estimate that applying this approach to liquidity
reporting will result in circa 20 firms being required to submit CRD IV liquidity returns. These
firms will already submit other COREP returns, and so, while there will be additional systems
costs, they can be incorporated in COREP costs.
4.16 As noted, CRD IV liquidity coverage requirements are not activated until 2015. Accordingly, the
initial cost of being required to submit CRD IV liquidity returns is a systems cost rather than a
cost of holding higher quality assets within a firm’s treasury portfolio.
4.17 As the firms that will be required to submit CRD IV liquidity requirements are already subject to
the ILAS regime, they will already have liquidity information to hand, some of which is likely to
be able to be moulded to complete the CRD IV return.
4.18 The firms which we propose submit CRD IV liquidity returns are those that are most likely to
have similar liquidity risks to credit institutions and investment firms designated for prudential
supervision by the PRA. As well as providing the EBA with data about these firms’ liquidity
position, which in the context of the single market are large participants, this data will be
available to formulate the investment firm liquidity regime. Accordingly, by selecting the
population in this way, a risk based approach is taken to collecting of liquidity data.
Changes to the definition of capital and transitional provisions on capital
4.19 The CRD IV package significantly changes the definition and structure of capital from the
existing framework. Notably, the CRD IV framework removes tier 3 capital (i.e. short term
subordinated debt), and increases the loss absorbing capacity threshold for capital instruments
to be eligible within the regulatory capital regime.
4.20 CRD IV permits the FCA to determine, within a pre-defined range, various transitional
arrangements in order to allow firms reasonable time to raise additional capital required to
meet CRD IV own funds requirements.
4.21 The FSA released a statement on 26 October 2012 stating that ‘the minimum pace of transition
set out in the CRD IV legislation will not be accelerated, except where applying the minimum
transitional provisions in CRD IV would have the effect of weakening standards relative to what
is in force in the UK prior to the CRD IV implementation date’. In line with the FCA’s overall
approach to CRD IV transposition (see paragraph 1.21 of this CP) the FCA continues to strive
for a transitional provisions approach that is in line with the 26 October 2012 FSA’s statement.
Financial Conduct Authority July 2013
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