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PRA and FCA publish final amendments to their handbooks as a result of CRD IV

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03 Jan 2014

The Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) have issued policy statements (PS7/13 and PS13/10 respectively) outlining changes to their handbooks as a result of the transposition of the EU Capital Requirements Directive (CRD) and Capital Requirements Regulation (CRR), collectively known as CRD IV. The changes come into force on 1 January 2014.

CRD IV is the EU package of rules and regulations which implements Basel III, the international regulatory framework for banks. The package is binding on all EU member states. It aims to address the problems that caused the financial crisis by increasing the level and quality of capital held by banks, enhancing risk coverage, expanding disclosure requirements and reducing procyclicality. CRD IV provides a basis for EU liquidity standards and introduces leverage disclosure requirements.    

The Capital Requirements Regulation is directly applicable in all member states whilst the Capital Requirements Directive must be incorporated within UK law, by means which would include through the rules and regulations of the PRA and FCA.  The FCA handbook is applicable to nearly all investment firms under the Capital Requirements Directive and the PRA handbook applicable to credit institutions and those investment firms ‘designated’ for prudential supervision by the PRA. 

In August 2013, the PRA and FCA both consulted on a number of proposals for amendments to their respective handbooks as a result of the transposition of CRD IV.  Among other things, the proposals included requirements for UK banks, building societies and large investment firms to set quotas for the number of women on boards.  These proposals have now been incorporated into both the PRA and FCA handbooks which state:

A CRR firm that has a nomination committee must ensure that the nomination committee:

engage a broad set of qualities and competences when recruiting members to the management body and puts in place a policy promoting diversity on the management body;

identifies and recommends for approval, by the management body or by general meeting, candidates to fill management body vacancies, having evaluated the balance of knowledge, skills, diversity and experience of the management body;

prepares a description of the roles and capabilities for a particular appointment, and assesses the time commitment required;

decides on a target for the representation of the underrepresented gender in the management body and prepares a policy on how to increase the underrepresented gender in the management body to meet that target.

The proposals also included other key areas of the CRD such as those in relation to risk management which the PRA and FCA have included in their Handbook amendments. 

In October 2013, the PRA and FCA issued further consultation papers on changes to their Handbooks to incorporate the remuneration provisions arising from CRD IV.  The consultations focused on limits on bonuses (limits between the fixed and variable component of total remuneration), areas of national discretion to set up stricter measures on bonuses and the use of the principle of proportionality in applying the bonus limits according to the ‘type’ of investment firm.    

The PRA and FCA feedback statements for these consultations, published alongside the Handbook changes, indicate support for all of the remuneration proposals and also indicate support for the overall approach proposed for CRD IV transposition. 

The changes to the PRA and FCA Handbooks follow recent guidance and regulations (The Capital Requirements (Country by Country Reporting) Regulations 2013 (SI 2013/3118) issued by HM Treasury.  These regulations transpose the country-by-county reporting requirements in the EU Capital Requirements Directive 4 (“CRD IV”) into UK law.

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