FCA Launches Third Consultation on Investment Firms Prudential Regime

This third consultation follows the first consultation that introduced the UK IFPR and focused on the categorization of investment firms, prudential consolidation, own funds and aspects of own funds requirements, and reporting and the second consultation that focused on the remaining aspects of own funds requirements, liquidity, risk management, governance, remuneration, applications, and notifications. The following are the key highlights of the proposals in CP21/26:

• Investment firms that are not small and non-interconnected should disclose, with respect to MIFIPRU 8, information about their risk management and governance arrangements and about their own funds, own funds requirements, and investment policy. FCA proposed for these firms to disclose information, such as the value of different types of capital that they hold, that they are providing to FCA in regulatory returns or that they will have collated for their own risk management requirements. 
• Any small and non-interconnected firm that has issued additional tier 1 instruments should disclose information about their risk management arrangements and all FCA investment firms must make qualitative and quantitative disclosures on their remuneration policies and practices that are in proportion to the size and type of firm.
• FCA proposed a rule to address the situation where excess drawings can be made by partners in a partnership or members in a limited liability partnership without being recorded as a loss and is, instead, treated as a loan to partners or members.
• FCA proposed that firms should apply the onshore technical standards with specific modifications that are set out in MIFIDPRU, the prudential sourcebook for the Markets in Financial Instruments Directive, or MiFID, investment firms; these modifications are included in MIFIDPRU so that the binding technical standards work in the way they should with the IFPR.
• The consultation outlines the changes that are proposed to make the FCA Handbook reflect changes related to the application of resolution regime to investment firms. Earlier in 2021, the HM Treasury consulted on its proposal to remove FCA investment firms from the scope of the resolution regime in UK. In June 2021, the Treasury’s feedback confirmed that these firms would no longer be subject to this regime. 
• FCA proposed to amend the requirements that depositaries must meet so that they no longer have to have permission to deal on own account. The proposals include a small increase in the minimum own funds requirement for firms that act as the depository of an unauthorized Alternative Investment Fund from EUR 730,000 to GBP 750,000. FCA also proposed to allow other FCA investment firms to act as a depositary where they provide the MiFID ancillary service of safekeeping and administration of financial instruments.

The draft legal rules of FCA in this consultation also include certain non-material additions and amendments to the text from the previous consultations, such as updating cross-references and terminology. FCA proposed some consequential changes to the Handbook and the Handbook Glossary. The proposals also cover how to make use of the new powers as a result of introduction of Part 9C of Financial Services and Markets Act 2000 (FSMA). The proposed rules will apply to any MIFID investment firm currently subject to any part of the Capital Requirements Directive and Regulation (CRD and CRR), the depositaries, the Collective Portfolio Management Firms (CPMIs), and the regulated and unregulated holding companies of groups that contain an investment firm authorized and regulated by FCA and that is authorized under MiFID and/or is a CPMI. The consultation paper CP21/26 should be read in conjunction with PS21/6 (June 2021) and, PS21/9 (July 2021).

Related Links

• Press Release
• Consultation Paper (PDF)
• MIFIDPRU 8 Disclosure Templates (PDF)

Comment Due Date: September 17, 2021

Keywords: Europe, UK, Securities, Investment Firms, IFPR, Reporting, MiFID, Resolution Regime, MifIDPRU, Disclosures, Regulatory Capital, FCA