The Futures and Options Association (FOA) believes that the Capital Requirements Directive (CRD), designed for deposit-taking and investment businesses, should not be imposed on commodity market participants unamended.
The FOA’s position is the result of consultation with its members and is supported by a report commissioned by it from KPMG. In the report, KPMG observed that the capital requirements based on Pillar I of Basel 2 appeared to be aligned specifically to the structure and practices of the banking industry. As such, they were not proportionate to the risks and market practices of specialists in the commodity derivatives markets, the report concluded.
“This report vindicates our longstanding view that the CRD should not be applied to commodity market participants in unamended form,” said Anthony Belchambers, chief executive of the FOA. “That said, it is equally important that the need to set a proportionate regulatory regime for one group of market participants should be extended to other market participants, where appropriate, and should be sufficiently risk-based to meet the need for fair and proportionate treatment of all commodity market participants.”
Bill Wellbelove, director of KPMG, explained further. “We noted wide consistency of views across the firms that participated in the survey – some were more advanced in their thinking than others, but there was general agreement on the difficulties in translating the financial sector risk framework for the commodities sector,” he said. “Our brief was to outline issues, not to devise solutions, so we await with interest the outcome of the review that is now in progress at the EU Commission. We are very grateful to the FOA for giving us the opportunity to work on this report.”