CRD III rules - Financial Conduct Authority

Information for investment firms who may qualify to remain under CRD III rules from 1 January 2014

Last Modified: 04/02/2014
Some investment firms that are subject to the Capital Requirements Directive (CRD) may be able to continue complying with CRD III (largely, BIPRU – our prudential sourcebook for banks, building societies and investment firms) rules from 1 January 2014, rather than moving to CRD IV (IFPRU - our prudential sourcebook for investment firms - and Capital Requirements Regulation) rules.

We wrote to firms we believe may qualify in October 2013 to inform them of this.

This follows our decision to exercise a national discretion in article 95(2) of the Capital Requirements Regulation (CRR), which we consulted on in CP13/6, Capital requirements for investment firms. We identified the relevant firms based on the scope of their part 4A permissions and outward MiFID passports.

Which firms qualify to remain on CRD III/BIPRU rules? 

To qualify to remain under BIPRU rules, a firm’s part 4A permissions must not allow the firm to carry out any of the following MiFID investment services and 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
  • (8) operation of Multilateral Trading Facilities

Also, a firm cannot:

  • 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, or
  • be permitted to hold money or securities belonging to their client

A firm may also be eligible to remain on BIPRU rules (whether we have contacted it or not) from 1 January 2014 if it believes that:

  • its part 4A permissions are sufficiently limited to restrict it from carrying out the above investment services and activities, and
  • it does not have any outward MiFID passports which imply otherwise.

What you need to do 

You should check any requirements on your part 4A permissions and any limitations against individual permissions.

You also need to assess whether you need to be able to carry out MiFID investment service and activity 7 (placing of financial instruments without a firm commitment basis). If you do not do this, and you meet the other criteria, you will need to restrict your part 4A permissions accordingly to become a BIPRU firm. You can do this via ONA.

How can you vary your permission? 

If you want to vary your permissions for reasons other than to restrict your ability to do MiFID investment service and activity 7, or to remove outward MiFID passports to remain on BIRPU rules, you should follow the usual variation of permissions process.

You should make it clear that you are doing this to remain on BIPRU rules. You also need to obtain a requirement on your part 4A permissions not to carry out placing of financial instruments without a firm commitment basis from 1 January 2014, which will be discussed as part of the variation of permission application.

Whether you will need a passport to carry out MiFID investment activity in other EEA States is a matter of the law of those states. We cannot give guidance on the law of those other countries, so you may wish to take professional advice.

We will assume that a firm is subject to IFPRU and the CRR unless the firm confirms that it is eligible to remain on BIPRU rules, and limits its part 4A permissions accordingly. The responsibility for this assessment rests entirely with the firm.

While this issue could be relevant to any firm, depending on the scope of its part 4A permissions, it may be particularly relevant to firms with matched principal broker or box management limitations against a Dealing in investments as principal permission. Again, such firms would also need to meet the other criteria to remain on BIPRU rules.

Frequently asked questions 

We do not consider that the permission under the Regulated Activities Order (RAO) of Arranging safeguarding and administration of assets is within the scope of 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.

However, the Safeguarding and administration of assets (without arranging) permission would fall within the scope of that ancillary service.

We do not intend to treat matched principal brokers any different to other firms.

So if these firms have sufficient limitations on their Dealing in investments and principal permission, and meet the other criteria to be a BIPRU firm, then we would treat them as BIPRU firms.

In particular, we refer respondents to IFPRU 1.1.12, which provides guidance on the FCA interpretation of MIFID investment service and activity (3) dealing on own account, as well as article 29(2) of the CRD.

However, to be subject to BIPRU, such firms would also need to confirm that they are not carrying out MIFID investment service and activity (7) placing of financial instruments without a firm commitment basis. Then they would need to add a requirement to their part 4A permissions not to carry out this activity going forward. Firms should contact us to add this requirement to their part 4A permissions, as explained above.