On 10 May 2021, there was published on the legislation.gov.uk website The Capital Requirements Regulation (Amendment) (EU Exit) Regulations 2021 together with an explanatory memorandum.
Article 493 and 498 of the Capital Requirements Regulation (CRR) contain exemptions to own funds requirements and large exposure limits. They relieve commodities dealers of three notable obligations: to hold regulatory capital equal to at least 8% of total risk exposures; to calculate and report exposures to any individual counterparty equal to or greater than 10% of a firm’s eligible capital; and a prohibition from incurring exposures of more than 25% of eligible capital or EUR 150 million, whichever is higher, to a counterparty or group of counterparties. These provisions were amended by a corrigendum to the Investment Firm Regulation (IFR) on 2 December 2020 so that the CRR makes provision for these exemptions to apply until 26 June 2021 when the new regime for investment firms comes into force.
The changes in the corrigendum form part of retained EU law, but do not now operate effectively in the UK. The reason for this is that the UK equivalent regime for investment firms and commodities dealers – the IFPR – will come into effect on 1 January 2022, six months after the EU IFR regime. Without amendment, Articles 493 and 498 of the CRR will require UK commodities dealers to comply with the prudential requirements of the CRR between 26 June and 31 December 2021. They would then need to comply with a different prudential regime, the IFPR, from 1 January 2022. Such a development would amount to a significant regulatory burden for these firms.
A number of statutory instruments amending the CRR have been made using section 8(1) of the European Union (Withdrawal) Act 2018 to correct deficiencies as a result of the UK’s withdrawal from the EU. These include the Capital Requirements (Amendment) (EU Exit) Regulations 2018 (SI 2018/1401) and Capital Requirements (Amendment) (EU Exit) Regulations 2019.
This latest statutory instrument uses section 8(1) of the European Union (Withdrawal) Act 2018 to amend SI 2018/1401 so that the exemptions in Articles 493 and 498 continue in the UK until 1 January 2022.