Shearman & Sterling LLP | FinReg | UK Government Publishes Proposals for Investment Firm Prudential Regime and Implementation of Outstanding Basel III Requirements
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  • UK Government Publishes Proposals for Investment Firm Prudential Regime and Implementation of Outstanding Basel III Requirements

    The U.K. Government has opened a consultation on the implementation of the Investment Firms Prudential Regime and the remaining Basel III Standards in the U.K. The Financial Services Bill, once it is finalized, will introduce powers for the Financial Conduct Authority and the Prudential Regulation Authority to introduce the IFPR and outstanding Basel III prudential requirements for banks. The FCA has already launched a consultation on some aspects of the IFPR and will consult on the others throughout the year. The PRA is expected to consult on implementation of Basel III in Q1 2021. HM Treasury's consultation concerns those aspects of the two regimes that will require secondary legislation under the Financial Services Bill. The consultation closes on April 1, 2021.

    The consultation includes proposals on:
    1. Exercising HM Treasury's revocation powers (under the Financial Services Bill) to revoke provisions in the Capital Requirements Regulation to allow the PRA to revise the rules for banks and PRA-designated investment firms. The provisions that HM Treasury is proposing to revoke include provisions relating to deductions from common equity tier 1, exposures, own funds requirements for counterparty credit risk, for operational risk, the trading book and credit valuation adjustment risk, liquidity, reporting and disclosure requirements, the leverage ratio and large exposures.
    2. The policy approach to the treatment of eligible liabilities. The EU CRR allows a globally systemically important institution to include eligible liabilities issued by one of its subsidiaries to meet its Total Loss Absorbing Capacity requirements where the eligible liabilities are purchased by an existing shareholder that is not part of the same resolution group. The U.K. Government intends to keep its existing approach, which is aligned with the international TLAC standards and which provides that external TLAC must be issued and maintained directly by resolution entities.
    3. The policy approach to the capital requirements for a bank's exposure to a collective investment scheme. The U.K. Government does not intend to follow the EU's approach to equivalence for investments in overseas funds. The EU is replacing the existing standalone equivalence mechanism with a new one that will allow the same risk-weighting for investment in overseas funds where a third country is granted access through the third-country passport in the Alternative Investment Fund Managers Directive. The U.K. has instead proposed that the existing standalone equivalence assessment will be retained.
    4. Introducing regulations to bring into force by January 2022 the reporting requirements of the Fundamental Review of the Trading Book.
    5. The scope of the U.K. resolution regime in relation to FCA investment firms and whether it should be broadened to apply to all FCA investment firms that will be in scope of the IFPR.

    View the consultation paper on the U.K. implementation of the Investment Firms Prudential Regime.

    View details of the FCA's first consultation on the U.K. IFPR.

    View details of the FCA's discussion paper on the U.K. IFPR.

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