FCA has published its second major consultation on how it will implement the fourth Capital Requirements Directive (CRD 4) into its rules. The consultation covers:
- remuneration: this part looks at the limits between the fixed and variable components of total remuneration and the national discretion to allow higher percentages and discount rates. FCA proposes to allow the basic ratio between variable and fixed remuneration to be 2:1 subject to certain conditions and also to allow firms to apply a discount rate up to a maximum of 25% of total variable remuneration if paid in instruments deferred for a period of not less than five years. It does not plan to use its discretion to set stricter requirements, and proposes to apply the rules proportionately in line with the current application of CRD requirements in the Remuneration Code;
- the countercyclical capital buffer: FCA had originally proposed this buffer would take effect in 2016, on the assumption its rate would be 0% until then. However, it now proposes to bring in the rule from 2014 to allow flexibility to the UK authority which will set the rate, although FCA stresses it has no reason to believe the UK will accelerate the introduction of the buffer;
- reporting: this section of the paper sets out the reporting proposals for firms that will fall within the new IFPRU (Prudential Sourcebook for Investment Firms) and will follow the CRD 4 Common Reporting and Financial Reporting frameworks (COREP and FINREP). COREP will cover own funds and leverage, large exposures, liquidity coverage ratio and net stable funding ratio. The changes include a FINREP notification rule and changes to supervisory reporting rules. Some reporting templates (the FCA0xx templates) will be replaced by COREP templates, but others will not. FCA proposes that firms will receive schedules showing their COREP and FINREP modules with appropriate reporting requirements under CRD 4 although firms must assess for themselves whether they have reporting obligations under the Capital Requirements Regulation (CRR). A small number of firms have waivers from certain reporting requirements that would continue past 1 January 2014 but that will now cease from 31 December 2013. FCA is contacting affected firms. It also reminds BIPRU (Prudential Sourcebook for Banks, Building Societies and Investment Firms) firms that they should continue to use the GABRIEL system to submit FSA0xx reporting templates and that exempt IFPRU and exempt BIPRU commodity firms will continue to report these templates;
- interaction between funds directives (the Alternative Investment Fund Managers Directive (AIFMD) and UCITS Directives) and CRD 4: FCA explains how collective portfolio management (CPM) and CPM Investment (CPMI) firms (broadly, CPM firms undertake portfolio management of funds but no MiFID services, while CPMI firms also provide MiFID services so far as permitted by the fund sectoral Directives) must meet capital requirements under the relevant funds Directives. FCA now proposes to apply CRD 4 requirements to the MiFID business of CPMI firms, in the same way that it applied CRD 3 requirements, unless it has discretion to continue to apply CRD 3 requirements. Generally, FCA plans to set out the AIFMD and UCITS requirements for CPMI firms within the Interim Prudential Sourcebook for Investment Business (IPRU(INV)), so that affected firms must comply with this for their funds business and with either CRR/IFPRU or General Prudential Sourcebook (GENPRU)/BIPRU for their MiFID business;
- consequential Handbook changes; FCA will need to make changes to a number of Handbook modules consequent on the fundamental changes, including to the Glossary, the General Prudential Sourcebook and the systems and controls rules. It explains the key features of its process requirements for new CRR permissions, which it says are similar to the current waiver process, but Treasury needs to make rules to confirm FCA has power under the CRR to implement its plans. FCA also plans a notification rule for CRR permissions similar to the current waiver notification rule; and
- process requirements for new permissions.
FCA asks for comment by 10 November. (Source: FCA Consults on CRD 4 Implementation)