The much-awaited consultation paper on the new UK Investment Firm Prudential Regime (IFPR), was released in December. Full details can be found here: CP20/24: A new UK prudential regime for MiFID investment firms (fca.org.uk)
If you are an IFPRU, BIPRU or Exempt CAD Firm, this paper will be of particular interest to you, as the capital regime under which you are currently operating will look very different in 2022. The proposed change of rules will not be a surprise; the rules originate in EU legislation which has been in the pipeline for some time and looks to achieve the same outcome – that being a more streamlined and simplified regime for investment firms.
The new rules shift the focus from risks facing the firm itself to the risks it can cause to others by the activities it undertakes and in particular to the customers of the firm. This will be done through the introduction of K-factors which look at the risk weighted value of client-based metrics such as client money, client orders and assets under management.
This consultation paper specifically looks at the calculations of these metrics, which will be of interest to firms who may be facing a significant increase in their capital requirement. It clarifies the definition of a “small and non-interconnected firm” or SNI, which has the lowest regulatory burden under the new regime. Importantly it also looks at the scope and implementation of prudential consolidation, which will be of interest to those firms within a FCA Consolidation Group.
The consultation closes on the 5th February.
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