Gabriel Reporting Updates

The FSA is revising its Integrated Regulatory Reporting (“IRR”) or Gabriel rules, effective 6 July 2009.  The changes were consulted on in CP09/2 Quarterly Consultation (No 19, February 2009) and represent a tidying up of wording and guidance. The rules provide useful clarification of the FSA019 (Pillar 2), FSA041 (Asset managers that use hedge fund techniques) and FSA042 (UCITS) data items.

FSA019 Pillar 2 Information

Risk Allocation

The revised rules confirm that, where applicable, firms should assess the adequacy of their Fixed Overheads Requirements (“FOR”) and report this in data item FSA019. Firms should already have considered the adequacy of the Fixed Overhead requirement in their Internal Capital Adequacy Assessment (“ICAAP”).

The FSA continues to require firms to state whether they are exposed to a list of risks, such as Operational, Credit, Market, Securitisation Risk etc. and their allocation of capital to these risks. There has been considerable ambiguity for firms subject to a FOR on how this relates to the risk categories.

The revised guidance states that firms with a FOR should assess their capital requirements under each of the risk types, even though their FOR may be higher. Data element 23A should include the Firm’s assessment of the amount of capital required to cover the FOR as well as any other risks not identified in the previous questions. This is consistent with our "Thirty-Nine Steps" guidance note on completing the FSA019.

The FSA does not require the total of capital allocated to the risks (Questions 12B to 23B) to equal the internal capital amount considered adequate for the nature, scale and complexity of a firm's activities reported under Question 2.  This is consistent with the purpose of the FOR – available for use in the orderly wind-up of the Firm’s regulated activities - and allows the capital available to be allocated to the risks the business is exposed to on a continuing basis as well as for a possible business closure.

Stress Testing

Question 28 (stress tests) has been clarified to remove the reference to BIPRU 4.3.39R and BIPRU 4.3.40R. The question is now focused on stressed tests generally. The answer can now only be a Yes or No. Firms are required to conduct stress tests on their capital base case so we would expect that a “No” response would invite regulatory enquiry.

Audit confirmation

The revised guidance also clarifies that firms who have a small firms exemption from audit should choose not applicable when responding to the question on external audit the firm’s financial statements.

Further Consultation

The FSA has said that they received considerable comment on the FSA019 and intends to consult separately on further amendments to this data item.

FSA041 Asset managers that use hedge fund techniques

The revised rules confirm that data item FSA041 only applies to those firms that have a managing investments permission.

FSA042 UCITS

The revised rules confirm that FSA042 is only required to be submitted by Firms with permission for establishing, operating or winding up a regulated collective investment scheme. The guidance notes have been amended to be consistent with the data item.

The rule and guidance changes are available here.

If you would like to discuss further how we can assist you on this matter please contact Scott Wilson, Stephen Burke, Chris Rexworthy, Peter Moore or your usual IMS Consultant.

2 July 2009

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