Those who have already enjoyed the FCA’s Policy Statement on CRD IV (PS 13/10) will have noted that FCA is sticking to its proposed treatment of BIPRU firms, voluntarily applying ICAAPs, Pillar 3 disclosure and the Remuneration Code. Disappointing, but unsurprising, you may think. But had you anticipated the responses that FCA received? Of the estimated 1000 firms affected, just a dozen responded, although others were, of course, represented in the responses from trade bodies. Of that dozen, only one was bold enough to suggest that FCA might not have got this quite right.

When FCA published the consultation (CP 13/6), I pointed out that

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, without messing about those who prefer to drop them
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 measures voluntarily to these 1000 firms, it will be difficult for them to argue in the 2015 review that this is an OTT regime.

While the FCA’s excuses for taking this position consist of a series of questionable assertions and admissions of poor preparedness, the industry reasoning that I have heard is no less regrettable. I have yet to find anyone who knows what the competition in Dublin and Luxemburg is doing. In fact it is pretty clear that the maintenance of barriers to entry is a proposition that the industry supports and the regulator accepts. But let’s not overlook the fact that, if an easier ride becomes available elsewhere in the EU, new competition may well emerge in those jurisdictions and passport its way across the EEA. Five years may be long enough for critical mass to develop outside this country. Should we care? It seems we don’t.

Oliver Lodge

December 2013