UK’s Financial Services Authority Publishes Feedback Statement To CP05/3, 'Strengthening Capital Standards'

The Financial Services Authority publishes today its Feedback Statement to Consultation Paper 05/3 'Strengthening Capital Standards' which set out its initial proposals for implementing the Capital Requirements Directive (CRD). It includes detailed feedback on comments received from industry on those policy proposals and draft Handbook rules and guidance in CP05/3.

The aim of the CRD is to introduce a modern, risk-sensitive prudential framework for credit institutions and investment firms across the EU, in line with the revised Basel Framework agreed in June 2004.

The Feedback Statement emphasises the need for senior management to be actively engaged in their firm's work on CRD implementation. This is especially important for firms intending to adopt the advanced approaches to credit risk and operational risk that allow firms to use their own models in determining their capital requirements. The FSA will take into account senior management's engagement when deciding whether it will permit firms to use these advanced approaches. Other issues addressed in the Feedback Statement include:

• making the Handbook more user-friendly, in response to industry comments;
• the definition of capital – the FSA has deferred work on certain of its proposals until the EU and Basel have completed planned reviews;
• waivers and concessions – most existing waivers and concessions will not be carried forward and there will be limited scope for firms to apply for fresh waivers and concessions within the new prudential framework;
• details of the CRD regime that are of particular relevance to smaller firms and investment firms; and
• the continuing discussions with the Committee of European Banking Supervisors on practical CRD implementation.

The European Parliament is expected to deliver its opinion on the CRD later in September. Subject to that, and final approval of the Directive by the Council of Ministers, the FSA plans to publish a second CP in February 2006. This will set out its final policy proposals on CRD implementation along with a complete draft of corresponding Handbook rules and guidance. Annex 2 of the Feedback Statement lists the outstanding policy issues that need to be finalised by February 2006.