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

CRD IV for Investment Firms
CP13/6
Q23: Do you agree that these thresholds are appropriate?
If not, please explain why not and propose alternative
approaches and the rationale for those approaches.
5.12 This analysis highlights that a relatively small number of FCA investment firms account for the
majority of the market using these metrics. Accordingly, we propose that should a firm exceed
the threshold for one or more of these risk parameters, they are a ‘significant’ firm, and so the
relevant policies apply to that firm.
Q24: Do you agree with our proposal to define a firm as
a ‘significant’ firm if it exceeds at least one of these
thresholds? If not, please explain why not and propose
alternative approaches and the rationale for those
approaches.
5.13 This definition of significant provides a base case. Whilst the expectation is that the base case
will apply across the affected FCA prudential regime, where necessary (e.g. in order to be
proportionate) it can be modified on a case-by-case basis whilst retaining the advantage of
being able to reconcile it back to the base case analysis.
5.14 The proposed definition provides a clear industry-wide quantitative measure of significant. If
necessary on a case-by-case basis the FCA may require firms not caught by this definition to
comply with the relevant prudential requirements. Equally, it is open to firms caught by the
definition of ‘significant’ that believe the requirements are disproportionate to apply for a waiver.
Cost benefit analysis
5.15 By formulating an objective criteria from which firms can identify which rules within the CRR
do and do not apply to them, we provide certainty and allow firms to make any necessary
arrangements in the limited time available between now and the implementation date.
5.16 There are numerous alternatives to our approach. For example, all firms with a permission to
trade on their own account could be labelled as ‘significant’ firms. However, we do not believe
that this is a risk based approach. There are firms within this population that are SMEs. Within
the UK market, it is highly unlikely that the failure of such a firm could cause substantial market
dislocation, or could be deemed significant in relation to its peers. Concurrently, there are firms
outside of this population, for example in the asset management industry, which could cause
greater market dislocation and significant consumer harm.
Population of firms affected
5.17 The proposed approach results in circa 80 firms being classified as ‘significant’. These firms
comprise significant market participants across a range of business models.
5.18 The firms have been identified using tailored metrics. We are conscious that any metric and
threshold may be unlikely to capture all appropriate firms in every situation. Accordingly, we
reserve the right to apply these policies to firms that do not meet the criteria.
Costs and benefits
5.19 The effect of applying this definition to the requirement to hold capital buffers (Chapter 3) and
liquidity reporting (Chapter 4) is covered in the relative chapters.
Financial Conduct Authority July 2013
47