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Application provision

1.1 This Part applies to every firm that is a CRR firm

Overall Pillar 2 rule

3.1

01/01/2014

A firm must have in place sound, effective and comprehensive strategies, processes and systems:
  1. (1) to assess and maintain on an ongoing basis the amounts, types and distribution of financial resources, own funds and internal capital that it considers adequate to cover: 
    1. (a) the nature and level of the risks to which it is or might be exposed; 
    2. (b) the risk in the overall financial adequacy rule in 2.1; and 
    3. (c) the risk that the firm might not be able to meet the obligations in Part Three of the CRR in the future;
  2. (2) that enable it to identify and manage the major sources of risk referred to in (1) including the major sources of risk in each of the following categories where they are relevant to the firm given the nature and scale of its business:
    1. (a) credit and counterparty risk;
    2. (b) market risk;
    3. (c) liquidity risk;
    4. (d) operational risk;
    5. (e) concentration risk;
    6. (f) residual risk;
    7. (g) securitisation risk, including the risk that the own funds held by a firm in respect of assets which it has securitised are inadequate having regard to the economic substance of the transaction including the degree of risk transfer achieved;
    8. (h) business risk;
    9. (i) interest rate risk in the non-trading book;
    10. (j) risk of excessive leverage;
    11. (k) pension obligation risk; and
    12. (l) group risk.

Additional Notes


[Note: Art 73 (part) of the CRD

3.2

01/01/2014

As part of its obligations under the overall Pillar 2 rule in 3.1, a firm must identify separately the amount of common equity tier one capitaladditional tier one capital and tier two capital and each category of capital (if any) that is not eligible to form part of its own funds which it considers adequate for the purposes described in the overall Pillar 2 rule. 

3.3

01/01/2014

The processes, strategies and systems required by the overall Pillar 2 rule in 3.1 must be comprehensive and proportionate to the nature, scale and complexity of the firm’s activities.  

3.4

01/01/2014

A firm must:

  1. (1) carry out regularly the assessments required by the overall Pillar 2 rule in 3.1; and
  2. (2) carry out regularly assessments of the processes, strategies and systems required by the overall Pillar 2 rule in 3.1 to ensure they remain comprehensive and proportionate to the nature, scale and complexity of the firm’s activities.

Additional Notes


[Note: Art 73 (part) of the CRD

3.5

01/01/2014

As part of its obligations under the overall Pillar 2 rule in 3.1, a firm must:
  1. (1) make an assessment of the firm-wide impact of the risks identified in accordance with that rule, to which end a firm must aggregate the risks across its various business lines and units, taking appropriate account of any correlation between risks; and
  2. (2) take into account the stress tests that the firm is required to carry out under the general stress test and scenario analysis rule in 12.1 and any stress tests that the firm is required to carry out under the CRR