On 4 February 2021, HM Treasury issued a consultation document seeking views on the proposed exercise of the delegated powers given to it by the Financial Services Bill (the Bill) to ensure the effective implementation of the Investment Firms Prudential Regime (IFPR) and the outstanding Basel 3 standards set out in the revised Capital Requirements Regulation (CRR2).
The Bill allows HM Treasury to revoke provisions from the CRR so that the PRA can introduce updated prudential rules for credit institutions and PRA designated investment firms equivalent to the CRR2. Clause 3(1) of the Bill gives HM Treasury the power to revoke provisions of the CRR relating to the matters listed in clause 3(2). Secondary legislation is required for HM Treasury to revoke those specific provisions and table 2.A of the consultation document sets out a table covering the revocations HM Treasury intends to make. The PRA will consult in due course on its proposed rules to replace the space left by the revocations.
HM Treasury also sets out two issues where it will not be taking the same approach to the CRR2. These issues relate to eligible liabilities and exposures to units or shares of a collective investment undertaking. In terms of eligible liabilities, HM Treasury does not intend to legislate to replicate Article 88a of the CRR2 through the Bill nor transpose this element of the Bank Recovery and Resolution Directive II (BRRD II) as communicated in the Government’s response to its earlier BRRD II consultation. This is to reflect the UK’s intention to remain closely aligned with the Financial Stability Board (FSB) standards in this area. According to the FSB’s total loss absorbing capacity (TLAC) term sheet “external TLAC must be issued and maintained directly by resolution entities”. This is in alignment with the Bank of England’s statement of policy on the minimum requirement for own funds and eligible liabilities. In terms of exposures to units or shares of a collective investment undertaking, HM Treasury is proposing not to take forward certain amendments that the CRR2 makes to Article 132 of the CRR (further described in paragraphs 2.10 to 2.14 of the consultation document).
HM Treasury is also seeking views on its approach to applying the Standardised Approach reporting requirements in relation to the Fundamental Review of the Trading Book (chapter 3 of the consultation document) and sets out certain other amendments to ensure that the UK’s macro-prudential framework is consistent with the new regime (chapter 4 of the consultation document).
Within the Bill, there are also certain delegated powers for HM Treasury to exercise to ensure the effective implementation of the IFPR. In chapter 5 of the consultation document HM Treasury asks for views on the suggested exercise of these powers, with a particular focus on definitions regarding the entities within a group structure to whom the rules may apply on a consolidated basis. In chapter 6 of the consultation document HM Treasury seeks views on consequential changes to the statute book, in particular to the Financial Services and Markets Act (PRA-Regulated Activities) Order 2013, as a result of changes to the level of initial minimum capital for investment firms, which will be set in FCA rules. Finally, in chapter 7 of the consultation document HM Treasury seeks views on the applicability of the UK resolution regime in part 1 of the Banking Act 2009 to FCA investment firms. This will inform potential decisions relating to the scope of application of the UK resolution regime as it applies to those investment firms being carved out from the CRR framework.
The consultation closes on 1 April 2021.