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EU Proposal Would Exempt Certain Investment Firms from Operational Risk Charges
Washington, DC, July 28, 2004 - Certain investment firms, including asset managers, will not be subject to the operational risk charges imposed on other investment firms and banks, under an EU commission proposal to revise the capital adequacy framework for investment firms in the European Union (EU).
Since February 2001, the European Commission (EC), in cooperation with the Basel Committee on Banking Supervision, has evaluated the EU's capital adequacy framework for banks and investment firms. An EC Capital Adequacy Directive proposal would subject investment firms, UCITS funds, and credit institutions to explicit capital requirements in order to manage operational risk-similar to requirements imposed on banking institutions. In March of this year, the EC proposed that capital requirements be tailored specifically for investment firms, including asset management firms.
The EC’s recent proposal includes a special provision for investment firms, which states that investment firms that are not authorized to deal for their own account or to underwrite financial instruments will only continue to be subject to the current capital requirement of one quarter of the preceding year’s fixed overhead. These investment firms, including asset managers, will not be subject to the new operational risk charges imposed on other investment firms and banks. However, they will be required to implement policies and procedures to evaluate and manage their exposure to operational risk and have contingency and business continuity plans in place to ensure their ability to operate on an ongoing basis and limit losses in the event of severe business disruption.
The Institute believes bank-styled capital requirements are not appropriate for the asset management industry, and that the use of insurance should be permitted to offset minimum capital requirements.
- European Commission Responds to Comments on Capital Adequacy Directive, March 2004
- European Parliament Report Recognizes Need to Tailor Capital Adequacy Rules for Asset Management Industry, September 2003
- European Union Takes Additional Steps Toward New Capital Adequacy Framework, July 2003
- Institute Comments on Proposed EU Capital Requirements, January 2003
- European Committee Extends Review of New Basel Accord, January 2002
- European Committee Delays Capital Adequacy Proposals, July 2001
- Institute Comments on EU Proposed Capital Adequacy Standards, May 2001
- Europe Considers Capital Adequacy Framework for Securities Firms, February 2001
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