CRD IV - what the capital requirements directive means for UK investment firms.


Published on

Slides used for November 2013 client briefing by Bovill - UK financial services regulatory consultants. For more info visit:

CRD IV is the EU Capital Requirements Directive which implements Basel III. It is designed to strengthen capital requirements for financial institutions, covering both the amount, and quality, of capital held. CRD IV is driven by the European Bank (EBA) and will harmonise reporting across Europe.

Establishing who is affected by CRD IV
Whereas Basel III applies specifically to banks, CRD IV extends to certain types of investment firm. Whether or not you are covered, and become an "IFPRU" firm, depends on the activities you are authorised to carry out under MiFID.

Working out whether your business activities mean you are performing one of these functions is not straightforward. Your permissions may need to be reduced to ensure you are not in scope for CRD IV unnecessarily.

Becoming an IFPRU firm under CRD IV
IFPRU firms – those in scope for CRD IV – will be subject to new capital buffers that increase the amount and quality of capital they have to hold.

All IFPRU firms must also comply with COREP (common reporting) from 31 March 2014. Twenty-five new templates to report "own funds", "credit risk", "operational risk", "market risk" and "large exposures" replace FCA forms and significantly more data is needed at a more granular level. Reports need to be submitted in XBRL (standardised reporting language) which will require an investment in software. Mapping data into the new templates is a time consuming and complicated piece of work.

Preparing for CRD IV
You need to decide now if you are in scope for CRD IV. And if you are you need to start preparing for the new reporting regime.

Bovill can help you understand CRD IV and how it will affect your organisation. We can also review and prepare your data, convert your templates to XBRL, and submit returns on your behalf. For more information contact us via

Published in: Business, Economy & Finance
  • Be the first to comment

  • Be the first to like this

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

CRD IV - what the capital requirements directive means for UK investment firms.

