European Communities (Capital Adequacy of Investment Firms) Regulations 2006
Statutory Instruments
Source: Statutory Instruments

num: 1
paragraphs: Citation and commencement.
num: 2
paragraphs: Interpretation.
num: 3
paragraphs: Application of certain provisions of CRD Regulations (CI) to investment firms.
PART 2
INITIAL CAPITAL
num: 4
paragraphs: Initial capital for investment firms.
num: 5
paragraphs: Initial capital for local firms.
num: 6
paragraphs: Coverage for investment firms referred to in paragraph (c) of definition of “investment firm”.
num: 7
paragraphs: Coverage for investment firms referred to in Regulation 6 that are also registered under Directive 2002/92/EC.
num: 8
paragraphs: Initial capital for investment firms that do not fall within Regulations 4 to 7.
num: 9
paragraphs: Mergers.
PART 3
TRADING BOOK
num: 10
paragraphs: What constitutes trading book.
PART 4
OWN FUNDS
num: 11
paragraphs: Own funds of investment firms and credit institutions.
num: 12
paragraphs: Exceptions to Regulation 11(9).
num: 13
paragraphs: Illiquid assets.
num: 14
paragraphs: Investment firms granted waiver under Regulation 20.
num: 15
paragraphs: Provisions applicable to institutions which use Chapter 3 of Part 4 of the CRD Regulations (CI).
PART 5
MINIMUM OWN FUNDS REQUIREMENTS FOR CREDIT RISK
Chapter 1
Provisions Against Risks
num: 16
paragraphs: Own funds required.
num: 17
paragraphs: Risk-weighting of certain debt securities.
num: 18
paragraphs: Exemptions for investment firms that do not hold client money.
num: 19
paragraphs: Investment firms to hold own funds equivalent to one quarter of preceding year's fixed overheads.
Chapter 2
Application of Requirements on Consolidated Basis
num: 20
paragraphs: Bank may waive certain consolidation requirements.
num: 21
paragraphs: Provisions supplementary to Regulation 20.
num: 22
paragraphs: Exceptions to Regulation 3(6).
num: 23
paragraphs: Further exceptions to Regulation 3(6).
Chapter 3
Calculation of Consolidated Requirements
num: 24
paragraphs: Offsetting of trading book and foreign exchange and commodities positions between institutions of group.
num: 25
paragraphs: Application of Regulation 10 of CRD Regulations (CI).
Chapter 4
Monitoring and Control of Large Exposures
num: 26
paragraphs: Application of Part 6 of CRD Regulations (CI) to large exposures.
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paragraphs: Exposures to individual clients which arise on trading book.
num: 28
paragraphs: Overall exposures to individual clients or groups.
num: 29
paragraphs: Circumstances in which limits set out in Regulations 57 to 60 of CRD Regulations (CI) may be exceeded.
num: 30
paragraphs: Establishment of certain procedures.
Chapter 5
Valuation of Positions for Reporting Purposes
num: 31
paragraphs: Trading book positions to be subject to certain prudent valuation rules.
Chapter 6
Risk Management and Capital Assessment
num: 32
paragraphs: Risk management and capital assessment.
Chapter 7
Reporting Requirements
num: 33
paragraphs: Reporting requirements.
PART 6
COMPETENT AUTHORITIES AND SUPERVISION
Chapter 1
Competent Authority
num: 34
paragraphs: Designation of Bank as competent authority.
Chapter 2
Supervision
num: 35
paragraphs: Application of Part 9 of CRD Regulations (CI).
num: 36
paragraphs: Cooperation between competent authorities.
PART 7
DISCLOSURES
num: 37
paragraphs: Disclosures.
PART 8
MISCELLANEOUS
Chapter 1
Exposures to third-country investment firms
num: 38
paragraphs: Exposures to third-country investment firms, etc. to be treated as exposures to institutions.
Chapter 2
Transitional Provisions
num: 39
paragraphs: Transitional provisions - general.
num: 40
paragraphs: Transitional provisions - large exposures.
num: 41
paragraphs: Transitional provisions - disapplication of Regulation 19(d) of CRD Regulations (CI).
num: 42
paragraphs: Transitional provisions - specific risk model recognition prior to 1 January 2007.
num: 43
paragraphs: Transitional provisions - exemptions for certain investment firms.
Chapter 3
Final Provisions
num: 44
paragraphs: Application of Regulations 1(3) and 82(8) to (14) of CRD Regulations (CI).
I, BRIAN COWEN, Minister for Finance, in exercise of the powers conferred on me by section 3 of the European Communities Act 1972 (No. 27 of 1972), as amended by the European Communities (Amendment) Act 1993 (No. 25 of 1993), and for the purpose of giving effect to Directive 2006/49/EC of 14 June 2006 of the European Parliament and of the Council on the capital adequacy of investment firms and credit institutions (recast)1 , hereby make the following Regulations:
PART 1
Preliminary and General
Citation and commencement.
num: 1
paragraphs: (1) These Regulations may be cited as the European Communities (Capital Adequacy of Investment Firms) Regulations 2006.
(2) These Regulations shall come into operation on 1 January 2007.
Interpretation.
