As the UK Regulators had a hand in developing the EU’s Investment Firm Directive and Regulation (“IFD” and “IFR”), the intention is to retain their key principles for the UK future regime but also to keep options open to reflect UK market specificities.
Although we are still in the middle of a discussion process initiated by the FCA in June 2020 and expecting subsequent consultation, it is believed that the UK Investment Firm Prudential Regulation – IFPR – will apply from Summer 2021*. This is consistent with the EU timeframe.
*The application date was postponed in Autumn 2020 to 1 January 2022. You can find more information here.
From 26 June 2021, EU MiFID investment firms will be subject to IFD/IFR and excluded from the scope of CRD and CRR framework. CRD/CRR will remain the EU prudential regime only for Credit Institutions and certain specific MiFID investment firms going forward.
UK MiFID investment firms will not have to comply with IFD/IFR as its applicability date is set after the end of the EU Exit transition period, rather with the IFPR, the new UK-specific prudential regime for investment firms.
In addition, according to the HM Treasury’s Financial Services Bill (June update), FCA-regulated investment firms will not be required to comply with:
The approach to exclude FCA-regulated investment firms from the scope of CRD V has been reaffirmed in the Consultation Paper CP20/14.The FCA also confirmed that the Remuneration Code in place for IFPRU and BIPRU firms will remain as is for the time being: changes brought in by the transposition of CRD V by the end of 2020 will not apply.
UK MiFID investment firms should continue to comply with the current regulation pending the introduction of the IFPR.
In its June Discussion Paper DP20/2, the FCA stated that the IFPR will seek to achieve similar outcomes as those intended in the IFD/IFR whilst considering the UK market specifics. Deviations from the EU proposal will seek to reflect the number, size and nature of UK investment firms, the UK market structure and how it operates.
The major changes that IFPR could bring include:
In practice, the FCA will examine both responses from the industry to its DP and European publications such as EBA’s Implementing Technical Standards and other guidelines to develop the IFPR.
UK MiFID investment firms have less than a year to be ready. They can start identifying the potential impacts of the new prudential regime on their business based on the EU documents already available.
An FCA consultation paper is expected to be published in Q4 2020* and should provide greater details on the UK proposed future regime so that firms refine their strategy to achieve compliance ahead of the IFPR application date.
* The FCA has moved to a tiered consultation approach and is expected to published three consultation papers in total. You can find our more recent articles here.
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:
References
In January 2022, the UK adopted a more proportionate and fit-for-purpose prudential regime for investment firms known as the Investment Firms Prudential Regime (IFPR). The IFPR requires applicable firms to complete an internal capital adequacy and risk assessment (ICARA) process to assess their capital and liquidity requirements for mitigating harm.
In December 2020, the FCA detailed some of their proposals for the Investment Firm Prudential Regime (IFPR), which will come into effect in January 2022.
The FCAs second consultation paper(CP21/7) on proposed rules to introduce the Investment Firm Prudential Regime (IFPR) was released on 19 April 2021.
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