Compliance
UK Regulator Issues Consultation on Capital Requirements Directive
The UK’s Financial Services Authority (FSA) has released its proposals for how European Union’s Capital Requirements Directive (CRD) will be...
The UK’s Financial Services Authority (FSA) has released its proposals for how European Union’s Capital Requirements Directive (CRD) will be implemented in the UK.
The CRD is closely linked to the Revised Basel Framework agreed in June 2004. Its aim is to introduce a modern, risk-sensitive prudential framework for credit institutions and investment firms across the EU and the consultation paper offers firms the opportunity to engage with FSA in ensuring what the regulator calls “proportionate and effective implementation”. It will replace both the Capital Adequacy Directive (CAD) and the Banking Consolidation Directive (BCD).
The CRD is linked to the Basel Framework, which is based upon quantification of risks, dialogue between regulators and public disclosure, and will apply to all deposit-takers other than credit unions, and to investment firms, though precise application of the CRD will vary across sectors. Its timing depends on the timing of the final agreement between the Council and the European Parliament.
Although much of the detail in the CRD remains subject to the Basel Committee, the International Organisation of Securities Commissions (IOSCO), and EU legislation, what is clear is that for firms subject to its implementation, the directive will involve considerable work, especially in risk management systems.
The good news is that the FSA is sympathetic to the industry's requirement for a long lead-time to make the necessary systems changes and says that it is committed to providing firms with as much early clarity as possible. This is of course limited by the CRD not yet having been finalised.
Today’s consultation provides as much information as is possible, at this point, on the FSA's approach to implementation. It is focused on those areas where the UK has significant national discretions to exercise and the industry seeks early signals on the FSA approach.
The consultation paper, CP05/3, Strengthening Capital Standards, closes for consultation on 29 April 2005.
