IFPR – How to prepare following the release of the first consultation paper

 Summary – The Investment Firm Prudential Regime (IFPR) is a new streamlined and simplified regime for the prudential regulation of investment firms in the UK.

The first consultation paper

In the first of three consultation papers (CP20/24) published on 14 December 2020, the FCA highlights critical areas they believe MiFID investment firms will need to focus on. This introductory paper includes a draft of the new prudential handbook known as MiFIDPRU and covers:

• Investment firm categorisation – Based on a set of metrics and associated thresholds, firms will be classified into two categories: Small and Non-Interconnected (SNI) and non-SNI firms.
• Prudential consolidation – Prudential consolidation will apply to investment firm groups going forward and the consolidated requirements could lie with parent entities that are currently non-regulated.
• Own fund composition – The FCA introduces new capital ratios and intends to simplify capital deductions.
• Aspects of capital requirements – A new approach to calculating capital requirements is introduced based on the activities a firm undertakes, the ‘K-factors’ approach.
• Concentration risk – All firms will be required to monitor concentration risk. Non-SNI firms that trade on own name will also be required to calculate an additional K-factor that could lead to an increased own fund requirement.
• Reporting aspects in relation to the aforementioned areas.

You can view the full paper here – FCA Consultation paper CP20/24

Simultaneously, the FCA published proposed reporting templates and associated guidelines.

The consultation closed on 5 February 2021 and FCA feedback is expected in a policy statement due to be published in late spring 2021.

What happens next?

IFPR is expected to be derived from the EU regime. So with less than a year to prepare, UK investment firms should start reviewing FCA publications as they become available, leveraging the European publications for the areas not covered by the FCA.

We recommend that MiFID investment firms identify the potential impacts of the new prudential regime on their business based on the FCA’s discussion paper and consultation paper and the EU package.

Additional FCA consultation papers are expected to be published and should provide further details on the UK proposed future regime:

• Early Q2: focus on remaining aspects of own funds requirements, liquidity requirements, risk management, governance, ICARA, SREP and remuneration
• Early Q3: focus on disclosure and ESG

Firms will then be able to complete their strategy to achieve compliance ahead of the IFPR application date.

Join our webinar

On 24 June, we are running a virtual session on IFPR and the key changes that are to be introduced. This webinar will have a particular focus on the ICARA process. 

You can sign up for this free webinar here. 

How we can help?

Our regulatory compliance and risk management specialists will draw upon their detailed understanding of prudential changes, regulatory expectations and best practices to provide high-quality services tailored to support your transition to IFPR.

We can help firms:

• Determine their prudential category
• Identify and map all the applicable changing requirements
• Perform an impact assessment of the new requirements to their business models
• Design an action plan to conform with the new regime, setting out key actions, timelines, dependencies, and stakeholders.

Get in touch

_References

• _{FCA Consultation paper CP20/24}
• _{FCA Discussion paper DP20/2}
• _{EU Investment Firms Directive - IFD}
• _{EU Investment Firm Regulation - IFR}
• _{EBA webpage about investment firm regulation}