Capital Planning Buffers

For the avoidance of doubt, this will only be of relevance to BIPRU firms.

Regulatory Roundup 6 advised that the FSA had published CP09/30 – “Capital Planning Buffers” – concerning the amount and quality of capital resources that a firm should hold at a given time, so that it is able to absorb losses and meet higher capital requirements in adverse external circumstances.

The FSA have now issued PS10/14 which provides “feedback on CP09/30 and final rules”, although it is actually guidance, relating to the Internal Capital Adequacy Assessment Process (ICAAP) and the concept of Capital Planning Buffers.

As you will know, the Supervisory Review and Evaluation Process (SREP) is how FSA supervisors assess the overall risks, governance and control factors of a firm in relation to its ICAAP.

The FSA have clarified what the SREP will review and consider; what Capital Planning Buffers are aiming to achieve; and the circumstances under which the FSA can demand to implement such a buffer. PS10/14 will be relevant to those firms that are deemed by the FSA, under the SREP process, to require further capital resources. Liquidity and stress tests have also been further clarified, more guidance is now offered on what the FSA will look at when reviewing a firm’s liquidity and stress test. The FSA raise that mitigation tools and contingency plans must be in place and be appropriate and proportionate to each firm and reviewed regularly.

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