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    FCA Seeks Views on New Prudential Regime for UK Investment Firms

    June 23, 2020

    FCA published a discussion paper on the prudential regime for investment firms in UK. The discussion paper sets out the technical details of, and initial views of FCA on, the Investment Firm Directive (IFD) and the Investment Firm Regulation (IFR). In December 2019, the Official Journal of the European Union published IFD and IFR, with which the investment firms and competent authorities in EU member states will be required to comply from June 2021. As UK has exited the EU, FCA will not implement the IFD and IFR. The government will instead introduce a framework for a new prudential regime for investment firms in UK. FCA is seeking views on how best to implement this new regime. The comment period for this discussion paper ends on September 25, 2020. FCA will consider the feedback and publish a consultation paper later in 2020.

    The discussion paper is relevant for all solo-regulated investment firms that are authorized under the Markets in Financial Instruments Directive (MiFID). It will also be of interest to Collective Portfolio Management Investment Firms and to investment firms authorized by PRA. The approach that has been followed in the discussion paper is to set out, coherently and logically, the requirements the IFD/IFR places on EU firms and competent authorities. Where relevant, FCA has also set out in each chapter its initial views on the intention and implication of the regime and interpretation of it. This is particularly the case where the regime makes a material change to the status quo, or where the EU text provides for national discretions, or has ambiguities. 

    The IFD and IFR represent a significant change to how MiFID investment firms will be prudentially regulated. Investment firms should be aware of the scale of the change the IFD and IFR represent. In addition to various less material changes compared to the existing regime, major changes described in the discussion paper include:

    • An update to the initial capital required for authorization
    • Changes to the rules on the definition of capital
    • New own funds requirements, including the introduction of the K-factor approach
    • New rules on prudential consolidation, group risk, and concentration risk
    • Applying liquidity requirements to all investment firms
    • A new approach for investment firms' internal risk and prudential assessments and the supervision of those requirements
    • New requirements on remuneration policies
    • Changes to reporting and disclosure requirements


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    Comment Due Date: September 25, 2020

    Keywords:  Europe, UK, Securities, IFR, IFD, MIFID, Regulatory Capital, Investment Firms, Reporting, Disclosures, ESG, FCA

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