IFPR – are you ready?

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
  • Non-SNIs

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.

Important Note: ATEB news is intended to provide general information ONLY. The content, including any views expressed or guidance provided, does not replace the need to comply fully with FCA Rules and Guidance. Unless you have discussed news article content with ATEB, and specifically how it relates to your circumstances, then ATEB disclaims all liability and responsibility and actions arising from any reliance placed upon it. For the avoidance of doubt therefore, any reliance you place on such information without our consultation is at your own risk.

ATEB Compliance offers compliance and regulatory advice.

ATEB Suitability provides report writing software for the financial services market.

Our View

For existing Article 3 exempt firms, there will be very little impact. However, the IFPR will have a substantial impact on those firms within its scope. Current exempt CAD, IFPRU and BIPRU firms, in addition to article 3 firms that are part of an investment group, need to consider their state of readiness in satisfying the new prudential requirements. Firms will need to adopt a bespoke approach, tailoring the process to reflect the risks specifically posed by their business. It may be appropriate to engage with an accountant who is knowledgeable in IFPR / MIFIDPRU requirements.

Action Required By You

Firms should go through the above steps and engage with their accountant as required. ATEB clients can contact their usual consultant to discuss the implications further as required.
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About the Author

Paul is a Chartered Financial Planner and is well on his way to a Fellowship. He has a thirst for technical knowledge and, while he advises on all aspects of financial services regulation, he specialises in pensions and investments.

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