num: 2
paragraphs: (1) In these Regulations, except where the context otherwise requires -
“Bank” means the Central Bank and Financial Services Authority of Ireland within the meaning of the Central Bank Act 1942 (No. 22 of 1942) as amended by the Central Bank and Financial Services Authority of Ireland Act 2003 (No. 12 of 2003);
“capital” means own funds;
“clearing member” means a member of the exchange or the clearing house which has a direct contractual relationship with the central counterparty (market guarantor);
“competent authority” -
(a) in relation to the State, means the Bank, and
(b) in relation to any other Member State, means the body or bodies charged by law in the Member State with the supervision of investment firms;
“convertible” means a security which, at the option of the holder, may be exchanged for another security;
“CRD Regulations (CI)” means the European Communities (Capital Adequacy of Credit Institutions) Regulations 2006 (S.I. [.] of 2006);
“credit institutions” means institutions as defined in Article 4(1) of Directive 2006/48/EC;
“delta” means the expected change in an option price as a proportion of a small change in the price of the instrument underlying the option;
“Directive 2006/48/EC” means Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006 relating to the taking up and pursuit of the business of credit institutions (recast)2 ;
“EU parent investment firm” means a parent investment firm in a Member State which is not a subsidiary of another institution authorised in any Member State, or of a financial holding company set up in any Member State;
“financial instruments” means any contract that gives rise to both a financial asset of one party and a financial liability or equity instrument of another party;
“initial capital” means the items referred to in Regulation 3(1)(a) and (b) of the CRD Regulations (CI);
“institutions” means credit institutions and investment firms;
“investment firms” means institutions as defined in Article 4(1) of Directive 2004/39/EC of 21 April 2004 of the European Parliament and of the Council on markets in financial instruments amending Council Directives 85/611/EEC and 93/6/EC and Directive 2000/12/EC of the European Parliament and of the Council and repealing Council Directive 93/22/EEC3 , which are subject to the requirements imposed by that Directive, excluding:
(a) credit institutions,
(b) local firms,
(c) firms which are only authorised to provide the service of investment advice or receive and transmit orders from investors without holding money or securities belonging to their clients, or both, and which for that reason may not at any time place themselves in debit with their clients;
“local firm” means a firm dealing on own account on markets in financial futures or options or other derivatives and on cash markets for the sole purpose of hedging positions on derivatives markets or which deals for the accounts of other members of those markets and which are guaranteed by clearing members of the same markets, where responsibility for ensuring the performance of contracts entered into by such firms is assumed by clearing members of the same markets;
“original own funds” means the sum of the items referred to in subparagraphs (a) and (b) of Regulation 3(1) of the CRD Regulations (CI) less the sum of the items referred to in subparagraphs (a),(b) and (c) of Regulation 3(2) of the CRD Regulations (CI);
“over-the-counter (OTC) derivative instruments” means the items falling within the list in Annex IV to Directive 2006/48/EC other than those items to which an exposure value of zero is attributed under point 2 of Annex III to that Directive;
“own funds” means own funds as defined in Directive 2006/48/EC;
“parent investment firm in a Member State” means an investment firm which has an institution or financial institution as a subsidiary or which holds a participation in such entities, and which is not itself a subsidiary of another institution authorised in the same Member State, or of a financial holding company set up in the same Member State;
“recast Directive (IF)” means Directive 2006/49/EC of 14 June 2006 of the European Parliament and of the Council on the capital adequacy of investment firms and credit institutions (recast);
“recognized third-country investment firms” means firms meeting the following conditions:
(a) firms which, if they were established within the Community, would be covered by the definition of “investment firm”,
(b) firms which are authorised in a third country, and
(c) firms which are subject to and comply with prudential rules considered by the Bank as at least as stringent as those laid down in the recast Directive (IF);
“regulated market” means a market as defined in Article 4(14) of Directive 2004/39/EC;
“repurchase agreement” and “reverse repurchase agreement” mean any agreement in which an institution or its counterparty transfers securities or commodities or guaranteed rights relating to title to securities or commodities where that guarantee is issued by a recognised exchange which holds the rights to the securities or commodities and the agreement does not allow an institution to transfer or pledge a particular security or commodity to more than one counterparty at one time, subject to a commitment to repurchase them (or substituted securities or commodities of the same description) at a specified price on a future date specified or to be specified, by the transferor, being a repurchase agreement for the institution selling the securities or commodities and a reverse repurchase agreement for the institution buying them;
“securities or commodities lending” and “securities or commodities borrowing” mean any transaction in which an institution or its counterparty transfers securities or commodities against appropriate collateral subject to a commitment that the borrower will return equivalent securities or commodities at some future date or when requested to do so by the transferor, that transaction being securities or commodities lending for the institution transferring the securities or commodities and being securities or commodities borrowing for the institution to which they are transferred;
“stock financing” means positions where physical stock has been sold forward and the cost of funding has been locked in until the date of the forward sale;
“warrant” means a security which gives the holder the right to purchase an underlying asset at a stipulated price until or at the expiry date of the warrant and which may be settled by the delivery of the underlying asset itself or by cash settlement.
(2) For the purposes of applying supervision on a consolidated basis, the term “investment firm” shall include third country investment firms.
(3) The term “financial instruments” shall include both primary financial instruments or cash instruments, and derivative financial instruments the value of which is derived from the price of an underlying financial instrument or a rate or an index or the price of an underlying other item and include as a minimum the instruments specified in Section C of Annex 1 to Directive 2004/39/EC.
(4) The terms “parent undertaking”, “subsidiary undertaking”, “asset management company” and “financial institution” shall cover undertakings defined as such in Article 4 of Directive 2006/48/EC.
(5) The terms “financial holding company”, “parent financial holding company in a Member State”, “EU parent financial holding company” and “ancillary services undertaking” shall cover undertakings defined as such in Article 4 of Directive 2006/48/EC, save that every reference to credit institutions shall be read as a reference to institutions.
(6) For the purposes of applying Directive 2006/48/EC to groups covered by Regulation 3(1) to (5) which do not include a credit institution, the following definitions shall apply:
“competent authorities” means the national authorities which are empowered by law or regulation to supervise investment firms;
“financial holding company” means a financial institution, the subsidiary undertakings of which are either exclusively or mainly investment firms or other financial institutions, at least one of which is an investment firm, and which is not a mixed financial holding company within the meaning of Directive 2002/87/EC of 16 December 2002 on the supplementary supervision of credit institutions, insurance undertakings and investment firms in a financial conglomerate and amending Council Directives 73/239/EEC, 79/267/EEC, 92/49/EEC, 92/96/EEC, 93/6/EEC and 93/22/EEC, and Directives 98/78/EC and 2000/12/EC of the European Parliament and of the Council4 ;
“mixed-activity holding company” means a parent undertaking, other than a financial holding company or an investment firm or a mixed financial holding company within the meaning of Directive 2002/87/EC, the subsidiaries of which include at least one investment firm.
(7) A word or expression that is used in these Regulations and is also used in the recast Directive (IF) shall have in these Regulations the same meaning as it has in the recast Directive (IF) unless the contrary intention appears.
Application of certain provisions of CRD Regulations (CI) to investment firms.
num: 3
paragraphs: (1) Subject to Regulations 16, 18, 20, 30 and 37, Regulations 13 to 17 of the CRD Regulations (CI) shall apply mutatis mutandis to investment firms.
(2) In applying Regulations 14, 15 and 16 of the CRD Regulations (CI) to investment firms, every reference to a parent credit institution in a Member State shall be construed as a reference to a parent investment firm in a Member State and every reference to an EU parent credit institution shall be construed as a reference to an EU parent investment firm.
(3) Where a credit institution has as a parent undertaking a parent investment firm in a Member State, only that parent investment firm shall be subject to requirements on a consolidated basis in accordance with Regulations 15, 16 and 17 of the CRD Regulations (CI).
(4) Where an investment firm has as a parent undertaking a parent credit institution in a Member State, only that parent credit institution shall be subject to requirements on a consolidated basis in accordance with Regulations 15, 16 and 17 of the CRD Regulations (CI).
(5) Where a financial holding company has as a subsidiary both a credit institution and an investment firm, requirements on the basis of the consolidated financial situation of the financial holding company shall apply to the credit institution.
(6) Subject to Regulations 22(1) and 23(1), where a group covered by paragraphs (1) to (5) does not include a credit institution, Directive 2006/48/EC shall apply, subject to the following conditions:
(a) every reference to credit institutions shall be construed as a reference to investment firms, and
(b) in Articles 125 and 140(2) of Directive 2006/48/EC, each reference to other articles of Directive 2006/48/EC shall be construed as a reference to Directive 2004/39/EC.
PART 2
Initial Capital
Initial capital for investment firms.
num: 4
paragraphs: (1) Investment firms that do not deal in any financial instruments for their own account or underwrite issues of financial instruments on a firm commitment basis, but which hold clients' money or securities, or both, and which offer one or more of the following services, shall have initial capital of EUR 125,000:
(a) the reception and transmission of investors' orders for financial instruments,
(b) the execution of investors' orders for financial instruments, or
(c) the management of individual portfolios of investments in financial instruments.
