Strengthening Capital

Regulatory Roundup #6 contained an article on CP09/29 – ‘Strengthening Capital Standards 3’, which contained proposals for implementing changes to the Capital Requirements Directive (‘CRD’). Of interest to the majority of CRD firms was news that the large exposure regime set out in BIPRU 10.5 would cease to apply to ‘limited activity’ or ‘limited licence’ firms from 1 January 2011 (although the implementation date for all the proposed measures will now be 31 December 2010).

Feedback to CP09/29 – and further consultation – has been published in the form of CP10/17.

Chapter 5 confirms that limited activity/licence firms will indeed be exempted from the large exposure regime ‘at the start of 31 December 2010’. Firms that remain subject to the large exposure regime should note that the requirement to notify the FSA when a firm exceeds (or becomes aware of exceeding) the limit in BIPRU 10.5.6 (the ‘25% exposures’ rule) will be been moved from BIPRU 10.5.9 to SUP 15.3.11 (f).

The paper references CEBS guidelines relating to exemptions from the large exposure rules for certain short-term exposures such as custody activities and generally advises firms to have due regard to the CEBS guidelines until the FSA publishes further guidance.

This is a large CP (300+ pages) and covers areas ranging from Hybrid capital to Operational risk. As such it may be easier for firms to turn to Annexes B & C in Appendix 1 to see which of the rules in GENPRU and BIPRU the CP will impact upon. Note that the proposed changes to the large exposures regime are in Appendix 2. Despite its title this Appendix covers various rules in both BIPRU and GENPRU.

The consultation period end 23 October, except for the credit risk amendments for intra-group exposures in Chapter 14 where the period ends 23 August.

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