Wednesday June 24 2020
News Source: Fund Regulation
Focus: General - Fund Regulation
On 23rd June 2020, the Financial Conduct Authority(FCA) published a discussion paper on a prudential regime for UK investment firms. This marks the first step in introducing a set of prudential rules for investment firms to better reflect their business models and the risk of harm they pose to consumers and markets.
The information in the Discussion Paper will be of interest to all solo-regulated investment firms that are currently authorised under MiFID. It will also be of interest to Collective Portfolio Management Investment Firms and those investment firms authorised by the Prudential Regulation Authority.
Investment firms and other interested stakeholders will have until 25 September to respond.
- Currently most investment firms follow very similar prudential rules as deposit taking credit institutions agreed through the Basel framework.
- Last year the EU published its requirements for a regime specifically designed for investment firms, the Investment Firm Directive and Regulation, due to be implemented in the EU by the end of June 2021. Whilst the UK was a member of the EU, the relevant UK authorities were involved in the development of the EU’s regime.
- As the regime will be introduced after the scheduled end of the UK’s transition period to exit the EU, the UK will introduce its own prudential regime for investment firms, as announced in the Chancellor’s statement in the Budget in March.
In this Discussion Paper, FCA has set out initial views as well as technical details on the Investment Firm Directive (IFD) and the Investment Firm Regulation (IFR). The Government will be introducing a framework for the new prudential regime for UK firms. FCA are seeking views on how best to implement this.
This discussion paper marks the first step in introducing a set of prudential rules for investment firms to better reflect their business models and the risk of harm they pose to consumers and markets.
FCA will use it to inform their consultation to introduce a UK prudential regime for investment firms. It provides stakeholders with the details of the EU Investment Firm Directive and Regulation (IFD/IFR), and requests industry feedback on the design of a UK regime.
Annex 3 of this discussion paper provides a table to help all types of MiFID investment firms access its detailed content and determine the parts most relevant to their business models.
Major changes described in this DP include:
- an update to the initial capital required for authorisation
- changes to the rules on the definition of capital
- new own funds requirements, including the introduction of the K-factor approach
- new rules on prudential consolidation, group risk and concentration risk
- applying liquidity requirements to all investment firms
- a new approach for investment firm’s internal risk and prudential assessments, and
- the supervision of those requirements
- new requirements on remuneration policies
- changes to reporting and disclosure requirements
Click on the link for further information.