FSA Launches Consultation On Capital Requirements Directive

by Robin Pilgrim, LawAndTax-News.com, London

31 January 2005

The Financial Services Authority (FSA) set out its proposals for key aspects of the UK's implementation of the EU Capital Requirements Directive (CRD) in a consultation paper issued last Thursday.

The CRD is closely linked to the Revised Basel Framework agreed in June 2004, and its stated aim is to introduce a modern, risk-sensitive prudential framework for credit institutions and investment firms across the European Union.

According to the FSA, the CRD will apply to all deposit-takers other than credit unions, and to investment firms, although the precise application of the CRD will vary across sectors. The timing of CRD implementation will depend on the timing of the final agreement between the Council and the European Parliament.

Explaining the need for consultation, Hector Sants, FSA Managing Director, observed that:

"The introduction of the Capital Requirements Directive will mark a huge step forward in developing a modern capital framework that will improve the risk sensitivity of capital standards for firms across the EU. Considerable uncertainties remain, however, not least in the timing of its introduction."

"This consultation paper follows extensive informal pre-consultation with industry. It will give firms a much better understanding of how they can prepare for the FSA's proposals to implement the CRD in the UK. We are committed to working with firms to help them to manage the introduction of the CRD and to ensuring proportionate and effective implementation. We encourage all firms to consider carefully the implications of the forthcoming changes and to engage with the opportunity offered by this consultation."

Comment is invited on the consultation paper, entitled 'Strengthening Capital Standards', until April 29.

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