Written by Harrison Folland 

The FCA has published its second Consultation Paper (CP21/7) on the Investment Firms Prudential Regime (“IFPR”). The IFPR is a new prudential regime for FCA authorised firms and is largely derived from the Investment Firms Regulation ((EU) 2019/2033) (“IFR”) and the Investment Firms Directive ((EU) 2019/2033) (“IFD”).

The IFR and IFD established a new prudential framework for EU investment firms; they are being adapted by HM Treasury and the FCA to apply to FCA MiFID investment firms - with the FCA's latest update noting that the "new regime will streamline and simplify the prudential requirements for MiFID investment firms that are prudentially regulated by the FCA in the UK". 

Key highlights detailed within the consultation paper (non-exhaustively) include:

  • Own funds requirements;
  • Basic liquid asset requirements;
  • Risk management and governance;
  • Remuneration;
  • Regulatory reporting;
  • Impact on other prudential sourcebooks;
  • Application to collective portfolio management investment firms (CPMIs), international firms and tied agents;
  • Applications and notifications; and
  • Draft rules and guidance.

In terms of the FCA Handbook, the FCA intends to delete BIPRU and IFPRU in their entirety, as well as the deletion of parts of GENPRU and IPRU-INV, and replace these with "MIFIDPRU".

Supplementing the Consultation Paper are the proposed templates for the new reporting to support the IFPR and the guidance for completing these templates. The FCA is also publishing proposed forms for applications and notifications.

Next steps 

The deadline for responses to the Consultation Paper is 28 May 2021 - the response form is available for comment here

The FCA is aiming to publish its third consultation paper at the start of Q3 2021. A Policy Statement and near-final rules in respect of each of the Consultation Papers will also be published.  The final rules will be published once the Financial Services Bill has passed through Parliament and all the consultations are complete