(2) The Bank may allow an investment firm which executes investors' orders for financial instruments to hold such instruments for its own account if the following conditions are met:
(a) such positions arise only as a result of the firm's failure to match investors' orders precisely,
(b) the total market value of all such positions is subject to a ceiling of 15 % of the firm's initial capital,
(c) the firm meets the requirements set out in Regulations 16, 18 and 26, and
(d) such positions are incidental and provisional in nature and strictly limited to the time required to carry out the transaction in question.
(3) The holding of non-trading-book positions in financial instruments in order to invest own funds shall not be considered as dealing for the services set out in paragraph (1).
(4) The Bank may reduce the amount referred to in paragraph(1) to EUR 50,000 where a firm is not authorised to hold clients' money or securities, to deal for its own account or to underwrite issues on a firm commitment basis.
Initial capital for local firms.
num: 5
paragraphs: Local firms shall have initial capital of EUR 50,000 in so far as they benefit from the freedom of establishment or to provide services specified in Article 31 or 32 of Directive 2004/39/EC.
Coverage for investment firms referred to in paragraph (c) of definition of “investment firm”.
num: 6
paragraphs: Coverage for investment firms referred to in paragraph (c) of the definition of “investment firms” shall take one of the following forms:
(a) initial capital of EUR 50,000,
(b) professional indemnity insurance covering the whole territory of the Community or some other comparable guarantee against liability arising from professional negligence, representing at least EUR 1,000,000 applying to each claim and in aggregate EUR 1,500,000 per year for all claims, or
(c) a combination of initial capital and professional indemnity insurance in a form resulting in a level of coverage equivalent to that referred to in subparagraph (a) or (b).
Coverage for investment firms referred to in Regulation 6 that are also registered under Directive 2002/92/EC.
num: 7
paragraphs: Where an investment firm referred to in paragraph (c) of the definition of “investment firm” is also registered under Directive 2002/92/EC, it shall comply with Article 4(3) of that Directive and have coverage in one of the following forms:
(a) initial capital of EUR 25,000,
(b) professional indemnity insurance covering the whole territory of the Community or some other comparable guarantee against liability arising from professional negligence, representing at least EUR 500,000 applying to each claim and in aggregate EUR 750,000 per year for all claims, or
(c) a combination of initial capital and professional indemnity insurance in a form resulting in a level of coverage equivalent to that referred to in subparagraph (a) or (b).
Initial capital for investment firms that do not fall within Regulations 4 to 7.
num: 8
paragraphs: All investment firms other than those referred to in Regulations 4 to 7 shall have initial capital of EUR 730,000.
Mergers.
num: 9
paragraphs: (1) In certain specific circumstances, and with the consent of the Bank, in the event of a merger of two or more investment firms or firms covered by Regulation 5, or in both those circumstances, the own funds of the firm produced by the merger need not attain the level specified in Regulations 4(1) or (4), 5 and 8.
(2) Notwithstanding paragraph (1), during any period when the levels specified in Regulations 4(1) or (4), 5 and 8 have not been attained, the own funds of the new firm may not fall below the merged firms' total own funds at the time of the merger.
(3) The own funds of investment firms and firms covered by Regulation 5 shall not fall below the level specified in Regulations 4(1) or (4), 5 and 8 and paragraph (1).
(4) Where firms fail to comply with paragraph (3), the Bank may, where the circumstances justify it, allow such firms a limited period in which to rectify their situations or cease their activities.
PART 3
TRADING BOOK
What constitutes trading book.
num: 10
paragraphs: (1) The trading book of an institution shall consist of all positions in financial instruments and commodities held either with trading intent or in order to hedge other elements of the trading book, which must either be free of any restrictive covenants on their tradability or able to be hedged.
(2) Positions held with trading intent are those held intentionally for short-term resale or with the intention of benefiting from actual or expected short-term price differences between buying and selling prices, or both, or from other price or interest rate variations.
(3) Trading intent shall be evidenced based on the strategies, policies and procedures set up by the institution to manage the position or portfolio in accordance with Part A of Annex VII to the recast Directive (IF).
(4) Institutions shall establish and maintain systems and controls to manage their trading book in accordance with Parts B and D of Annex VII to the recast Directive (IF).
(5) Internal hedges may be included in the trading book, in which case Part C of Annex VII to the recast Directive (IF) shall apply.
(6) In paragraph (2), “positions” include proprietary positions and positions arising from client servicing and market making.
PART 4
OWN FUNDS
Own funds of investment firms and credit institutions.
num: 11
paragraphs: (1) Subject to paragraphs (3) to (10) and Regulations 12 to 15, the own funds of investment firms and credit institutions shall be determined in accordance with Directive 2006/48/EC.
(2) Paragraph (1) shall also apply to investment firms which do not have one of the legal forms referred to in Article 1 (1) of the Fourth Council Directive 78/660/EEC of 25 July 1978 based on Article 54(3)(g) of the Treaty on the annual accounts of certain types of companies5 .
(3) The Bank may permit those institutions which are obliged to meet the capital requirements calculated in accordance with Regulation 19 and Chapter 4 of Part 5 and Annexes I, and III to VI, to the recast Directive (IF), to use, for that purpose only, an alternative determination of own funds.
(4) No part of the own funds used for the purpose of paragraph (3) may be used simultaneously to meet other capital requirements.
(5) The alternative determination shall be the sum of the items set out in subparagraphs (a), (b) and (c), minus the item set out in subparagraph (d), with the deduction of that last item being left to the discretion of the Bank:
(a) own funds as defined in Directive 2006/48/EC excluding only the items referred to in subparagraphs (d) to (h) of Regulation 3(2) of the CRD Regulations (CI) for those investment firms which are required to deduct the item referred to in subparagraph (d) from the total of the items referred to in this subparagraph and subparagraphs (b) and (c),
(b) an institution's net trading-book profits net of any foreseeable charges or dividends, less net losses on its other business provided that none of those amounts has already been included under subparagraph (a) as one of the items set out in subparagraph (b) of Regulation 3(1), or subparagraph (c) of Regulation 3(2), of the CRD Regulations (CI),
(c) subordinated loan capital or the items referred to in paragraph (10), or both, subject to the conditions set out in paragraphs (6) to (9) and Regulation 12, and
(d) illiquid assets specified in Regulation 13.
(6) The subordinated loan capital referred to in paragraph (5)(c) shall have an initial maturity of at least two years, be fully paid up and the loan agreement shall not include any clause providing that in specified circumstances other than the winding up of the institution the debt will become repayable before the agreed repayment date, unless the Bank approves the repayment.
(7) Neither the principal nor the interest on subordinated loan capital referred to in paragraph (5)(c) may be repaid if such repayment would mean that the own funds of the institution in question would then amount to less than 100% of that institution's overall capital requirements.
(8) An institution shall notify the Bank of all repayments on subordinated loan capital referred to in paragraph (5)(c) as soon as its own funds fall below 120% of its overall capital requirements.
