FCA is consulting on the first phase of its proposed rules for the UK Investment Firm Prudential Regime, aimed at simplifying the prudential requirements for solo-regulated firms that fall within MiFID and are subject to any part of the CRD and CRR. The requirements include not only BIPRU, GENRPU and IFPRU firms, but also exempt CAD firms, locals, and certain commodity derivatives firms as well as investment firms that would be exempt under Article 3 of MiFID but have chosen to opt in. The rules will also apply to regulated and unregulated holding companies of firms that are currently MiFID or CPMI firms.
FCA warns firms to take the time to read the consultations and then prepare for the new rules.
The current consultation covers:
- categorisation of firms
- prudential consolidation and the group capital test
- own funds – definition and composition of capital
- own funds requirements
- own funds requirements – transitional provisions
- concentration risk monitoring and K-CON
- reporting requirements and
- FCA’s approach to the FS Bill and compatibility with its duties and principles
Following this consultation, FCA expects to consult in Q2 2021 on further issues, including liquidity, risk management and remuneration requirements and then at the start of Q3 2021 on remaining issues and consequential amendments.
Key critical changes include:
- scrapping current categorisations, and merely defining firms as “small and non-interconnected”, or not
- proposals for group consolidation and a group capital test for firms that do not wish to be subject to it
- own funds comprising common equity tier 1 capital, additional tier 1 capital and tier 2 capital and a new permanent minimum own funds requirement
- new monitoring requirements for general concentration risk applicable to all firms and an additional K factor for those that trade in their own name
- the requirement to assess and hold financial resources against the potential for harm the firm presents to markets and consumers
FCA asks for comment by 5 February 2021.