JP Morgan Asset Management

Please see the attached document.
Please see the attached document.
Please see the attached document.
Please see the attached document.
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We agree that regulation needs to ensure that client assets and money are properly segregated and safeguarded. However, we do not believe that capital requirements are the right approach, as client money and assets are held either directly in the name of the client or in separately identifiable client accounts which are bankruptcy remote from the investment firm. Different Member States have differing requirements and there is a case for considering a consistent approach to client money segregation. Only where segregation and related risk mitigants do not apply should capital be considered.
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Traditional bank-like large exposure limits and reporting is inappropriate for limited licence investment firms, who typically have reasonably large cash balances to hand. Having to manage these as large exposures would unnecessarily complicate the operating model and add to potential operational risk. Concentration risk is relevant to firms in the context of reliance on single products or clients and adequate resources should be maintained to ensure that a wind down can be executed without detriment to the market or customers. If this is maintained, then concentration risk has been addressed and additional measures would be counterproductive.
This could be problematic where group structures are more complex. It could be reasonably applied to the immediate parent of regulated subsidiaries. But consideration should be given to whether this means that the parent companies should become regulated and what capital deductions might be necessary in the capital calculation. However, this could then mean that the ability to dividend is restricted as dividends from the operating entities would be subject to audit before being included in any holding company regulatory capital. We do favour a simplification of the existing consolidation regime which is unduly burdensome in its current form, if no waiver is in place.

Another approach could be aggregated Fixed Overhead Requirements and consolidated k-factors. This would lead to higher reported capital than would an approach of simply aggregating the capital resources of regulated entities, but it would have the benefit of simplicity. We suggest that this should be an effective approach for supervisory monitoring rather than a binding capital requirement.
This will depend on the complexity of the parameters that are finally put in place, but we would not anticipate that an investment firm in such a position would be in a less favourable position to perform the calculation than a stand alone investment firm operationally. However, it is important to note that there will be two capital regimes in place side by side and the operational burden will be increased as CRD 4 information would be required along with the investment firm information. It is thus crucial that any new regime be proportionate in its application.

Another method of addressing this would be to exclude investment firms from such a regulatory consolidation group; similar to the way that insurance firms are currently excluded from banking consolidation groups even when they form part of a statutory accounting group.
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Gavin Haran (Office of Regulatory Affairs)
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