To whom does this apply?
All BIPRU Firms (Credit Institutions and Investment Firms) currently subject to CRD. It is also likely that the impact of CRDIV will have a wider footprint as it will also establish the basis of determining eligible Capital across all types of Firm (including Exempt CAD and Exempt MiFID Investment Firms).
From which date is it likely to become effective?
In the event that CRDIV and CRR are published in the EU Official Journal by 30 June 2013, then the effective date will be 1 January 2014 (but with some aspects being subject to Transitional Provisions through to 2019).
The EU has published final draft CRDIV, the Directive and CRR, the Regulations, dated 26 March, following the conclusion of the trilogue process (these can be accessed at the following links –CRDIV and CRR).
The next stages for these provisions will be to pass through the EU Parliament and Council in order that they may be officially adopted. Completion of that phase is expected very soon (by the end of April) at which point CRDIV/CRR will be published in the EU Official Journal. According to the EU Council’s announcement dated 27 March 2013, if these are officially published before 30 June 2013, the effective date of these provisions will be 1 January 2014.
It is reasonable to assume that the fundamental principles of CRDIV and the Regulations are now set, although one of the next stages will be for these to pass through final technical scrutiny. Once official publication has been made, the situation will then be final and the Regulations will become applicable, probably from 1 January 2014, and Member State Competent Authorities will be required to implement those elements of the Directive not implemented through the Regulations.
What are the Key Points?
Kinetic Partners will be publishing far more detailed commentary in due course once the fine detail of the Directive and the Regulations is finalised and published in the EU’s Official Journal and further guidance is issued by the EBA (and probably ESMA, which is already involved). Subject to the final Directive and Regulations, the following key points can be established:
- The Regulation redefines the term ‘Investment Firm’. Currently, all Investment Firms subject to MiFID, except Exempt CAD Investment Firms, are subject to CRD (i.e. Firms with the following status of Full Scope, Limited Activity, Limited Licence and UCITS Investment Firms). From the effective date of CRDIV/CRR, Investment Firms which do not Hold/Administer Client Assets and may ONLY, in terms of MiFID; ‘Receive and Transmit Orders’, ‘Execute Orders’, undertake ‘Portfolio Management’ and/or provide ‘Investment Advice’ will NOT then be classified as an Investment Firm for CRD and, hence, are not then subject to CRD.
- Therefore, for example, €50k Limited Licence Investment Firms will not then be subject to CRD. Other forms of Investment Firm are likely to remain subject to CRD; certainly all Investment Firms which Hold and Administer Client Assets, are Full Scope Investment Firms or are Multilateral Trading Facilities, will certainly remain subject to CRD. It is not yet clear if Limited Licence Investment Firms which hold Dealing in Investments as Principal but with a Matched Principal ‘Limitation’, and do not hold or administer client assets or money, will remain subject to CRD.
- Between now and the effective date of CRDIV/CRR, the FCA will need to consult with the Investment Firms sector on how they intend to apply their Prudential Rules (currently forming part of GENPRU/BIPRU) to Investment Firms which then fall out from under the provisions of CRD. Clarification will need to include how, for example, the following Prudential Rules will apply to the Investment Firms not then subject to CRD:
- Pillar 1 – Establishing Eligible Regulatory Capital and the Credit Risk, Market Risk and Fixed Overhead Requirements;
- Pillar 2 – ICAAP, the Supervisory Review and Evaluation Process and Individual Capital Guidance;
- Pillar 3 – Disclosure (e.g. ICAAP and Remuneration);
- Remuneration Code;
- Liquidity Rules; and
- It is also worth noting that the much hyped EU Common Reporting obligations (‘CoRep’) apply only to Firms subject to CRD. Therefore, for Investment Firms then not subject to CRD, e.g. €50k Limited Licence Investment Firms, it is expected that CoRep will not be applicable to them (but that GABRIEL will continue to apply but perhaps in a slightly different form).
We await the finally agreed versions of CRDIV and CRR, their publication in the EU’s Official Journal and confirmation of the effective date (anticipated as 1 January 2014). Alongside this process the FCA will be consulting with all Firms, and particularly BIPRU Firms, in order to implement either CRDIV or their alternative domestic Prudential Rules for Firms then not subject to CRD (including current BIPRU Investment Firms then not subject to CRD and to other existing Firms in regard to how the provisions of CRDIV/CRR might also impact them).
Disclaimer: The opinions expressed herein are those of the authors and other contributors and do not necessarily reflect the views of the Firm. This is not intended as specific legal advice for any purpose.
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