URGENT/ACTION REQUESTED
[16616]
October 7, 2003
TO: INTERNATIONAL COMMITTEE No. 65-03
RE: DRAFT INSTITUTE COMMENT LETTER TO THE EUROPEAN COMMISSION ON
CAPITAL ADEQUACY
Attached is the Institute’s draft comment letter on the European Commission’s Third
Consultation Paper on Capital Requirements for Credit Institutions and Investment Firms.1 The
Third Consultation Paper provides the basis upon which the Commission expects to issue draft
proposals for a directive on new capital requirements for credit institutions and investment
firms in the European Union in early 2004.
In the letter, the Institute expresses two particular concerns with respect to the revision
of the capital adequacy framework for asset managers: (1) bank-styled capital requirements are
not appropriate for the asset management industry and (2) use of insurance should be
permitted to offset minimum capital requirements. The letter states that the Institute is pleased
that the Commission has acknowledged that, in the case of asset management firms, their
limited activities and risk profile indicate the need for a modified approach. Specially, the
Institute supports the Commission’s proposal to permit asset management companies to
continue to calculate their minimum capital requirements under the current rules (13-weeks of
expenditures).
The letter, however, expresses disappointment that the Commission reversed its
position of permitting the use of insurance under all three methods of calculating capital.
Specifically, the Institute is concerned that the Commission decided not to permit the use of
insurance to offset capital requirements if firms use the two simpler (Basic Indicator and
Standardised) approaches to calculating minimum capital. The letter takes the view that it is
critical for insurance to be part of all of the methodologies for calculating minimum capital,
including the current expenditure-based approach.
Finally, the letter urges the Commission to reconsider the specific conditions under
which Member States may grant waivers to investment firm groups from the requirements to
consolidated capital.
1 See Memorandum to International Members No. 23-03 (16260) July 7, 2003.
2
If you have any comments on the draft letter, please contact me by Monday, October
13, 2003 at jchoi@ici.org or at (202) 326-5810.
Jennifer S. Choi
Associate Counsel
Attachment (in .pdf format)