IFPR Exempt CAD MiFID firms prudential update - Thistle Initiatives

Written by Thistle Initiatives - Compliance consultancy | Nov 1, 2021 12:00:00 AM

What has happened?

The forthcoming Investment Firm Prudential Regime (the IFPR) is intended by the FCA to simplify and harmonise the capital and liquidity requirements for investment MiFID firms but it may present a significant challenge to exempt CAD firms.

What do you need to do?

In view of the Investment Firm Prudential Regime, applicable to MiFID firms and due to go live on 1st January 2022, exempt CAD firms may well wish to review whether they need to remain as exempt CAD and, if not, whether they will be able to, or will wish to, opt out of MiFID via a Variation of Permission.

There are approximately 600 exempt CAD firms regulated by the FCA and these firms will, if they plan to remain as MiFID firms, need to consider a range of key issues, including;

whether or not they will be classed as Small and Non-Interconnected (SNI) firms,
the fact that their capital requirement will increase,
the need to calculate variable capital such as the Fixed Overhead Requirement (FOR) or K-factor capital,
whether they will be in a consolidation group under the new regime and how they will monitor concentration risk,
the requirement to produce a risk-based capital assessment, known as an ICARA, which will bring together recovery plans, wind-down plans and many parts of the ICAAP, which exempt CAD firms will not have needed to prepare previously, and
being subject to the remuneration code for the first time and needing to put in place relevant policies and governance to comply with the new requirements.

In October 2021, the FCA made its final rules to streamline and simplify the prudential requirements for solo-regulated UK MiFID firms. It has converted the near-final rules from the first two policy statements into final rules and it will publish a third policy statement by the end of 2021. It has also published an updated version of its general guidance on the application of ex-post risk adjustment to variable remuneration, which brings FCA investment firms into scope of the guidance.

Also now available are:

a Remuneration Policy Statement template which FCA investment firms can use to document their remuneration policies and practices, and
a template which FCA investment firms can use to record their material risk takers

For more updates and information, firms can sign up for the IFPR newsletter by emailing IFPR-newsletter@fca.org.uk with ‘sign up’ in the subject line.

The FCA will be sending out a questionnaire to all existing FCA investment firms in November asking for various key information, such as their expected SNI status, investment firm group membership/composition and expected ICARA reporting date. This will provide the information that the FCA needs to set up reporting schedules and update its systems.

The FCA will provide updates on this questionnaire on its IFPR webpage and as part of the monthly Regulation Round-up.

How can we help you?

If you’d like to know more about how we can help you with your planned IFPR or Variation of Permission arrangements, or any other regulatory compliance issues, our expert team is here to help.

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