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

CRD IV for Investment Firms
CP13/6
Is this of interest to consumers?
1.6 The objectives underlying CRD IV and the proposals in our CP are primarily prudential in
nature – i.e. they concern the financial risks run by firms themselves. While there are no direct
implications for consumers, the enhancements we expect the CRD IV to bring to the prudential
framework should make it less likely that banks and investment firms will fail, thereby improving
stability in the financial sector in general. This should have positive implications for consumer
protection.
1.7 At the same time we would note that, although it was designed with banks in mind, the CRD
also applies to investment firms in the EU. The FCA is the prudential regulator for around 2,400
investment firms under the current CRD – covering a wide range of business models (including
broker dealers, wealth managers, corporate finance firms etc.), retail and wholesale, and some
large as well as many small and medium sized firms.
1.8 The European Commission’s CRD IV impact assessment was prepared in relation to credit
institutions and yet CRD IV will apply many new prudential requirements to investment firms
under a directly binding Regulation. However, there is a requirement for the Commission to
review the appropriateness of the whole prudential regime for all investment firms carrying out
activities under Directive 2004/39/EC (Markets in Financial Instruments Directive or MIFID) by
the end of 2015.
1.9 Meanwhile, our overall approach is to, generally, do the legal minimum and, where possible, not
seek to change current policy as well as exercising any national discretions in a proportionate
manner. This should help firms to contain any overall increase in costs without reducing the
benefit of protection for consumers.
Context
CRD IV and the FCA objectives
1.10 CRD IV sets out quantitative and qualitative enhancement to the capital adequacy and for the
first time quantitative liquidity proposals for credit institutions and investment firms. As such,
our proposals in this CP are prudential in nature and support the FCA statutory objective of
enhancing the integrity of the UK financial system.
1.11 CRD IV is likely to have an impact on competition in the markets through both increasing
investment firms’ structural costs and the creation of a single rulebook across the EU. It is
important to note that our overall approach towards exercising derogations and discretions –
outlined below – is likely in our view to be positive insofar as the least burdensome outcomes
are generally being sought. More discussion of the effect of CRD IV on competition is included
in Annex 1 (Cost benefit analysis).
CRD IV – Background
1.12 The current EU bank capital framework is represented by Directives 2006/48/EC (Banking
Consolidating Directive or BCD) and 2006/49/EC (Capital Adequacy Directive or CAD) (both also
known as Capital Requirement Directives or CRD); and it reflects the international agreements
of the Basel Committee on Banking Supervision (Basel Committee) for international active
banks. In the EU, investment firms subject to the MIFID requirements are also subject to the
prudential requirements of the CAD.
Financial Conduct Authority July 2013
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