APCIMS Wants More Detail From FSA on Capital Standards

Contributing Editor

6 May 2005

The UK Association of Private Client Investment Managers and Stockbrokers has expressed concerns about the Financial Services Authority’s Strengthening Capital Standards consultation paper and believes the standards are designed for international banks, not UK based private client brokers and investment managers. APCIMS has questioned the appropriateness of the Basel II risk-based framework for UK-based private client brokers and investment managers, and believes the framework is more appropriate to internationally active banks. The Association has raised a number of concerns:

Proportionate implementation - what does this mean for its members, many of whom are “smaller investment firms”?

Categorisation – the difficulty in determining which Capital Requirements Directive requirements apply to investment firms, plus what impact will the Directive on Markets in Financial Instruments have on all this?

Lack of incentive to adopt more sophisticated approaches to operational risk charges and associated risk management standards

Differences in capital charges applying at a solo and consolidated level

Consolidated supervision – which firms will qualify for a waiver? What is the impact on those not currently consolidating?

Insufficient information on how credit risk and market risk capital charges will apply to investment firms, and the link to current liquidity adjustments

The new Pillar 2 requirements (under Pillar 2, firms and supervisors have to take a view on whether a firm should hold additional capital against risks not covered in Pillar 1 {minimum capital requirements}) – how will they be imposed?

APCIMS also requests that the FSA should allocate sufficient resources to respond fully to investment firms’ questions and concerns as they arise from this paper, to ensure that firms are well prepared for implementation. “Clearly our investment firms need to be confident in what they are implementing, bearing in mind that they come from a different background to banks, and are trying to get to grips with the many other priorities facing them at present,” said Angela Knight, APCIMS’ chief executive. She added: “APCIMS is committed to engaging with the FSA to drill down into the details of these proposals, to determine exactly what is required of our firms and what steps they should be taking to prepare themselves for implementation.”