Explanatory Note
(This note is not part of the Regulations)
These Regulations implement in part a package of EU legislation known as “CRD4”. CRD4 is concerned with the authorisation of credit institutions and the prudential rules applicable to credit institutions and investment firms.
In the remainder of these notes:
“CRD” means Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms (OJ no L176, 27/6/2013, p. 338; for corrigenda see OJ no L208, 2/8/2013, p.73);
“CRR” means Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms (OJ no L176, 27/6/2013, p.1; for corrigenda see OJ no L208, 27/6/2013, p.68 and OJ no L321, 30/11/2013, p6);
“FCA” means the Financial Conduct Authority;
“FSMA” means the Financial Services and Markets Act 2000 (c. 8);
“PRA” means the Prudential Regulation Authority.
The CRD and the CRR comprise CRD4 and are intended to the read together. Whilst these Regulations implement some provisions of the CRD, the remainder are implemented through rules made, and other legally binding requirements imposed, by the PRA and FCA. These Regulations should be read with the Financial Services and Markets Act 2000 (Qualifying EU Provisions) (No. 2) Order 2013, which specifies the CRR as a “qualifying EU provision” for various provisions of FSMA. This gives the PRA and FCA supervisory and enforcement powers in relation to the CRR.
Part 1 and Schedule 1 make provision for commencement, expiry and interpretation. Articles 151 to 159 of the CRD set out a range of transitional provisions. They will cease to have effect on a date to be specified in a Commission delegated act, and will be replaced by the provisions at Articles 40, 41, 43, 49, 50 and 51 of the CRD. This is reflected in the commencement and expiry provisions included in these Regulations.
Part 2 consists of provision revoking the Capital Requirements Regulations 2006.
Part 3 comprises provision designating the competent authorities for the purposes of the CRD and CRR. The PRA and FCA are designated as competent authorities for the main provisions of the CRD and CRR. Articles 128 to 142 of the CRD (capital buffers) will be the subject of a further statutory instrument in 2014. Responsibility for Article 458 of the CRD (macro-prudential measures) is split between the Treasury and the Bank of England, and paragraph 38 of Schedule 2 inserts provision to that effect into the Bank of England Act 1998 (c. 11).
Part 4 imposes obligations on the PRA and FCA in relation to cooperation and co-ordination with other competent authorities and the European Supervisory Authorities.
Part 5 imposes obligations on the PRA and FCA regarding disclosure of information and notifications required under the CRD.
Part 6 contains provision on how the PRA or FCA must act when it is the consolidating supervisor of a group of credit institutions or investment firms. “Consolidating supervisor” is defined in Article 4(1)(41) of the CRR.
Part 7 concerns the exercise of supervision by the PRA and FCA, in particular in relation to own funds, specific liquidity requirements, employee remuneration and diversity practices.
Part 8 concerns permissions under the CRR.The CRR confers discretion on competent authorities to grant firms permission to do certain things under the CRR, for example permission to use the Internal Ratings Based approach to calculating risk-weighted exposure amounts. Part 8 makes provision for the procedural aspects of the exercise of this discretion. In particular, regulation 42 grants a right of appeal to the Upper Tribunal.
Part 9 extends the criminal offence established by section 398 of FSMA (misleading the FCA or PRA: residual cases) to requirements imposed by or under the CRR, directly applicable regulations made under the CRD or CRR, or these Regulations.
Part 10 and Schedules 2 and 3 make amendments to primary and secondary legislation. Part 1 of Schedule 2 makes amendments to FSMA, in particular in relation to the passporting rights of non-UK firms into the UK. Part 2 of Schedule 2 amends the Building Societies Act 1986 and the Bank of England Act 1998 and makes consequential amendments to other primary legislation. Part 3 of Schedule 2 amends the Financial Services and Markets Act 2000 (Disclosure of Confidential Information) Regulations (S.I. 2001/2188) and the Financial Services and Markets Act 2000 (EEA Passport Rights) Regulations 2001 (S.I.2001/2511) and makes consequential amendments to other secondary legislation.
A Transposition Table setting out how the CRD is transposed into UK law is available from HM Treasury, 1 Horseguards Road, London, SW1A 2HQ.
An impact assessment has not been produced for this instrument as no significant impact on the costs of business or the voluntary sector is foreseen.