HM Treasury is consulting on the exercise of the delegated powers provided to the Treasury by the Financial Services Bill, to ensure effective implementation of the Investment Firms Prudential Regime (IFPR) and the outstanding Basel III standards—those contained in the second Capital Requirements Regulation or CRR2. This consultation provides clarity and seeks views on the intended approach of UK to implementation of some areas of the Basel III standards. It also seeks views on the scope of application of the resolution regime for FCA-regulated investment firms, where HM Treasury is not devolving responsibility to the other UK regulators. The consultation period ends on April 01, 2021.
The Financial Services Bill allows HM Treasury to revoke provisions from CRR so that PRA can introduce the updated prudential rules for credit institutions and PRA-designated investment firms (equivalent to the CRR2 in EU). To do this, HM Treasury needs to revoke the sections of CRR on which PRA will be implementing the requirements by itself. Chapter 2 of the consultation provides a statement on how HM Treasury intends to exercise its revocation power (Clause 3(1) of the Bill). PRA will consult in due course on the proposed rules to replace the space left by these revocations. The full list of revocations HM Treasury intends to make through secondary legislation is listed in Chapter 2. The consultation seeks views on the following aspects of the prudential regimes for banks and investment firms:
- Consultation on Fundamental Review of the Trading Book or FRTB. The consultation seeks views on the approach of HM Treasury to applying the standardized approach reporting requirements for market risk (FRTB). PRA will be responsible for collecting the reporting data and specifying the form this collection will take. HM Treasury is proposing that these regulations come into force in January 2022, in line with the CRR rules of PRA. The reporting exercise will then take place during the first quarter of 2022.
- Amendments to the macro-prudential framework. The expected enactment of the Financial Services Bill and associated secondary legislation means that certain elements of the macro-prudential legislative framework will require amendments to reflect the new regime. This will include seeking to ensure the macro-prudential measures appropriately reflect clauses introduced under the Financial Services Bill in relation to holding companies and that the relevant references in legislation are appropriately updated.
- Introduction of prudential regime for investment firms. The IFPR Financial Services Bill legislation contains a limited number of delegated powers for HM Treasury to exercise to ensure the effective implementation of the regime. The consultation seeks views on the suggested exercise of these powers, with a focus on definitions regarding the entities within a group structure to whom the rules may apply on a consolidated basis. The consultation also also seeks views on consequential changes to the statute book, in particular to the Financial Services and Markets Act (PRA-Regulated Activities) Order 2013, (PRA RAO), as a result of changes to the level of initial minimum capital for investment firms, which will be set in the FCA rules. Many other transitional and consequential changes will be needed to the statute book to properly transfer UK over to the new IFPR. This will include consequential changes to the UK primary legislation, secondary legislation, and retained EU law. HM Treasury plans to make these other changes at the same time as the changes discussed in this consultation. However, HM Treasury does not plan to consult on these changes as they are not expected to be substantive.
- Application of the UK resolution regime to FCA investment firms. The consultation aims to gather views on the applicability of the UK resolution regime in part 1 of the Banking Act 2009 to FCA investment firms. This will inform potential decisions related to the scope of application of the UK resolution regime as it applies to the investment firms being carved out from the CRR framework.
Comment Due Date: April 01, 2021
Keywords: Europe, UK, Banking, Securities, Investment Firms Regime, Investment Firms, IFPR, Financial Services Bill, Basel, CRR2, FRTB, Market Risk, Macro-Prudential Framework, Resolution Framework, Regulatory Capital, CA, PRA, HM Treasury
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