The UK government published the statutory instrument titled "Financial Services Act 2021 (Prudential Regulation of Credit Institutions and Investment Firms) (Consequential Amendments and Miscellaneous Provisions) Regulations 2022.” This instrument makes consequential changes as a result of the Financial Services Act 2021 (FS Act), which introduced the framework for the Investment Firms Prudential Regime (IFPR), a bespoke prudential regime for non-systemic investment firms. The instrument shall enter into force on August 17, 2022.
The FS Act also provided for the transfer of certain prudential regulation set out in UK legislation to rules made by the Prudential Regulation Authority (PRA). This enabled the PRA to implement the remaining aspects of the Third Basel Accord (Basel 3 standards) through regulator rules and will enable the future implementation of the Basel 3.1 standards. This instrument includes further consequential amendments following the introduction of the IFPR and Basel 3 standards on January 01, 2022. It repeals the Banking Act 2009 (Exclusion of Investment Firms of a Specified Description) Order 2014 as it is redundant following the removal of Financial Conduct Authority (FCA)-regulated investment firms from the UK resolution regime. This instrument makes transitional provision in respect of risk retention requirements for certain securitizations following the implementation of the IFPR. These requirements relate to the retention of a material net economic interest in a securitization by the originator, sponsor, or original lender to better align their interests with those of investors.
Additionally, this instrument makes amendments to ensure that short-term liabilities owed to both PRA-regulated and FCA-regulated investment firms with permission to underwrite or deal on own account will continue to be exempt from bail-in. Bail-in involves shareholders of a failing institution being divested of their shares and creditors of the institution having their claims cancelled or reduced to the extent necessary to restore the institution to financial viability. Finally, this instrument addresses further deficiencies arising from the withdrawal of the United Kingdom from the European Union. This instrument also corrects a typographical error in the Financial Services Act 2021 (Prudential Regulation of Credit Institutions and Investment Firms) (Consequential Amendments and Miscellaneous Provisions) Regulations 2021. There are no plans to consolidate the relevant legislation and HM Treasury does not propose to issue further guidance. The legislation applies to activities that are undertaken by small businesses, if they fall within the scope of the CRR or will fall in the scope of the IFPR. However, the number of small businesses (banks and investment firms) that fall within scope are minimal and HM Treasury does not consider there is a further need to minimize the impact of the requirements on small businesses.
Keywords: Europe, UK, Banking, Investment Firms, CRR, IFPR, Basel, Regulatory Capital, Statutory Instrument, Reporting, Securitization, HM Treasury, UK Government
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