(9) The subordinated loan capital referred to in paragraph (5)(c) may not exceed a maximum of 150% of the original own funds left to meet the requirements calculated in accordance with Regulation 19 and Chapter 4 of Part 5 and Annexes I to VI to the recast Directive (IF) and may approach that maximum only in particular circumstances acceptable to the Bank.
(10) The Bank may permit institutions to replace the subordinated loan capital referred to in paragraph (5)(c) with the items referred to in subparagraphs (c), (d) and (e) of Regulation (3)(1) of the CRD Regulations (CI).
Exceptions to Regulation 11(9).
num: 12
paragraphs: (1) The Bank may permit investment firms to exceed the ceiling for subordinated loan capital set out in Regulation 11(9) if it judges it prudentially adequate and provided that the total of such subordinated loan capital and the items referred to in Regulation 11(10) does not exceed 200% of the original own funds left to meet the requirements calculated in accordance with Regulation 19 and Chapter 4 of Part 5 and Annexes I, and III to VI, to the recast Directive (IF) or 250% of the same amount where investment firms deduct the item set out in Regulation 11(5)(d) when calculating own funds.
(2) The Bank may permit the ceiling for subordinated loan capital set out Regulation 11(9) to be exceeded by a credit institution if it judges it prudentially adequate and provided that the total of such subordinated loan capital and subparagraphs (c), (d) and (e) of Regulation 3(1) of the CRD Regulations (CI) does not exceed 250% of the original own funds left to meet the requirements calculated in accordance with Chapter 4 of Part 5 and Annexes I, and III to VI, to the recast Directive (IF).
Illiquid assets.
num: 13
paragraphs: (1) Illiquid assets referred to in Regulation 11(5)(d) shall include the following:
(a) tangible fixed assets, except to the extent that land and buildings may be allowed to count against the loans which they are securing,
(b) holdings in, including subordinated claims on, credit or financial institutions which may be included in the own funds of those institutions, unless they have been deducted under subparagraphs (d) to (h) of Regulation 3(2) of the CRD Regulations (CI) or under Regulation 14(d),
(c) holdings and other investments, in undertakings other than credit institutions and other financial institutions, which are not readily marketable,
(d) deficiencies in subsidiaries,
(e) deposits made, other than those which are available for repayment within 90 days, and also excluding payments in connection with margined futures or options contracts,
(f) loans and other amounts due, other than those due to be repaid within 90 days, and
(g) physical stocks, unless they are already subject to capital requirements at least as stringent as those set out in Regulations 16 and 18.
(2) For the purposes of paragraph (1)(b), where shares in a credit or financial institution are held temporarily for the purpose of a financial assistance operation designed to reorganise and save that institution, the Bank may waive that paragraph and also waive it in respect of those shares which are included in the investment firm's trading book.
Investment firms granted waiver under Regulation 20.
num: 14
paragraphs: Investment firms included in a group which has been granted the waiver provided for in Regulation 20 shall calculate their own funds in accordance with Regulations 11, 12 and 13 subject to the following conditions:
(a) the illiquid assets referred to in Regulation 11(5)(d) shall be deducted,
(b) the exclusion referred to in Regulation 11(5)(a) shall not cover those components of subparagraphs (d) to (h) of Regulation 3(2) of the CRD Regulations (CI) which an investment firm holds in respect of undertakings included in the scope of consolidation as defined in Regulation 3(1) to (5),
(c) the limits referred to in Regulation 11(1) of the CRD Regulation (CI) shall be calculated with reference to the original own funds less the components of subparagraphs (d) to (h) of Regulation 3(2) of the CRD Regulations (CI) referred to in paragraph (b) which are elements of the original own funds of the undertakings in question, and
(d) the components of subparagraphs (d) to (h) of Regulation 3(2) of the CRD Regulations (CI) referred to in paragraph (c) shall be deducted from the original own funds rather than from the total of all items as set out in Regulation 15(2, (3) and (4) of the CRD Regulations (CI) for the purposes, in particular, of Regulations 11(9) and (10) and 12.
Provisions applicable to institutions which use Chapter 3 of Part 4 of the CRD Regulations (CI).
num: 15
paragraphs: (1) Where an institution calculates risk-weighted exposure amounts for the purposes of Annex II to the recast Directive (IF) in accordance with Chapter 3 of Part 4 of the CRD Regulations (CI), then for the purposes of the calculation provided for in point 4 of Part 1 of Annex VII to Directive 2006/48/EC, the following shall apply:
(a) value adjustments made to take account of the credit quality of the counterparty may be included in the sum of value adjustments and provisions made for the exposures indicated in Annex II to the recast Directive (IF),
(b) subject to the approval of the Bank, if the credit risk of the counterparty is adequately taken into account in the valuation of a position included in the trading book, the expected loss amount for the counterparty risk exposure shall be zero.
(2) For the purposes of subparagraph (a) of paragraph (1), such value adjustments shall not be included in own funds other than in accordance with paragraph (1).
(3) For the purposes of this Regulation, Regulations 83 and 84 of the CRD Regulations (CI) shall apply.
PART 5
MINIMUM OWN FUNDS REQUIREMENTS FOR CREDIT RISK
Chapter 1
Provisions Against Risks
Own funds required.
num: 16
paragraphs: (1) Subject to paragraph (2), institutions shall have own funds which are always more than or equal to the sum of the following:
(a) the capital requirements, calculated in accordance with the methods and options set out in Chapter 4 of Part 5 and Annexes I, II and VI to the recast Directive (IF) and, as appropriate, Annex V to the recast Directive (IF), for their trading-book business, and
(b) the capital requirements, calculated in accordance with the methods and options set out in Annexes III and IV to the recast Directive (IF) and, as appropriate, Annex V to the recast Directive (IF), for all of their business activities.
(2) The Bank may allow institutions to calculate the capital requirements for their trading book business in accordance with Regulation 19(a) of the CRD Regulations (CI) and points 6, 7 and 9 of Annex II to the recast Directive (IF), rather than in accordance with Annexes I and II to the recast Directive (IF), where the size of the trading book business meets the following requirements:
(a) the trading-book business of such institutions does not normally exceed 5% of their total business,
(b) their total trading-book positions do not normally exceed EUR 15 million, and
(c) the trading-book business of such institutions never exceeds 6% of their total business and their total trading-book positions never exceed EUR 20 million.
(3) In order to calculate the proportion that trading-book business bears to total business for the purposes of subparagraphs (a) and (c) of paragraph (2), the Bank may refer either to the size of the combined on- and off-balance-sheet business, to the profit and loss account or to the own funds of the institutions in question, or to a combination of those measurements.
(4) For the purposes of paragraph (3) -
(a) when the size of on- and off-balance-sheet business is assessed, debt instruments shall be valued at their market prices or their principal values, equities at their market prices and derivatives in accordance with the nominal or market values of the instruments underlying them, and
(b) long positions and short positions shall be summed regardless of their signs.
