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Compliance

FCA publishes first consultation on new prudential regime for UK investment firms

Posted on 16 Dec 2020

Outside of the FCA building

On Monday 14 December, the FCA published its first consultation paper on the UK Investment Firm Prudential Regime (‘IFPR’), a new prudential regime for UK firms authorised under the Markets in Financial Instruments Directive (‘MiFID’).

This is the first in a programme of consultation papers and policy statements that the FCA will issue to introduce the regime, subject to progress and amendments to the Financial Services Bill (FS Bill), on 1 January 2022. The FCA plans to publish two further consultations in 2021. After each consultation, the FCA will publish a policy statement and near-final rules.

Final rules will be published over the course of the next year. The new regime aims to streamline and simplify the prudential requirements for solo-regulated UK investment firms (‘FCA investment firms’). Introducing the IFPR means that there will be a single prudential regime for all FCA investment firms, reducing barriers to entry and allowing for better competition between investment firms.

The new rules will extend the framework for prudential requirements to consider the potential harm FCA investment firms pose to clients, consumers and the market, rather than solely focusing on the risks firms themselves face. This includes the amount of capital and liquid assets the FCA investment firm should hold to ensure that if firms wind down, they can do so in an orderly manner.

The draft rules any MIFID investment firm authorised and regulated by the FCA that is currently subject to any part of the Capital Requirements Directive (CRD) and the Capital Requirements Regulation (CRR) including:

  • BIPRU and GENPRU firms;
  • ‘full scope’, ‘limited activity’ and ‘limited licence’ investment firms currently subject to IFPRU and CRR;
  • ‘local’ investment firms
  • matched principal dealers
  • specialist commodities derivatives investment firms that benefit from the current exemptions on capital requirements and large exposures including:
  1. oil market participants (‘OMPs’)
  2. energy market participants (‘EMPs’)
  • ‘exempt-CAD’ firms;
  • investment firms that would be exempt from MiFID under Article 3 but have ‘opted-in’ to MiFID
  • regulated and unregulated holding companies of groups that contain an investment firm authorised and regulated by the FCA and that is currently authorised under MiFID and/or a Collective Portfolio Management Investment (CPMI).

As the new regime represents a major change for FCA investment firms, it is critical that firms adequately prepare for the regime.

The FCA is keen to receive feedback from stakeholders through its consultations. The consultation period for this first consultation closes on Friday 5 February 2021. Firms can provide feedback by submitting the online response form here.


IFPR and Laven

At Laven, our consultants are on hand to help identify the actions your firm needs to take to ensure you are compliant with new regulations and aware of all the risks outlined in this report. Whether this is through assisting with new policies and procedures that need to be put in place or providing online/in-person training for staff to make them fully aware of the regulatory burden.

Laven has also built Laven Tech, a unique Regulatory Technology (RegTech) solution that leverages advanced technology combined with our vast subject matter expertise. Our RegTech solution is designed to assist fund managers, service providers and investors to meet today’s growing demands.

Find out more