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FCA consultation CP21/7 – new prudential regime for UK investment firms

FCA consultation CP21/7 – new prudential regime for UK investment firms

Background

  • On 19 April 2021, the Financial Conducy Authority (FCA) issued its second consultation for UK investment firms about its its new Investment Firm Prudential Regime (IFPR) that will start in 2022
  • This Consultation Paper (CP21/7) is 458 pages long and needs to be read in conjunction with the FCA’s previous CP20/24 published in December 2020
  • The IFPR introduces a new prudential regime for MiFID investment firms that will create a single, proportionate regime that reflects firms’ size and business
  • This consultation is important for all organisations within UK financial services
  • The proposed rules will apply to any MiFID investment firm authorised and regulated by the FCA
  • Following this consultation, the FCA will issue a third consultation in Q3 2021
  • The FCA will publish the Policy Statement and near-final rules on the first consultation in Q2 2021
  • Policy Statements and rules for the FCA’s second and third consultations will be published over the course of 2021

Impacts

The proposed UK IFPR regime focuses prudential requirements on the potential harm to consumers, clients, and the market.  It includes the amount of liquid assets and capital levels a firm should hold to enable it to wind down in an orderly way if required.

In this second consultation, the FCA is asking for views on:

  • remaining aspects on own funds requirements (such as the Fixed Overheads Requirement)
  • the basic liquid assets requirement
  • remuneration requirements
  • risk management – the Internal Capital and Risk Assessment (ICARA) process

The UK IFPR rules aim to streamline and simplify prudential requirements for solo-regulated UK firms, authorised under the Markets in Financial Instruments Directive (MiFID).

The first consultation introduced the UK IFPR and focused on the categorisation of investment firms, prudential consolidation, own funds and own funds requirements, and new reporting requirements.  The FCA received broad constructive feedback.

Timeline with relevant dates to be logged on regulatory calendar

  • Consultation closes on 28 May 2021

Next steps

Any respondents need to send their comments to the FCA, either using the form on the FCA’s website or in writing as explained in the Consultation Paper.

If anyone has specific questions or needs any advice, contact our specialists.