(5) Where an institution happens for more than a short period to exceed either or both of the limits imposed in subparagraphs (a) and (b) of paragraph (2) or to exceed either or both of the limits imposed in subparagraph (c) of paragraph (2), it shall be required to meet the requirements imposed in paragraph (1)(a) in respect of its trading-book business and to notify the Bank.
Risk-weighting of certain debt securities.
num: 17
paragraphs: (1) For the purposes of point 14 of Annex I to the recast Directive (IF), and subject to the approval of the Bank, a 0% weighting can be assigned to debt securities issued by the entities listed in Table 1 of Annex I to the recast Directive (IF) where those debt securities are denominated and funded in domestic currency.
(2) Notwithstanding points 13 and 14 of Annex I to the recast Directive (IF), the specific risk requirement for any bonds falling within points 68 to 70 of Part 1 of Annex VI to Directive 2006/48/EC is equal to the specific risk requirement for a qualifying item with the same residual maturity as such a bond, reduced in accordance with the percentages given in point 71 of Part 1 of Annex VI to Directive 2006/48/EC.
(3) Where, as set out in point 52 of Annex I to the recast Directive (IF), a competent authority approves a third country's collective investment undertaking (referred to in these Regulations as “CIU”) as eligible, the Bank may make use of this recognition without conducting its assessment.
Exemptions for investment firms that do not hold client money.
num: 18
paragraphs: (1) Subject to paragraphs (2), (3) and (4) and Regulations 32 and 41, the requirements in Regulation 19 of the CRD Regulations (CI) shall apply to investment firms.
(2) The Bank may allow investment firms that are not authorised to provide the investment services listed in points 3 and 6 of Section A of Annex I to Directive 2004/39/EC to provide own funds which are always more than or equal to the higher of the following:
(a) the sum of the capital requirements contained in Regulation 19(a), (b) and (c) of the CRD Regulations (CI), and
(b) the amount set out in Regulation 19.
(3) The Bank may allow investment firms which hold initial capital as set out in Regulation 8, but which fall within the following categories, to provide own funds which are always more than or equal to the sum of the capital requirements calculated in accordance with the requirements contained in Regulation 19(a), (b) and (c) of the CRD Regulations (CI) and the amount set out in Regulation 19:
(a) investment firms that deal on own account only for the purpose of fulfilling or executing a client order or for the purpose of gaining entrance to a clearing and settlement system or a recognised exchange when acting in an agency capacity or executing a client order, and
(b) investment firms -
(i) that do not hold client money or securities,
(ii) that undertake only dealing on own account,
(iii) that have no external customers,
(iv) the execution and settlement of transactions of which take place under the responsibility of a clearing institution and are guaranteed by that clearing institution.
(4) Investment firms referred to in paragraphs (2) and (3) shall remain subject to all other provisions regarding operational risk set out in Annex V to Directive 2006/48/EC.
(5) Regulation 19 shall apply only to investment firms to which paragraph (2) or (3) or Regulation 41 applies and in the manner specified therein.
Investment firms to hold own funds equivalent to one quarter of preceding year's fixed overheads.
num: 19
paragraphs: (1) Subject to paragraphs (2) and (3), investment firms shall hold own funds equivalent to one quarter of their preceding year's fixed overheads.
(2) The Bank may adjust the requirement referred to in paragraph (1) in the event of a material change in a firm's business since the preceding year.
(3) Where a firm has not completed a year's business, including the day it starts up, the requirement referred to in paragraph (1) shall be a quarter of the fixed overheads figure projected in its business plan unless an adjustment to that plan is required by the Bank.
Chapter 2
Application of Requirements on Consolidated Basis
Bank may waive certain consolidation requirements.
num: 20
paragraphs: (1) Subject to paragraphs (3) and (4), where the Bank is required to exercise supervision of groups on a consolidated basis, it may waive, on a case by case basis, the application of capital requirements on a consolidated basis provided that:
(a) each EU investment firm in such a group uses the calculation of own funds used in Regulation 14,
(b) all investment firms in such a group fall within the categories in Regulation 18(2) and (3),
(c) each EU investment firm in such a group meets the requirements imposed in Regulations 16 and 18 on an individual basis and at the same time deducts from its own funds any contingent liability in favour of investment firms, financial institutions, asset management companies and ancillary services undertakings which would otherwise be consolidated,
(d) any financial holding company which is the parent financial holding company in a Member State of any investment firm in such a group holds at least as much capital (being the sum of subparagraphs (a) to (e) of Regulation 3(1) of the CRD Regulations (CI)) as the sum of the full book value of any holdings, subordinated claims, and instruments referred to in Regulation 3 of the CRD Regulations (CI) in investment firms, financial institutions, asset management companies and ancillary services undertakings which would otherwise be consolidated, and the total amount of any contingent liability in favour of investment firms, financial institutions, asset management companies and ancillary services undertakings which would otherwise be consolidated.
(2) Where the criteria in paragraph (1) are met, each EU investment firm shall have in place systems to monitor and control the sources of capital and funding of all financial holding companies, investment firms, financial institutions, asset management companies and ancillary services undertakings within the group.
(3) The Bank may permit financial holding companies which are the parent financial holding companies in a Member State of an investment firm in such a group to use a value lower than the value calculated under paragraph (1)(d), but not lower than the sum of the requirements imposed in Regulations 16 and 18 on an individual basis to investment firms, financial institutions, asset management companies and ancillary services undertakings which would otherwise be consolidated, and the total amount of any contingent liability in favour of investment firms, financial institutions, asset management companies and ancillary services undertakings which would otherwise be consolidated.
(4) For the purposes of paragraph (3), the capital requirement for investment undertakings of third countries, financial institutions, asset management companies and ancillary services undertakings is a notional capital requirement.
Provisions supplementary to Regulation 20.
num: 21
paragraphs: (1) The Bank shall require investment firms in a group which has been granted the waiver provided for in Regulation 20 to notify the Bank of the risks which could undermine their financial positions, including those associated with the composition and sources of their capital and funding.
(2) Where the Bank considers that the financial positions of investment firms referred to in paragraph (1) are not adequately protected, it shall require the investment firms to take measures including, if necessary, limitations on the transfer of capital from such firms to group entities.
(3) Where the Bank waives the obligation of supervision on a consolidated basis provided for in Regulation 20, it shall take other appropriate measures to monitor the risks, namely large exposures, of the whole group, including any undertakings not located in a Member State.
(4) Where the Bank waives the application of capital requirements on a consolidated basis provided for in Regulation 20, the requirements of Regulation 65 and Part 11 of the CRD Regulations (CI) shall apply on an individual basis and the requirements of Regulation 66 of the CRD Regulations (CI) shall apply to the supervision of investment firms on an individual basis.
Exceptions to Regulation 3(6).
num: 22
paragraphs: (1) The Bank may exempt investment firms from the consolidated capital requirement established in Regulation 3(6) provided that all the investment firms in the group fall within the investment firms referred to in Regulation 18(2) and the group does not include credit institutions.
