The original
classification of firms (€50k, €125k and €730k) did not have such signifi-cant
implications for capital requirements.
Nonetheless, a real
problem will remain for a significant number of firms in several countries. To
help resolve their problems, where there is no indication that a substantial
increase in capital is justified by the underlying risks, a number of actions
are open to the Commission.
Regardless of other
actions, it would be helpful if the Commission revisited a number of key
definitions.
‘principal
trading’, ‘dealing on own account’, ‘acting as principal’.
·
Annex A of the draft Directive refers to “trading book”: Annex H-
‘underwriting/placing’.
Appendix 10 – Issues for ISD firms Page 6 of 7
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·
The current assumption
is that placing always involves underwriting. It does not, and the risks are
very different. A number of 125K firms place new issues with clients, but they
take no market or credit risk themselves.
‘clearing
and settlement’.
·
This should distinguish
between cases where some or all of the risk remains with the broker, and those
systems where
the risk is clearly transferred to another, usu-ally authorised, institution.
Once these definitions
have been agreed, it should be possible to distinguish between the two types of
€730k firm. It would then be open to the Commission to consider whether the
borderline firms can be offered the status quo or could be classified as
lim-ited licence until a risk sensitive system is available.
6. Large exposures directive
The large exposure rules
impact in an unintended way on the business of asset manage-ment firms. Wherever
a firm has a limited number of customers, fees due can count as a large
exposure. This can arise for newer and smaller firms or where there are a
limited number of clients, such as a parent insurance company.
Similarly firms charging
performance fees can have a significant debtor or accrual in re-spect of their
fees and might breach the large exposure rules even though it is in a stronger
position that if it did not receive the fees. This is a concern because the
fees are not usually admissible as a Tier 1 asset until well after they are
paid. In essence, the more successful the firm, the larger the breach they
create.
Most importantly,
because of the agency nature of the business, large exposures do not put customers investments at risk.
This is not an issue
introduced by CAD3 but is of concern to ISD firms more generally and might be
addressed in any future work.
Appendix 10 – Issues for ISD firms Page 7 of 7
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Appendix 11 – Project Team
Project Direction and Overall
Management
Charles Ilako Lead Partner,
Financial Services Regulatory Practice
Advisory Panel
Dr.
Hans Blommestein Senior Financial Economist and Head of the Capital Market
Programme, OECD
Prof.
Elisabetta Gualandri Head of Department of Business and Finance and Profes-sor
of Financial Intermediaries, Università di Modena e Reggio Emilia
Prof.
Dr. Thomas Heimer Geschäftsführender Dekan, Hochschule für Bankwirtschaft
Frederik C. Musch
PricewaterhouseCoopers and former Secretary General of the Basel Committee
Dr. Walter S.A.
Schwaiger Professor of Accounting and Corporate Control,
Prof.
David Llewellyn Professor of Money and Banking, Loughborough Uni-versity
Project Team – Financial Risk Management and
Richard
Barfield,
Stephen Burke,
Friedemann Loch,
Monika
Mars,
Peter Milroy,
Richard Quinn,
Roberto Setola,
Philip Warland,
Project Team – Economics/Econometrics
Specialists
Dr. Ray Barrell (NIESR)
Prof. E. Philip Davis (NIESR)
John Hawksworth (PwC)
Dr. Bill Robinson (PwC) (Leader –
Section 7: Impact on the EU economy)
Appendix 11 – Project Team Page 1 of 2
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Project Team – Analysts
Egbert Adrichem,
Wikash Bhagwanbali, London
Ragna Ceder, London
Karin Hartonian Matbaeh,
Marcus Kennedy,
Peter Kuelsheimer, London
Chiara Lombardi, London
Pablo Martinez-Pina,
Frank Rabouw,
Henry Strouts,
John Raven,
Paolo Vizioli,
PricewaterhouseCoopers
country experts
SPAIN: Elias Bustillo-Borruel, Giulio Guida
Appendix 11 – Project Team Page 2 of 2