HM Treasury, also HMT, published a draft statutory instrument on the Capital Requirements Regulation (Amendment) (EU Exit) Regulations 2021. The draft regulation amends the retained EU law and regulations under section 8 European Union (Withdrawal) Act 2018. The draft regulation will ensure that the on-shored CRR continues to operate effectively for UK investment firms until the introduction of the Investment Firms Prudential Regime, or IFPR. To achieve that, the regulation extends the dates of the provision exempting UK commodities dealers from specific prudential requirements until the Investment Firms Prudential Regime applies to them on January 01, 2022.
The retained Capital Requirements Regulation (CRR) makes provision, through Articles 493 and 498, to exempt commodities dealers from specific prudential requirements. These exemptions relieve commodities dealers of the following obligations:
- To hold regulatory capital equal to at least 8% of total risk exposures
- To calculate and report exposures to any individual counterparty equal to or greater than 10% of a firm’s eligible capital
- A prohibition from incurring exposures of more than 25% of eligible capital or EUR 150 million, whichever is higher, to a counterparty or group of counterparties
EU amended the exemption provisions of CRR for commodities dealers to align with the planned introduction of the EU Investment Firms Regulation on June 26, 2021. Consequently, EU commodities dealers are not required to comply with the provisions of the CRR before the Investment Firms Regulation applies to them. Because of UK onshoring CRR, these EU amendments apply in UK law. However, the UK’s equivalent regime for investment firms and commodities dealers—the Investment Firms Prudential Regime—will not be introduced until January 01, 2022. Without amendment, Articles 493 and 498 of the CRR will require UK commodities dealers to comply with the prudential requirements of CRR between June 26 and December 31, 2021. They would then need to comply with a different prudential regime, the Investment Firms Prudential Regime, from January 01, 2022. Such a development would amount to a significant regulatory burden for these firms. Therefore, HM Treasury that retained EU law does not operate effectively in the UK in this instance and is extending the expiry date for CRR exemptions for UK commodities dealers to align with the introduction of the Investment Firms Prudential Regime in UK.
Keywords: Europe, UK, EU, Banking, Securities, Investment Firms, CRR, Basel, Statutory Instrument, IFPR, IFR, Regulatory Capital, HM Treasury
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