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News – 19.12.24

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VAT on Private School fees training

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Investment Firms’ Prudential Regime (IFPR) – Act now

With less than a year left for implementation, preparing for the FCA’s IFPR effective 1 January 2022 should be at the top of your regulatory and compliance agenda during the year.

The new prudential regime was commissioned in the UK through HMT’s Financial Services Bill in June 2020 following which the FCA published its ‘Discussion Paper’ DP20/2, opening a dialogue with the industry on various topics. The FCA has since confirmed some of the rules through its first of three consultation papers published in December 2020 (CP (20/24).

The rules will subsequently be included in a new FCA Handbook Sourcebook called MIFIDPRU which will replace BIPRU, IFPRU and some parts of GENPRU.

About the author

Priya Mehta

+44 (0)20 7556 1372
mehtap@buzzacott.co.uk
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The rules will subsequently be included in a new FCA Handbook Sourcebook called MIFIDPRU which will replace BIPRU, IFPRU and some parts of GENPRU.

A quick overview of the IFPR

The coverage of the IFPR is extensive and will affect all types of investment firms, whether small or large. There are significant changes proposed to the following aspects of the FCA’s current regulatory framework:

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In a nutshell, firms must prioritise the following as a minimum:

Confirm classification – small and non-interconnected firm (SNI firm) or Non-Small and non-interconnected firm (Non-SNI firm).
Calculate the new capital requirement within the rules as applicable ('fixed overheads requirement’ or ‘K-Factor requirement’) and assess capital adequacy.
Evaluate the application of ‘Prudential consolidation’ and test eligibility for the application of ‘Group Capital Test’.
Understand the new thresholds for ‘liquidity’ and ‘concentration risk’ and establish processes for monitoring these.
Be aware of the additional regulatory reporting burden with several new regulatory returns to be completed on a quarterly basis.
Have processes in place to document, stress test and appraise the risks that a firm may pose to its clients and to the wider financial markets.

Our approach

Like most legislative instruments, in this case, the devil is in the detail and for some firms, the regime opens a plethora of operational and compliance obligations for the first time.

To that extent, we have been extensively working with several clients to assess the impact of the rules, building the foundation for a smooth transition of being compliant under the new regime.

Our prime focus is assisting and advising our clients to become and remain compliant with the new prudential rules and keeping you informed on all developments relating to this. To support that, we have published a series of news insights on the subject and will continue to do so throughout the year.

View our previous articles here:

CP20/24 - FCA consult on new prudential regime for investment firms (IFPR)

IFPR – A new regime, a new landscape for investment firms

A new UK prudential regime for MiFID investment firms – one year to prepare

Stay tuned in

Despite the decisive tone of the rules being consulted on so far, there are a number of important outstanding areas which will be clarified in the second round of consultation expected in Q2, 2021. Of most significance are rules relating to details of the fixed overheads requirement (FOR) calculation and monitoring, liquidity, the application of Pillar 2 assessment and risk management process, additional regulatory reporting, some K-factors remuneration requirements and any specific gold-plating for ‘Collective Portfolio Management Investment’ (CPMI) firms. These collectively will form the building blocks for the IFPR regime in the UK.

The aim of the IFPR is to create a simplified risk-responsive regulatory structure for investment firms. This is somewhat of a misnomer in the short run as the regime is likely to impose additional operational and compliance burdens and potentially additional capital requirements and calculations for most firms. Accordingly, it's imperative that firms start assessing the impact of the IFPR on their structure and business.

Get in touch

Please get in touch to speak to an expert and get further clarification or assistance with these changes.