(2) Where the requirements of paragraph (1) are met, a parent investment firm in the State shall be required to provide own funds at a consolidated level which are always more than or equal to the higher of the following two amounts, calculated on the basis of the parent investment firm's consolidated financial position and in compliance with Chapter 3:
(a) the sum of the capital requirements contained in Regulation 19(a), (b) and (c) of the CRD Regulations (CI), and
(b) the amount set out in Regulation 19.
(3) Where the requirements of paragraph (1) are met, an investment firm controlled by a financial holding company shall be required to provide own funds at a consolidated level which are always more than or equal to the higher of the following two amounts, calculated on the basis of the financial holding company's consolidated financial position and in compliance with Chapter 3:
(a) the sum of the capital requirements contained in Regulation 19(a), (b) and (c) of the CRD Regulations (CI), and
(b) the amount set out in Regulation 19.
Further exceptions to Regulation 3(6).
num: 23
paragraphs: (1) The Bank may exempt investment firms from the consolidated capital requirement established in Regulation 3(6), provided that all the investment firms in the group fall within the investment firms referred to in Regulations 18(2) and (3) and the group does not include credit institutions.
(2) Where the requirements of paragraph (1) are met, a parent investment firm in the State shall be required to provide own funds at a consolidated level which are always more than or equal to the sum of the requirements contained in Regulation 19(a), (b) and (c) of the CRD Regulations (CI) and the amount set out in Regulation 19, calculated on the basis of the parent investment firm's consolidated financial position and in compliance with Chapter 3.
(3) Where the requirements of the paragraph (1) are met, an investment firm controlled by a financial holding company shall be required to provide own funds at a consolidated level which are always more than or equal to the sum of the requirements contained in Regulation 19(a), (b) and (c) of the CRD Regulations (CI) and the amount set out in Regulation 18, calculated on the basis of the financial holding company's consolidated financial position and in compliance with Chapter 3.
Chapter 3
Calculation of Consolidated Requirements
Offsetting of trading book and foreign exchange and commodities positions between institutions of group.
num: 24
paragraphs: (1) Where the right of waiver provided for in Regulation 20 is not exercised, the Bank may, for the purpose of calculating the capital requirements set out in Annexes I and V to the recast Directive (IF) and the exposures to clients set out in Chapter 4 and Annex VI to the recast Directive (IF) on a consolidated basis, permit positions in the trading book of one institution to offset positions in the trading book of another institution in accordance with Chapter 4 and Annexes I, V and VI to the recast Directive (IF).
(2) The Bank may allow foreign-exchange positions in one institution to offset foreign-exchange positions in another institution in accordance with Annex III or V to the recast Directive (IF), or both such Annexes.
(3) The Bank may permit commodities positions in one institution to offset commodities positions in another institution in accordance with Annex IV or V to the recast Directive (IF), or both such Annexes.
(4) The Bank may permit offsetting of the trading book and of the foreign-exchange and commodities positions, respectively, of undertakings located in third countries, subject to the simultaneous fulfilment of the following conditions:
(a) those undertakings have been authorized in a third country and either satisfy the definition of credit institution set out in Article 4(1) of Directive 2006/48/EC or are recognized third-country investment firms,
(b) such undertakings comply, on a solo basis, with capital adequacy rules equivalent to those set out in these Regulations, and
(c) no regulations exist in the countries in question which might significantly affect the transfer of funds within the group.
(5) The Bank may permit the offsetting provided for in paragraphs (1) and (2) between institutions within a group that have been authorized in the Member State in question provided that:
(a) there is a satisfactory allocation of capital within the group, and
(b) the regulatory, legal or contractual framework in which the institutions operate is such as to guarantee mutual financial support within the group.
(6) The Bank may permit the offsetting provided for in paragraphs (1) and (2) between institutions within a group that fulfil the conditions imposed in paragraph (5) and any institution included in the same group which has been authorized in another Member State provided that that institution is obliged to fulfil the capital requirements imposed in Regulations 16, 18 and 26 on an individual basis.
Application of Regulation 10 of CRD Regulations (CI).
num: 25
paragraphs: (1) In the calculation of own funds on a consolidated basis, Regulation 10 of the CRD Regulations (CI) shall apply.
(2) The Bank, where it is responsible for exercising supervision on a consolidated basis, may recognise the validity of the specific own funds definitions applicable to the institutions concerned under Part 4 in the calculation of their consolidated own funds.
Chapter 4
Monitoring and Control of Large Exposures
Application of Part 6 of CRD Regulations (CI) to large exposures.
num: 26
paragraphs: (1) Subject to paragraph (2), institutions shall monitor and control their large exposures in accordance with Part 6 of the CRD Regulations (CI).
(2) Institutions which calculate the capital requirements for their trading-book business in accordance with Annexes I and II to the recast Directive (IF), and, as appropriate, Annex V to the recast Directive (IF), shall monitor and control their large exposures in accordance with Part 6 of the CRD Regulations (CI) subject to the amendments set out in Regulations 27 to 30.
Exposures to individual clients which arise on trading book.
num: 27
paragraphs: (1) The exposures to individual clients which arise on the trading book shall be calculated by summing the following items:
(a) the excess (where positive) of an institution's long positions over its short positions in all the financial instruments issued by the client in question, with the net position in each of the different instruments being calculated in accordance with the methods set out in Annex I to the recast Directive (IF),
(b) the net exposure, in the case of the underwriting of a debt or an equity instrument, and
(c) the exposures due to the transactions, agreements and contracts referred to in Annex II to the recast Directive (IF) with the client in question, such exposures being calculated in the manner set out in that Annex, for the calculation of exposure values.
(2) For the purposes of paragraph (1)(b) -
(a) the net exposure is calculated by deducting those underwriting positions which are subscribed or sub-underwritten by third parties on the basis of a formal agreement reduced by the factors set out in point 41 of Annex I to the recast Directive (IF), and
(b) pending further coordination, the Bank shall require institutions to set up systems to monitor and control their underwriting exposures between the time of the initial commitment and working day one in the light of the nature of the risks incurred in the markets in question.
(3) For the purposes of paragraph (1)(c), Chapter 3 of Part 4 of the CRD Regulations (CI) shall be excluded from the reference in point 6 of Annex II to the recast Directive (IF).
(4) The exposures to groups of connected clients on the trading book shall be calculated by summing the exposures to individual clients in a group, as calculated in paragraphs (1), (2) and (3).
Overall exposures to individual clients or groups.
num: 28
paragraphs: (1) The overall exposures to individual clients or groups of connected clients shall be calculated by summing the exposures which arise on the trading book and the exposures which arise on the non-trading book, taking into account Regulations 58, 59 and 60 of the CRD Regulations (CI).
(2) In order to calculate the exposure on the non-trading book, institutions shall take the exposure arising from assets which are deducted from their own funds by virtue of Regulation 11(5)(d) to be zero.
(3) Institutions' overall exposures to individual clients and groups of connected clients calculated in accordance with paragraph (1) shall be reported in accordance with Regulation 56 of the CRD Regulations (CI).
(4) Other than in relation to repurchase transactions, securities or commodities lending or borrowing transactions, the calculation of large exposures to individual clients and groups of connected clients for reporting purposes shall not include the recognition of credit risk mitigation.
