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

CP13/6
CRD IV for Investment Firms
In summary, these firms are those that:
• carry out MIFID activities (2) (execution of orders on behalf of clients) and/or (4)
(portfolio management);
• may carry out MIFID activities (1) (reception/transmission of order related to
financial instruments) and/or (5) (investment advice);
• do not carry out MIFID activities (3) (dealing on own account), (6) (underwriting of
financial instruments and/or placing of financial instruments on a firm commitment
basis), (7) Placing of financial instruments without a firm commitment basis) and/
or (8) operation of Multilateral Trading Facilities);
• do not carry out MIFID ancillary service (1) (safekeeping and administration of
financial instruments for the account of clients, including custodianship and related
services such as cash/collateral management); and
• are not permitted to hold money or securities belonging to their client.
6.5 CRD IV requires these firms to apply the ‘higher of’ (i) the requirements in the CRR article 92(3)
except operational risk and (ii) the Fixed Overhead Requirement (FOR). Additionally, these firms
have to meet the requirements in the CRR articles 92(1) on own funds and (2) on calculation
of capital ratios.
6.6 This is the same Pillar 1 ‘higher of’ capital test as under current CRD for these firms, but using
the new, stricter CRR definition of Own Funds (including deductions), requirements calculated
under the CRR (i.e. the FCA’s current ‘simplified’ approach to calculating credit risk would not
be available) and potentially also subject to reporting via COREP.
6.7 However, no other parts of the CRD IV requirements would apply.
Proposals
6.8 There is an alternative Competent Authority discretion in article 95(2) of the Regulation to keep
such firms on the current CRD, as it stood under national law (i.e. BIPRU & GENPRU) on 31
December 2013 before the CRD IV enters into force.
6.9 This would include Pillar 1 requirements i.e. the current (less onerous) definition of own funds,
our simplified approach to calculating credit risk and reporting under GABRIEL. We propose
to exercise this discretion in relation to what we proposed to call for the purpose of the FCA
Handbook: ‘BIPRU firms’.
6.10 In addition, we also propose to retain for such firms the current CRD rules in force on Pillar
2, Pillar 3 and systems and control requirements in SYSC (depending on the application
provisions) including the Remuneration Code, but without the new CRD IV material such as
limits on bonuses.
50 July 2013
Financial Conduct Authority