On March 5, the UK’s Financial Conduct Authority (FCA) published a webpage explaining that Article 493 of the Capital Requirements Regulation (CRR) has been updated by Article 1(2) of the IFRS 9 Regulation (an International Financial Report Standard promulgated by the International Accounting Standards Board). The CRR now incorporates a transitional arrangement, allowing firms such as IFPRU investment firms (as defined below), to be exempted from large exposure limits, subject to the approval of the relevant national competent authorities (NCAs).

IFPRU investment firms are FCA-regulated firms that have their head office in the United Kingdom and are not BIPRU firms (i.e., not engaged in investment activities or services under the revised Markets in Financial Instruments Directive (MiFID II)). This designation includes the majority of proprietary trading firms.

Under the transitional arrangement, firms may be allowed to incur, subject to the relevant NCAs’ discretion, large exposure limits in relation to certain public sector debt of member states in the European Union, up to the following limits:

  • 100 percent of the IFPRU investment firm’s Tier 1 capital until December 31, 2018;
  • 75 percent of the IFPRU investment firm’s Tier 1 capital until December 31, 2019; and
  • 50 percent of the IFPRU investment firm’s Tier 1 capital until December 31, 2020.

The transitional arrangement will last three years, beginning January 1, 2018, for exposures of this type, so long as they:

  • were incurred on or after December 12, 2017;
  • would have been assigned a risk weight of 0% in accordance with the version of Article 495(2) (concerning the treatment of equity exposures under the internal ratings based approach) of the CRR that was in force on December 31, 2017.

The FCA’s webpage on the transitional arrangement is available here.

Article 1(2) of the IFRS 9 Regulation, updating Article 493 of the CRR, is available here.