Capital Requirements Directive (CRD IV) FAQs - Financial Conduct Authority

Capital Requirements Directive (CRD IV) FAQs

CRD IV came into effect on 1 January 2014. We are responsible for prudentially regulating investment firms subject to the Capital Requirements Directive (CRD IV). These FAQs aim to give you an overview of the CRD IV requirements.  

General questions

Q1: What is CRD IV?

Answer:

CRD IV is the EU implementation of Basel III which is a global agreement by the Basel Committee on Banking Supervision in response to the financial crisis. Basel III contains a package of proposals to increase the prudential soundness of banks, and its implementation in the EU is designed to also cover certain MiFID investment firms (approx. 2,400 in the UK, who are FCA regulated).

Q2: What’s different between CRD III and CRD IV?

Answer:

CRD IV builds on CRD III existing rules and also introduces new prudential requirements. CRD IV increases the quality of capital that firms are required to hold, and introduces capital buffers for some firms. It also introduces an EU wide liquidity regime, and establishes a leverage back stop.

New governance requirements are also introduced, including the introduction of a “bonus cap”, and regulatory reporting is harmonised across the EU through the introduction of COREP and FINREP.

Q3: Why has the FCA implemented prudential rules?

Answer:

We prudentially supervise all authorised firms which are not prudentially regulated by the Prudential Regulatory Authority (PRA). These include brokerage firms, financial advisers, sole traders, broker dealers, commodities traders, spread betters and asset managers, amongst others.

The PRA prudentially supervises all banks, building societies, credit unions, insurers, and a small number of systemically important investment firms.

Q4: How has the FCA implemented CRD IV?

Answer:

The CRD IV package consists of two parts:

The Capital Requirements Regulation (CRR) is directly binding on firms, and did not need to be implemented by us. However, we needed to, and have transposed the CRD in to the FCA Handbook, along with a limited number of discretionary policies available to the FCA in the CRR.

Affected firms must refer directly to the CRR, supplemented by EBA technical standards and our rules/guidance in a new sourcebook, the Prudential Sourcebook for Investment Firms (IFPRU).

Q5: Where can firms find guidance on the CRR?

Answer:

As the CRR is directly binding as an EU regulation, we cannot generally issue guidance. The EBA’s single rulebook Q&A should be able to help you with any queries on the interpretation.

Q6: Is my firm affected by CRD IV?

Answer:

CRD IV applies to:

  • Investment firms that are currently subject to the CRD including:
    • firms that benefit from the current exemptions on capital requirements and large exposures for specialist commodities derivatives firms
    • firms that only execute orders and/or manage portfolios, without holding client money or assets.
    • firms subject to BIPRU.
  • Other firms in the investment sector (exempt-CAD firms, management companies as defined under the UCITS Directive, Alternative Investment Fund Managers (AIFMs) – as defined under the Alternative Investment Fund Managers Directive (AIFMD)), subject to certain CRD IV provisions (e.g. on ‘initial capital’ in the Directive).

Q7: Is my firm subject to IFPRU or can it continue to be subject to BIPRU/GENPRU?

Answer:

Some firms will continue to be subject to BIPRU/GENPRU as it stood on 31 December 2013. This applies to current BIPRU firms who do not carry out MiFID regulated activity which goes beyond:

  • portfolio management;
  • the execution of orders on behalf of clients; and
  • the firm does not hold client money.

All other firms subject to the CRD are subject to the new sourcebook, IFPRU, which has been created specifically to implement CRD IV.

Firms are able to identify whether they will be IFPRU or BIPRU/GENPRU using Chapter 6 of our Consultation Paper.

Q8: What happened to my firm’s waiver?

Answer:

Waivers will be ‘grandfathered’ (i.e., continue to be in effect) where possible. More details, including a link to the list of current waivers eligible to be grandfathered, can be found on the CRR permissions / Treatment of existing waivers page.

Q9: What else can I expect in 2014?

Answer:

In addition to the CRR, CRD, and FCA rules, there are approximately 100 technical standards which the European Banking Authority (EBA) will publish both before and after 1 January 2014.

These will generally take effect as European regulations, so they will be directly binding on firms. Firms will also need to comply with these rules when they are finalised.

We may need to issue further consultations on a limited number of technical points later this year, but the vast majority of points for consultation have been contained in our consultation papers CP13/6 and CP13/12.

Q10: Are there financial institutions that are eligible providers of unfunded credit protection under article 201(1)(f) of the CRR?

Answer:

We do not consider there to be financial institutions of the type identified in article 119(5) of the CRR.

Q11: Have the thresholds consulted on in CP13/6, which make a firm a significant IFPRU firm, changed?

Answer:

The fees and commission income threshold that we consulted on in CP13/6 was £120m. PS13/10 confirms that this will be set at £160m. All the other thresholds remain unchanged.

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