Featured Product

    FCA Launches First Consultation on Investment Firm Prudential Regime

    December 14, 2020

    FCA proposed rules to introduce the UK Investment Firm Prudential Regime (IFPR) for prudentially regulated investment firms. This is the first of the three consultations that FCA will issue to introduce the regime in January 2022. The final rules will be published during next year. FCA highlights that there are approximately 3,200 FCA investment firms in UK and the new regime is expected to streamline and simplify the prudential requirements for the solo-regulated investment firms. At present, many different regimes apply depending on the size of a firm and the type of investment business. FCA has published a draft reporting template, along with the associated completion guidance, to support the Investment Firms Prudential Regime. The consultation period closes on February 05, 2021.

    The new rules will extend the framework for prudential requirements to consider the potential harm FCA investment firms pose to clients, consumers, and the market. The IFPR considers the harm an FCA investment firm can cause to others based on the activities that a firm conducts. It also considers the amount of capital and liquid assets that an FCA investment firm should hold so that if it does have to wind down, it can do so in an orderly manner. IFPR is a new prudential regime for UK firms authorized under the Markets in Financial Instruments Directive (MiFID). The key highlights of the proposed prudential regime for FCA investment firms include the following:

    • Categorization of investment firms—FCA is proposing that all the current definitions of FCA investment firms will cease to exist. There will instead be two broad categories of FCA investment firms. Firms will either be a small and non-interconnected (SNI) investment firm, or they will not. The prudential requirements in the IFPR are designed to scale with the size and complexity of the firm.
    • Prudential consolidation—FCA is proposing that prudential consolidation will apply to investment firm groups, except if FCA has granted permission to a group to use the alternative of the group capital test. FCA is also proposing to introduce a group capital test for FCA investment firm groups that do not wish to be subject to prudential consolidation and meet certain specified conditions. This is to ensure that parent entities hold appropriate amounts of capital to support their investments in subsidiaries.
    • Own funds—FCA is proposing that the own funds of FCA investment firms should be made up solely of common equity tier 1 capital, additional tier 1 capital, and tier 2 capital, as the higher quality of capital for all FCA investment firms is expected to result in these firms being more resilient and having an increased capacity to absorb losses.
    • Own funds requirements—FCA is proposing to introduce a new permanent minimum requirement as one of the floors, below which its own funds must not fall. This will be based on the activities that an FCA investment firm undertakes. FCA is also proposing to increase the initial capital that is required for a firm to become authorized as an FCA investment firm. This will be to the same level and quality of capital as for its ongoing permanent minimum requirement once authorized. FCA is also proposing to introduce a new approach to calculating capital requirements—"K-factors." 
    • Concentration risk monitoring and related own funds requirements—FCA is proposing new monitoring requirements for general concentration risk that will apply to all FCA investment firms. This includes the entities with which FCA investment firms place their client assets and their own cash. Non-SNI firms will also be required to report on this general concentration risk. For FCA investment firms that trade in their own name, FCA is introducing K-CON. This is an additional K-factor for assessing concentration risk that could lead to an increased own funds requirement. FCA has set out rules on maximum levels of concentration risk permitted for trading book exposures.
    • Reporting requirements—Through the IFPR, FCA investment firms will be required to assess and hold financial resources against the potential for harm that they present to markets and consumers. FCA will need different information from FCA investment firms to support this and FCA is proposing an appropriate and proportionate data collection to capture this information. FCA also intends to remove reporting requirements that are no longer necessary or appropriate. The reporting on remuneration requirements will be included in the second consultation, along with proposals for the new remuneration regime.

    The draft rules will apply to any investment firm under MiFID that are currently subject to any part of the Capital Requirements Directive (CRD) and the Capital Requirements Regulation (CRR). The draft rules will also apply to any regulated and unregulated holding companies of groups that contain an investment firm that is authorized under MiFID and or a Collective Portfolio Management Investment.

     

    Related Links

    Comment Due Date: February 05, 2021

    Keywords: Europe, UK, Banking, Securities, Investment Firms, K-Factor Regime, Regulatory Capital, MIFID, FCA

    Featured Experts
    Related Articles
    News

    EU Agencies Update LCR Rule and Macro-Prudential Policy Recommendation

    The European Commission (EC) published the Delegated Regulation 2022/786 with regard to the liquidity coverage requirements for credit institutions under the Capital Requirements Regulation (CRR).

    May 23, 2022 WebPage Regulatory News
    News

    EBA Publishes Regulatory Standards to Identify Shadow Banking Entities

    The European Banking Authority (EBA) published the final draft regulatory technical standards specifying the criteria to identify shadow banking entities for the purposes of reporting large exposures.

    May 23, 2022 WebPage Regulatory News
    News

    EIOPA Examines Physical Climate Risk Exposure, SII Non-Compliance

    The European Insurance and Occupational Pensions Authority (EIOPA) published a report assessing insurers' exposure to physical climate change risks

    May 20, 2022 WebPage Regulatory News
    News

    EC Publishes Results on Review of Web Accessibility Directive

    The European Commission (EC) published the results of a public consultation, held in October 2021, on the review of the Web Accessibility Directive.

    May 19, 2022 WebPage Regulatory News
    News

    NGFS Report Explores Quantification of Climate Risk Differentials

    The Network for Greening the Financial System (NGFS) published two reports to aid central banks and regulators in their oversight of the financial sector and in their central bank operations

    May 19, 2022 WebPage Regulatory News
    News

    MAS Consults on Adjustment Spreads for Conversion of SOR Contracts

    The Monetary Authority of Singapore (MAS) and the SC-STS are jointly consulting, until June 10, 2022, on setting adjustment spreads for the conversion of legacy SOR contracts to SORA reference rate.

    May 18, 2022 WebPage Regulatory News
    News

    OSFI Discusses Benchmark Rate Transition, Sets Out Work Priorities

    The Office of the Superintendent of Financial Institutions (OSFI) published the strategic plan for 2022-2025 and the departmental plan for 2022-23.

    May 17, 2022 WebPage Regulatory News
    News

    EBA Proposes Standards to Support Secondary NPL Markets

    The European Banking Authority (EBA) is consulting, until August 31, 2022, on the draft implementing technical standards specifying requirements for the information that sellers of non-performing loans (NPLs) shall provide to prospective buyers.

    May 17, 2022 WebPage Regulatory News
    News

    EU Confirms Agreement on Rules on Cybersecurity and Banking Resolution

    The European Council and the Parliament reached an agreement on the revised Directive on security of network and information systems (NIS2 Directive).

    May 13, 2022 WebPage Regulatory News
    News

    EBA Issues Standards for Crowdfunding Service Providers Under ECSPR

    The European Banking Authority (EBA) published the final draft regulatory technical standards specifying information that crowdfunding service providers shall provide to investors on the calculation of credit scores and prices of crowdfunding offers.

    May 13, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8206