(5) Subject to paragraph (6), the sum of the exposures to an individual client or group of connected clients in paragraphs (1) and (2) shall be limited in accordance with Regulations 57 to 60 of the CRD Regulations (CI).
(6) The Bank may allow assets constituting claims and other exposures on recognised third-country investment firms and recognised clearing houses and exchanges in financial instruments to be subject to the same treatment accorded to those on institutions set out in Regulation 59(1)(i) of the CRD Regulations (CI).
Circumstances in which limits set out in Regulations 57 to 60 of CRD Regulations (CI) may be exceeded.
num: 29
paragraphs: (1) The Bank may authorize the limits set out in Regulations 57 to 60 of the CRD Regulations (CI) to be exceeded if the following conditions are met:
(a) the exposure on the non-trading book to the client or group of clients in question does not exceed the limits set out in Regulations 57 to 60 of the CRD Regulations (CI), calculated with reference to own funds as specified in Directive 2006/48/EC, so that the excess arises entirely on the trading book,
(b) the institution meets an additional capital requirement on the excess in respect of the limits set out in Regulation 57(1) to (4) of the CRD Regulations (CI), calculated in accordance with Annex VI to Directive 2006/48/EC,
(c) where 10 days or less has elapsed since the excess occurred, the trading-book exposure to the client or group of connected clients in question does not exceed 500% of the institution's own funds,
(d) any excesses which have persisted for more than 10 days do not, in aggregate, exceed 600% of the institution's own funds, and
(e) institutions report to the Bank every three months all cases where the limits set out in Regulation 57(1) to (4) of the CRD Regulations (CI) have been exceeded during the preceding three months.
(2) For the purposes of paragraph (1)(e), in each case in which the limits have been exceeded the amount of the excess and the name of the client concerned shall be reported.
Establishment of certain procedures.
num: 30
paragraphs: (1) The Bank shall establish procedures to prevent institutions from deliberately avoiding the additional capital requirements that they would otherwise incur, on exposures exceeding the limits set out in Regulation 57(1) to (4) of the CRD Regulations (CI) once those exposures have been maintained for more than 10 days, by means of temporarily transferring the exposures in question to another company, whether within the same group or not, or by undertaking artificial transactions to close out the exposure during the 10 day period and create a new exposure, or by both such means.
(2) The Bank shall notify the Council and the Commission of those procedures.
(3) Institutions shall maintain systems which ensure that any transfer which has the effect referred to in paragraph (1) is immediately reported to the Bank.
(4) The Bank may permit institutions which are allowed to use the alternative determination of own funds under Regulation 11(3), (4) and (5) to use that determination for the purposes of Regulations 28(3), (4) and (5) and 29 provided that the institutions concerned are required to meet all of the obligations set out in Regulations 57 to 60 of the CRD Regulations (CI), in respect of the exposures which arise outside their trading books by using own funds as defined in Directive 2006/48/EC.
Chapter 5
Valuation of Positions for Reporting Purposes
Trading book positions to be subject to certain prudent valuation rules.
num: 31
paragraphs: (1) All trading book positions shall be subject to prudent valuation rules as set out in Part B of Annex VII to the recast Directive (IF).
(2) The rules referred to in paragraph (1) shall require institutions to ensure that the value applied to each of its trading book positions appropriately reflects the current market value.
(3) The value referred to in paragraph (2) shall contain an appropriate degree of certainty having regard to the dynamic nature of trading book positions, the demands of prudential soundness and the mode of operation and purpose of capital requirements in respect of trading book positions.
(4) Trading book positions shall be re-valued at least daily.
(5) In the absence of readily available market prices, the Bank may waive the requirement imposed in this Regulation and shall require institutions to use alternative methods of valuation provided that those methods are sufficiently prudent and have been approved by the Bank.
Chapter 6
Risk Management and Capital Assessment
Risk management and capital assessment.
num: 32
paragraphs: The Bank shall require that every investment firm, as well as meeting the requirements set out in Article 13 of Directive 2004/39/EC, shall meet the requirements of Regulation 65 of the CRD Regulations (CI) and Regulation 16(3) and (4) (as inserted by Regulation 79 of the CRD Regulations (CI)) of the European Communities (Licensing and Supervision of Credit Institutions) Regulations 1992 (S.I. 395 of 1992), subject to the provisions on level of application in Regulations 13 to 17 of the CRD Regulations (CI).
Chapter 7
Reporting Requirements
Reporting requirements.
num: 33
paragraphs: (1) Investment firms and credit institutions shall provide the Bank with all the information necessary for the assessment of their compliance with these Regulations.
(2) Internal control mechanisms and administrative and accounting procedures of the institutions shall permit the verification of their compliance referred to in paragraph (1) at all times.
(3) Subject to paragraph (4), investment firms shall report to the Bank in the manner specified by the latter at least once every month in the case of firms covered by Regulation 8, at least once every three months in the case of firms covered by Regulation 4(1) and at least once every 6 months in the case of firms covered by Regulation 4(4).
(4) Investment firms covered by Regulations 4(1) and 8 shall be required to provide the information on a consolidated or sub-consolidated basis only once every six months.
(5) Credit institutions shall be obliged to report in the manner specified by the Bank as often as they are obliged to report under the CRD Regulations (CI).
(6) The Bank shall oblige institutions to report to them immediately any case in which their counterparties in repurchase and reverse repurchase agreements or securities and commodities-lending and securities and commodities-borrowing transactions default on their obligations.
PART 6
COMPETENT AUTHORITIES AND SUPERVISION
Chapter 1
Competent Authority
Designation of Bank as competent authority.
num: 34
paragraphs: The Bank is hereby designated as the authority competent to carry out the duties provided for in these Regulations.
Chapter 2
Supervision
Application of Part 9 of CRD Regulations (CI).
num: 35
paragraphs: (1) Part 9 of the CRD Regulations shall apply mutatis mutandis to the supervision of investment firms in accordance with the following:
(a) references to Article 6 of Directive 2006/48/EC shall be construed as references to Article 5 of Directive 2004/39/EC,
(b) references to Regulation 64 of the CRD Regulations (CI) and Regulation 16(3) and (4) (as inserted by Regulation 79 of the CRD Regulations (CI)) of the European Communities (Licensing and Supervision of Credit Institutions) Regulations 1992 shall be construed as references to Regulation 32, and
(c) references to Articles 44 to 52 of Directive 2006/48/EC shall be read as references to Articles 54 and 58 of Directive 2004/39/EC.
(2) Where an EU parent financial holding company has as a subsidiary both a credit institution and an investment firm, Part 9 of the CRD Regulations (CI) shall apply to the supervision of institutions as if references to credit institutions were institutions.
(3) The requirements set out in Regulation 67(2) to (9) of the CRD Regulations (CI) shall also apply to the recognition of internal models of institutions under Annex V to the recast Directive (IF) where the application is submitted by an EU parent credit institution and its subsidiaries or an EU parent investment firm and its subsidiaries, or jointly by the subsidiaries of an EU parent financial holding company.
(4) The period for the recognition referred to in paragraph (3) shall be six months.
