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

CRD IV for Investment Firms
CP13/6
Partnership capital
4.26 The CRR does not explicitly address issues around capital instruments for partnerships and
limited liability partnerships (LLPs). However, article 26 of CRR the EBA is required to maintain
a list of all eligible instruments that qualify as CET 1. Accordingly, we require a list of all
instruments that are used by partnerships and LLPs to satisfy the CET 1 criteria outlined in
article 28 of the CRR, in order that the FCA can inform the EBA that we intend to accept such
instruments as CET1 capital.
Q12: If appropriate, please can you provide a list of all
capital instruments used by partnerships and LLPs
that, in your opinion, satisfy the criteria outlined in
article 28 of the CRR?
Internal models
4.27 The solely FCA-regulated CRD IV population does not include many firms that use internal
models to calculate credit, operational or market risk capital requirements. Most of the firms
that do have permission to use an internal model do so as part of a consolidated permission
through a PRA regulated parent undertaking. In such a case, while the FCA would have input
in to the process whereby an internal model is approved or not approved, the process would
be led by the PRA. 9
4.28 The CRR text is more prescriptive than the CAD and BCD in its detail surrounding the granting
of permission to use an internal model for calculating regulatory capital.
4.29 Noting the small number of firms within the solely FCA regulated CRD IV population which
use models, and the greater degree of detail within the CRR than has existed previously, the
FCA proposes to keep guidance and rules regarding the use of internal models for calculating
regulatory capital within the FCA Handbook to a minimum, except where we can carry across
existing relevant guidance.
4.30 This reflects the limited legal capacity of competent authorities to interpret a European
regulation. The processes for our operational implementation will be communicated to firms
separately, before the implementation of CRD IV.
4.31 Any firm considering applying to use an internal model should, in the first instance, approach
their usual supervisory contact at the FCA. All model applications will be considered against the
CRR text, and assessed on the individual merits of the application.
Q13: Considering the legal constraints in respect of EU
regulation and in the context of internal models, do you
agree to our proposal to use guidance where appropriate
while explaining the operational implications of the
changes via targeted communications? If not, please
explain why not and propose alternative approaches and
the rationale for those approaches.
9 Although the FCA would remain responsible for the application of the model at a solo level entity.
Financial Conduct Authority July 2013
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