The Challenge
When our client approached us, they faced a significant hurdle. The Financial Conduct Authority (FCA) had flagged that they lacked sufficient consolidated own funds to proceed with a planned acquisition. They needed clarity—fast. Specifically, they required an accurate calculation of their consolidated capital position under the Investment Firms Prudential Regime (IFPR) rules. They also sought a top-level IFPR compliance review to identify any other potential regulatory gaps.
The Complexity of IFPR Rules
For investment firms, meeting the FCA’s own funds requirements isn’t as simple as following standard accounting practices. The IFPR framework, guided by MIFIDPRU rules, introduces nuances that can catch firms off guard.
Take goodwill deductions, for example. Under IFPR regulations, firms must deduct goodwill from their capital position—something not all finance teams are accustomed to. Imagine a firm with £50 million in capital on its balance sheet. If they’ve recently acquired another business with £10 million in goodwill, they must deduct that amount from their capital position. That leaves them with £40 million in own funds for IFPR compliance. Overlooking this deduction led to the FCA’s concern about our client’s capital adequacy.
Interim profits pose another challenge. While firms must deduct interim losses, they can’t automatically include interim profits in their capital position unless these are verified by an external auditor—and even then, FCA approval is required.
And then there’s firm classification. Many investment firms assume they qualify as Small and Non-Interconnected (SNI) investment firms based on individual firm assets. However, IFPR rules require firms to aggregate assets across all relevant subsidiaries. For example, if the combined asset under management (AUM) exceeds £1.2 billion, they must reclassify as a non-SNI investment firm, which brings additional reporting obligations. Our client, who initially believed they were an SNI firm, exceeded the threshold when their subsidiaries’ assets were consolidated, meaning they needed to adjust their classification.
Our Solution
We took a structured, hands-on approach to solving our client’s challenges.
Capital Position Report: We prepared a consolidated capital position report to clearly demonstrate to the FCA that our client—and their investment firm group—held sufficient own funds to proceed with their acquisition.
MIFIDPRU Gap Analysis & Training: To ensure full IFPR compliance, we conducted a detailed MIFIDPRU gap analysis, as requested by the FCA. We also provided tailored IFPR training to key team members to strengthen their understanding of the IFPR framework.
Reclassification & Reporting Support: Once we identified that our client had exceeded the SNI threshold, we guided them through the necessary FCA notifications and helped them meet the additional reporting requirements. This included assisting with risk management disclosures and policy updates.
The Outcome
Our work delivered two critical outcomes for our client:
- A £10 Million Capital Surplus – By securing FCA approval for an external audit of their interim profits, we helped our client prove they had a capital surplus rather than a shortfall.
- Full Regulatory Compliance – With our top-level IFPR review, we ensured our client was correctly classified as a non-SNI firm and fully aligned with FCA regulations.
How we can help
If your investment firm needs expert guidance on IFPR compliance, we’re here to help. Visit our ICARA & FCA reporting page or download our Investment Firms Prudential Regime guide for more insights. Alternatively, contact our IFPR specialists on 0207 436 0630 or email info@thistleinitiatives.co.uk.