Wed, Jan 8, 2014

CRDIV and its Regulations are now operative

As a consequence of the EU Commission, a revised Capital Requirement Directive (‘CRDIV’) and, prudentially for the first time, directly binding EU Regulations, the Capital Resources Regulations (‘CRR’), a new Prudential landscape, became effective from January 1, 2014.
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CRDIV and its Regulations, CRR, were implemented in order to bring into effect the EU provisions of the Basel III Accord.  CRDIV and CRR apply to all Credit Institutions (e.g. Banks and Building Societies) and some, but not all, MiFID Investment Firms.

The FCA published their CRDIV Implementation Policy Statement (PS13/10) on Friday 13 December 2013, in time for 1 January 2014.  The FCA and the UK did not need to implement the whole of the CRDIV ‘package’, only those aspects of the Directive not covered by the CRR or where the CRR gave Member States discretion or some form of Derogation to decide how to apply some of the Regulations.  Consequently, many of the Regulations, which were published in the EU’s Official Journal on 26 June 2013, were well known in advance of the FCA’s confirmation through their Policy Statement in December.

Further to our previous CRDIV Regulatory Alert not much changed when it came to the FCA’s final Policy Statement.  However, of particular note:

  • HMT has not yet published the necessary UK Implementing Regulations or laid them before Parliament (which the FCA say they intend to do this month).  Therefore, the FCA has stated that the Policy Statement is on the basis that HMT’s current proposals (which are not publicly available) will not change.

  • As a consequence of HMT’s delay in forming these necessary, final UK Regulations, the FCA states that it may not be until Q1 2014 that it receives all of its Delegated Powers as a consequence of the UK Regulations (for example it may not be in a position to grant exemptions or disapply certain aspects of CRR which each Member State is now able to do).

  • The Policy Statement takes account of recent clarifications from the EBA through its publication of draft Implementing Technical Standards, Regulatory Technical Standards and Guidance.

  • The one area on which HMT has consulted and issued further feedback is the Country-by-Country Reporting obligations.  But this is part of the CRR which the FCA is not required to consult on and has, therefore, not produced anything in this regard in their Policy Statement.

No Member State is permitted to consult or issue guidance on aspects covered by CRR (unless CRR permits Member States to do so) hence, the FCA’s Policy Statement (similarly to the Consultation Papers) is unable to make any comments regarding areas which are the sole preserve of the CRR (it is the EBA’s role to undertake consultation and issue technical standards, regulations and guidance.)

As a consequence, and with effect from 1 January 2014, MiFID Investment Firms:

  • which remain subject to CRD will be classified as any of the following:

    • IFPRU Full Scope Investment Firm;

    • IFPRU Limited Activity Investment Firm; or

    • IFPRU Limited License Investment Firm

  • which are no longer subject to CRD will be classified as either:

    • BIPRU Firm (previously likely to have been a €50k BIPRU Limited License Investment Firm); or

    • Exempt CAD Investment Firm.

All IFPRU Firms are subject to the FCA’s IFPRU Sourcebook plus other FCA Sourcebooks, as appropriate, some of which have been modified as a consequence of CRDIV, such as SYSC19A Remuneration Code (which now applies only to IFPRU Firms).  IFPRU Firms are also subject to the CRR and any EBA Guidance and Implementing Technical Standards and Regulation which are formally published by the relevant EU body, such as Europa for the EU Commission and the EBA’s own website for EBA materials.

BIPRU Firms remain subject to, but modified, GENPRU and BIPRU plus other FCA Sourcebooks, some of which have been modified such as SYSC19 (Remuneration Code) which now adds SYSC19C for the purposes of maintaining previous SYSC19A which now only applies to IFPRU Firms.  BIPRU Firms are not subject to CRR.

The FCA should have, by now, written to all MiFID Investment Firms to clarify its post 31 December 2013 Prudential Status.  This will have followed previous contact with some MiFID Investment Firms to clarify their status and to afford those Firms time to make the necessary alterations to their permitted Regulated Activities and/or their MiFID Passports to ensure they would be properly classified from 1 January 2014.  If you remain unsure as to your Firm’s now Prudential Status please do not hesitate to contact Kinetic Partners who can assist you in this regard.

What Firms should be doing now

All MiFID Investment Firms should be checking the following to ensure they are now properly classified.  If they are not classified properly then action should be taken as soon as possible to rectify the situation.  Again, Kinetic Partners can provide assistance in this area.

Things to check:
  • Check your Firm’s FCA Register entry is correct and that it reflects your current situation.  For example, does it confirm the correct Regulated Activities and any Limitations or Modifications applicable to the Firm?

  • Check that your EU Passports are correct and do not permit you to undertake MiFID Activities that you are no longer permitted to undertake as Regulated Activities.

  • Does the GABRIEL reporting diary schedule correctly the revised Data Items at both Solo/Unconsolidated level and at Consolidation Group level?  If you are an IFPRU Firm, does GABRIEL remove the unnecessary Data Items (e.g. FSA003) and replace them with the appropriate CoRep Template (e.g. CA?); and

  • If you are an IFPRU Consolidation Group subject to FinRep, have you informed the FCA that this is the case?

If your Firm remains subject to CRD, is now an IFPRU Firm, and consequently subject to CRR, large amounts of new provisions have taken effect (too many to mention here) from 1 January 2014.  However, some provisions are subject to Transitional Provisions (which may exist for as long as ten years).

Kinetic Partners has been assisting large numbers of MiFID Investment Firms to prepare and implement the necessary revised new policies, procedures, systems and controls.  Kinetic Partners is also working closely with various Firms who, from 1 January 2014, incorrectly found themselves classified as IFPRU Firms and subject to CRD.

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