You will probably have seen by now the FCA’s CP13/6 on CRD IV. One of the bigger areas of discretion that FCA is dealing with in this consultation is the question of what treatment they should apply to firms that are being released from most of the requirements of CRD. The FCA’s estimate is that 1000 firms fall into the new, largely CRD-exempt, category of BIPRU firm. This definition will include almost all firms that provide investment management but don’t do custody.

Although they don’t have to, what FCA is proposing to do is to keep the current regime in place for all these firms,. The FCA has the discretion to drop ICAAPs, Pillar 3 disclosure and the whole of the Remuneration Code, but they aren’t proposing to. Their view is that they should wait for a major EU-wide review of capital requirements for investment firms, which is due by the end of 2015. Although this minimises disruption, it seems to be a dubious proposal, for the following reasons:

1. Other EU countries may drop all these requirements and therefore be more attractive locations for new start-ups

2. Any relaxations emerging from the 2015 review will be unlikely to come into force before 2018, leaving a super-equivalent regime in place for 5 years

3. Firms that are wary of two changes – one now and one in 2018 – could retain their own ICAAP, Pillar 3 etc. even if FCA drops the obligation

4. The FCA makes no bones about the fact that the CRD regime was designed for banks – it is implementation of Basle III (a banking accord) – and is therefore OTT for investment firms (in fact it is an example of massive gold-plating at the EU level)

5. The FSA made plain that it disapproved of the application of the remuneration controls to investment firms when they were introduced

6. If FCA applies these measure voluntarily to these 1000 firms, it will be difficult for them to argue in the 2015 review that this is an OTT regime.

But, of course, that is not the only possible view of life!

If you are affected by this question, you may wish to respond to the consultation on this point and we would certainly be interested to hear your views directly.