Cooperation between competent authorities.
num: 36
paragraphs: (1) The Bank shall cooperate closely with the competent authorities of the Member States in the performance of the duties provided for in these Regulations, particularly where investment services are provided on a services basis or through the establishment of branches.
(2) The Bank shall on request supply other competent authorities with all information likely to facilitate the supervision of the capital adequacy of institutions, in particular the verification of their compliance with the recast Directive (IF).
(3) Any exchange of information between competent authorities which is provided for in the recast Directive (IF) in respect of investment firms shall be subject to the following obligations of professional secrecy:
(a) for investment firms, those imposed in Articles 54 and 58 of Directive 2004/39/EC, and
(b) for credit institutions, those imposed in Articles 44 to 52 of Directive 2006/48/EC.
PART 7
DISCLOSURES
Disclosures.
num: 37
paragraphs: The requirements set out in Part 11 of the CRD Regulations (CI) shall apply to investment firms.
PART 8
MISCELLANEOUS
Chapter 1
Exposures to third-country investment firms
Exposures to third-country investment firms, etc. to be treated as exposures to institutions.
num: 38
paragraphs: For the purposes of the calculation of minimum capital requirements for counterparty risk under these Regulations, and for credit risk under Directive 2006/48/EC, and without prejudice to point 6 of Part 2 of Annex III to Directive 2006/48/EC, exposures to recognized third-country investment firms and exposures incurred to recognized clearing houses and exchanges shall be treated as exposures to institutions.
Chapter 2
Transitional Provisions
Transitional provisions - general.
num: 39
paragraphs: Regulation 82(1) to (7) of the CRD Regulations (CI) shall apply, in accordance with Regulation 3 and Chapters 2 and 3 of Part 4, to investment firms calculating risk-weighted exposure amounts, for the purposes of Annex II to the recast Directive (IF), in accordance with Chapter 3 of Part 4 of the CRD Regulations (CI), or using the Advanced Measurement Approach as specified in Regulation 51 of the CRD Regulations (CI) for the calculation of their capital requirements for operational risk.
Transitional provisions - large exposures.
num: 40
paragraphs: (1) The Bank may permit investment firms to exceed the limits concerning large exposures in Regulation 57 of the CRD Regulations (CI).
(2) Any excess referred to in paragraph (1) need not be included by the investment firms in their calculation of capital requirements exceeding such limits, as set out in Regulation 19(b) of the CRD Regulations (CI).
(3) The discretion in paragraph (1) is available until 31 December 2010 or the date of coming into force of any modifications consequent on the treatment of large exposures, pursuant to Article 119 of Directive 2006/48/EC, whichever is the earlier.
(4) For the discretion in paragraph (1) to be exercised, the following conditions must be met:
(a) the investment firm provides investment services or investment activities related to the financial instruments listed in points 5, 6, 7, 9 and 10 of Section C of Annex I to Directive 2004/39 EC,
(b) the investment firm does not provide such investment services or undertake such investment activities for, or on behalf of, retail clients,
(c) breaches of the limits referred to in paragraph (1) arise in connection with exposures resulting from contracts that are financial instruments listed in subparagraph (a) and relate to commodities or underlyings within the meaning of point 10 of Section C of Annex I to Directive 2004/39/EC (MiFID) and are calculated in accordance with Annexes III and IV to Directive 2006/48/EC, or from contracts concerning the delivery of commodities or emission allowances,
(d) the investment firm -
(i) has a documented strategy for managing and, in particular, for controlling and limiting risks arising from the concentration of exposures,
(ii) informs the Bank of this strategy and all material changes to this strategy without delay,
(iii) makes appropriate arrangements to ensure a continuous monitoring of the creditworthiness of borrowers, in accordance with their impact on concentration risk, and
(iv) is enabled by these arrangements to react adequately and sufficiently promptly to any deterioration in that creditworthiness.
(5) Where an investment firm exceeds the internal limits set in accordance with the strategy referred to in paragraph (4)(d), it shall notify the Bank without delay of the size and nature of the excess and the counterparty.
Transitional provisions - disapplication of Regulation 19(d) of CRD Regulations (CI).
num: 41
paragraphs: (1) Until 31 December 2011, the Bank may choose, on a case by case basis, not to apply the capital requirements arising from Regulation 19(d) of the CRD Regulations (CI) in respect of investment firms to which Regulation 18(2) and (3) does not apply, whose total trading book positions never exceed EUR 50 million and whose average number of relevant employees during the financial year does not exceed 100.
(2) Instead, the capital requirement in relation to those investment firms shall be at least the lower of:
(a) the capital requirements arising from Regulation 19(d) of the CRD Regulations (CI), and
(b) 12/88 of the higher of the following:
(i) the sum of the capital requirements contained in Regulation 19(a), (b) and (c) of the CRD Regulations (CI), and
(ii) the amount set out in Regulation 19, notwithstanding Regulation 18(5).
(3) Where paragraph (2)(b) applies, an incremental increase shall be applied on at least an annual basis.
(4) Applying this Regulation shall not result in a decrease in the overall level of capital requirements for an investment firm, in comparison to the requirements at 31 December 2006, unless such a reduction is prudentially justified by a reduction in the size of the investment firm's business.
Transitional provisions - specific risk model recognition prior to 1 January 2007.
num: 42
paragraphs: Until 31 December 2009 or any earlier date specified by the Bank on a case by case basis, institutions that have received specific risk model recognition prior to 1 January 2007, in accordance with point 1 of Annex V to the recast Directive (IF) may, for that existing recognition, treat points 4 and 8 of Annex V to the recast Directive (IF) as those points stood prior to 1 January 2007.
Transitional provisions - exemptions for certain investment firms.
num: 43
paragraphs: (1) The provisions on capital requirements as set out in these Regulations and the CRD Regulations (CI) shall not apply to investment firms whose main business consists exclusively of the provision of investment services or activities in relation to the financial instruments set out in points 5, 6, 7, 9 and 10 of Section C of Annex 1 to Directive 2004/39/EC and to whom Directive 93/22/EEC did not apply on 31 December 2006.
(2) The exemption under paragraph (1) is available until 31 December 2010 or the date of coming into force of any modifications pursuant to points 2 and 3 of Article 48 of the recast Directive (IF), whichever is the earlier.
Chapter 3
Final Provisions
Application of Regulations 1(3) and 82(8) to (14) of CRD Regulations (CI).
num: 44
paragraphs: (1) Regulation 1(3) of the CRD Regulations (CI) shall apply mutatis mutandis for the purposes of Regulations 16 and 18.
(2) Regulation 82(8) to (14) of the CRD Regulations (CI) shall apply mutatis mutandis for the purposes of these Regulations subject to the following provisions which shall apply where the discretion referred to in Regulation 82(8) of the CRD Regulations (CI) is exercised:
(a) references in point 7 of Annex II to the recast Directive (IF) to Directive 2006/48/EC shall be read as references to Directive 2000/12/EC as that Directive stood prior to 1 January 2007, and
(b) point 4 of Annex II to the recast Directive (IF) shall apply as it stood prior to 1 January 2007.