  1. 1. CRD IV What it means for investment firms Ben Blackett-Ord Richard Cross Jackie Domanska November 2013
  2. 2. Summary – CRD IV cannot be ignored • CRD IV will be implemented on 1 January 2014 – many firms will be affected • Even unaffected firms need to ensure they’re not inadvertently caught • Some firms will be subject to significantly different capital requirements • All impacted firms will be subject to new and complex reporting requirements Make sure you understand what CRD IV means for you ASAP 2
  3. 3. Evolving prudential categories SFA 1990s IMRO PIA EU Directives 2010s BIPRU / GEN PRU IPRU INV 9 UPRU MiFID CRD III Exempt CAD UCITS IPRU INV 3 IPRU INV 5 IPRU INV 13 Non-MiFID 3
  4. 4. The path to CRD IV • The Banking Consolidation Directive and the Capital Adequacy Directive (CAD) are collectively known as the Capital Requirements Directives (CRD) • Investment firms subject to MiFID are subject to the prudential requirements of the CAD • The CRD has been amended on a number of occasions, we are currently at CRD III • CRD IV takes effect from 1st January 2014 4
  5. 5. CRD IV: strengthening capital across the EU • Strengthens capital requirements • Introduces a capital buffer regime for significant firms • Introduces an EU wide supervisory reporting framework for Financial Reporting (FINREP) and Common Reporting (COREP) 5
  6. 6. CRD IV: structuring the new requirements • The Capital Requirements Regulation - Directly applicable - Very little scope for consultation/amendment - Focuses on capital requirements, risk, liquidity and disclosure • The Directive - Member states to transpose into national law - Main focus of consultation - Focus is in supervision - Capital buffers, corporate governance and remuneration 6
  7. 7. Finding the rules and guidance • The Regulation – where most of the rules will now be located • Technical standards and guidance issued by the European Banking Authority (EBA) • FCA Handbook Rules and Guidance – IFPRU (with some changes to SYSC) 7
  8. 8. CRD IV Establishing how you’re affected 8
  9. 9. It’s not easy to determine who is in scope Whether firms are in scope depends on MiFID permissions In scope: • Anyone dealing on own account • Underwriting/placing financial instruments on firm commitment basis • Placing without firm commitment basis • Operating MTF • Safekeeping, custodian, cash/collateral management (MiFID ancillary service permission 1) • Anyone holding client money All BIPRU 730k and 125k firms are in scope • Can catch some BIPRU 50k firms depending on permissions and exempt CAD firms specifically if they have MiFID ancillary permission 1 9
  10. 10. FCA numbers reveal scale of regulation Firm primary category Full scope Limited activity Limited licence Total Discretionary Inv. Manager 20 5 1440 1465 Adviser and Arranger 21 3 229 253 Stockbroker 62 11 85 158 Corp Finance Firm 14 1 118 133 Financial adviser 3 102 105 Other 81 23 218 322 Total 201 43 2192 2436 10
  11. 11. Some existing BIPRU 50k firms escape • Existing BIPRU 50k firms that are only categorised as such because they have permission to : - provide investment advice receive and transmit orders execute orders on behalf of clients (MiFID activity 2); or undertake portfolio management (MiFID activity 4) AND - do not hold client money and assets … will fall outside CRD IV, remain subject to CRD III and will be known as BIPRU Firms. 11
  12. 12. But some don’t… • However, existing BIPRU 50k firms that do: - place securities without a firm commitment basis (MiFID activity 7). …will be caught by CRD IV and the associated reporting requirements. If you are not placing you must return a VoP to FCA by 20th Nov or you may be subject to CRD IV requirements. If appropriate you should have been contacted by the FCA regarding this. 12
  13. 13. Welcome to IFPRU – new CRD IV categories • Investment Firms Prudential Rules • Categorisation dependent on activities (scope of permission) • IFPRU Category (ie 50k, 125k and 730k) - This drives base capital requirement • All have secondary categorisation (limited licence, limited activity or full scope) - This drives variable capital resources requirement 13
  14. 14. CPMIs under AIFMD are potentially in scope • Collective portfolio management firm (CPM) A firm that undertakes external collective portfolio management of AIFs, UCITS or both, but does not provide any MiFID services. CPMs are not in scope • Collective portfolio management investment firm (CPMI) A firm that undertakes external collective portfolio management of AIFs, UCITS or both and provides MiFID services (only managing investments permitted). CPMIs may be in scope 14
  15. 15. The new regime – CRD IV and AIFMs No AIFM Full Scope AIFM Sub-threshold AIFM No MiFID Activity IPRU (INV) 3, 5 or 13 IPRU (INV) 11 CPM IPRU (INV) 5 RTO and Investment Advice IPRU (INV) 9 IPRU (INV) 11 and 9 IPRU (INV) 5 and 9 Portfolio Management (PM) New BIPRU IPRU (INV) 11 and new BIPRU CPMI IPRU (INV) 5 and new BIPRU Execution of Orders New BIPRU X IPRU (INV) 5 and new BIPRU Placing IFPRU 50k X IPRU (INV) 5 and IFPRU 50k Holding money / assets IFPRU 125k Dealing on own account IFPRU 730k X ? Underwriting IFPRU 730k X ? Operate an MTF IFPRU 730k X ? IPRU (INV) 11 and IFPRU 125k / CPMI (if holding in relation to PM) IPRU (INV) 5 and IFPRU 125k 15
  16. 16. Example: Dolphin Securities Wealth manager • Discretionary portfolio management • Does not hold client money or assets Currently – BIPRU 50k Limited Licence firm From 1st Jan – BIPRU Firm 16
  17. 17. Example: Williams Corporate Finance Corporate finance boutique • • • • Gives M&A advice Places securities in relation to IPOs Deals as agent Does not hold client money or assets. Currently – BIPRU 50k Limited Licence From 1st Jan – IFPRU 50k Limited Licence 17
  18. 18. Example: Gold Star Asset Management Hedge fund manager (full-scope AIFM) • Discretionary managed accounts (ie MiFID business) • Holds client money/assets in respect of its MiFID business. • Currently BIPRU 125k CPMI = subject to IPRU (INV) Chapter 11 in relation to its AIFM business and IFPRU/CRR in relation to its MiFID investment business. 18
  19. 19. CRD IV Preparing for CRD IV • Understanding capital requirement • Getting ready for new reporting 19
  20. 20. Capital – ‘Significant’ firms The are two categories for capital requirements: ‘significant’ firm or SME (small and medium enterprise). ‘Significant’ firms: • meet one or more of certain financial indicators such as: - Total assets £530mm - Annual fees £120mm - Client money £425mm • have to to hold various ‘capital buffers’ including: - Conservation capital buffer = 2.5% risk weighted assets. (Firms have to hold but can use buffer with FCA permission) - Counter cyclical buffer = up to 2.5% - Systemic risk buffer = up to 5% Significant firms can be asked to hold capital up to 18% 20
  21. 21. Capital – Other firms SMEs (small and medium enterprises) are not subject to capital buffers • Tier 3 no longer allowed as part of the calculation • Simplified credit risk calculation no longer available for IFPRU firms. FCA may publish a help-sheet on this • No changes to Pillar 2 • No changes to FOR calculation • EU looking to overhaul prudential regime for all investment firms in 2015 21
  22. 22. Reporting – COREP/FINREP • In scope IFPRU firms have to comply with COREP reporting from 1 Jan 2014 (first quarter affected ends 31 March 2014) • New reports submitted in XBRL language to EBA via GABRIEL reporting. Can no longer input everything direct to GABRIEL • Report templates found at EBA website • 25 templates replace FSA003 to FSA008 (risk reporting) – granularity of detail needed and data input needs to be validated • If outside of scope, status quo. New BIPRU firm reports under old FCA reports in GABRIEL • FINREP replaces FSA001 and FSA002 for very limited number of firms from 1July 2014 22
  23. 23. Reporting: which new templates do I use? IFPRU 50k firm capital adequacy templates only IFPRU 125k firm capital adequacy templates + credit risk part 3.2 + market risk templates CR+MR > FOR CR+MR< FOR IFPRU 730k firm capital adequacy templates only full suite of reports 23
  24. 24. Example: Dolphin Securities ‘new’ BIPRU firm greater of: • base capital • credit risk +market risk • FOR GABRIEL reporting FSA 003 24
  25. 25. Example: Williams Corporate Finance IFPRU 3 IFPRU 50k firm greater of: • base capital • credit risk +market risk • FOR COREP capital adequacy templates 25
  26. 26. Example: Gold Star Asset Management IFPRU 125k firm IFPRU 3 IPRU-INV CH 11 greater of: • base capital • credit risk +market risk • FOR greater of • base capital + • 2BP on AUM >250MM or • FOR Take the greater of the two calculations 26
  27. 27. Getting ready for the new reporting regime • Review your underlying data to see if it is sufficiently detailed and in appropriate format for COREP submission • Review credit risk calculation as simplified risk calculation no longer available. • Trial run of new templates • Ensure you can convert Excel to XBRL • Consider purchasing XBRL and validation software Bovill can help 27
  28. 28. Before you think about Christmas… • Review your permissions and work out your new prudential category • Decide whether you need to apply for a variation • If so apply ASAP • Review capital adequacy if you’re a ‘Significant Firm’ • Establish what you need to do to meet new reporting 28
  29. 29. Questions
  30. 30. Thanks for coming Let us know if you need a CPD Don’t forget Feedback Forms…