The Investment Firms Prudential Regime (IFPR) represents a significant upheaval to the rules around prudential requirements for “FCA investment firms”. Broadly speaking, the new rules aim to simplify the current requirements, bringing all MiFID investment firms under a single regulatory regime.
Which firms does the IFPR affect?
The IFPR will affect a range of FCA investment firms including:
- Firms subject to BIPRU rules
- Firms subject to IFPRU rules
- Firms subject to GENPRU rules
- Exempt CAD firms
- Article 3 exempt firms that have opted into MiFID
- Article 3 exempt firms that comprise part of an investment group
Under the IFPR, all such firms are classed as MIFIDPRU investment firms and subject to a new prudential sourcebook – The Prudential sourcebook for MiFID Investment Firms (MIFIDPRU). Firms are categorised as either:
- SNIs (Small and Non-Interconnected investment firms) or
SNI firms will benefit from a lighter touch, reflecting and proportionate to the size and potential risks posed.
Article 3 exempt firms
MIFIDPRU only applies to investment firms that are authorised under MiFID. Where a firm is exempt from MiFID under Article 3, MIFIDPRU does not apply. Accordingly, Article 3 exempt firms are not affected by the IFPR if they do not form part of an investment group and have not opted into MiFID. They remain on Chapter 13 of IPRU-INV.
What steps should firms take?
The IFPR applies from 1 January 2022. Firms should consider the following steps to self-assess applicability of, and readiness for, MIFIDPRU requirements:
Step 1: Does IFPR apply? (applies to: All firms)
Step 2: Engage with your accountant (applies to: firms caught by IFPR)
Step 3: Establish what your IFPR classification is (applies to: SNIs / Non-SNIs)
Step 4: Groups only : Calculate the firm’s own funds requirement (OFR) (applies to: investment groups)
Step 5: Consider your Prudential consolidation status (applies to: SNIs / Non-SNIs)
Step 6: Establish what the firm’s liquidity requirements are (applies to: SNIs / Non-SNIs)
Step 7: Establish the firm’s risk management / ICARA process (applies to: SNIs / Non-SNIs)
Step 8: Identify changes to remuneration code (applies to: SNIs / Non-SNIs)
Step 9: Be aware of reporting requirements (applies to: SNIs / Non-SNIs)
Step 10: Be aware of disclosure requirements (applies to: Non-SNIs and SNIs that have issued AT1 capital / remuneration disclosures apply to SNIs and Non-SNIs)
Existing ATEB clients can speak to their regular consultant for assistance in going through the above steps.
Key date – Group Capital Test (GCT)
While there are several key dates in relation to IFPR notwithstanding the commencement date above, applications for permission to use the GCT on a transitional basis must be made by 31 January 2022. This will lessen the impact of stricter prudential consolidation requirements, including those on liquidity over the next 2 years.
FCA IFPR Set-up Questionnaire
In November 2021, the FCA issued a questionnaire to investment firms that will be caught by the IFPR, asking for a range of information including firm categorisation (SNI / Non-SNI), expected ICARA reporting dates etc. It would appear that some firms have not received this questionnaire, particularly those firms that should be within the scope of the IFPR but have only been authorised within the past 24 months. Firms that have not already received their questionnaire should contact the FCA by emailing to IFPRsetupquestionnaire@fca.org.uk.