On 26th November 2021, the FCA issued the 3rd IFPR policy statement (PS21/17) following the consultation paper CP21/26 issued in August 2021. In this final policy statement, the FCA aims to clarify certain topics based on the responses received from the market focusing on the following:
1._Disclosure
It is clarified when FCA investment firms must publish their first set of disclosures under the new regime. Furthermore, FCA has introduced some exemptions from the requirement to disclose quantitative remuneration data, when certain criteria are met.
2. Own funds – excess drawings by partners and members
FCA investment firms that are a partnership or LLP will be required to deduct from own funds drawings from the business made by its partners or members that exceed the profits of the firm.
3. Technical Standards
- FCA has deleted some technical standards provisions from the CRR Own Funds Binding Technical Standards (BTS) where they are no longer applicable or relevant under the IFPR.
- FCA has also made some minor changes to the CRR technical standards that relate to market risk. The existing approach to calculating market risk under the UK CRR will continue to apply when calculating the K‑NPR requirement under IFPR (e.g. closely correlated currencies)
- FCA has removed all references that consider the maximum distributable amounts and buffers under the CRD as there is no equivalent under the IFPR.
4. Depositaries
- A MiFID investment firm acting as a depositary will be considered as a non‑SNI firm under MIFIDPRU.
- Any non-MiFID business (including depositary business) must still be considered as part of the firm’s ICARA process.
- Depositaries are not required to have a dealing on own account permission, however they should provide the MiFID ancillary service of safe-keeping and administration of financial instruments.
5. UK resolution regime
- FCA solo regulated investment firms with an initial capital requirement of €730,000 will be removed from the scope of the UK resolution regime.
- However, MIFIDPRU 7 include a requirement for all FCA investment firms to consider recovery planning as an integrated feature of their risk management, as part of their ICARA process.
- All FCA investment firms to undertake wind-down planning, set out at entity-level, including timelines for when and how to execute these plans.
6. Consequential changes
- Consequential amendments so that they refer to MIFIDPRU or SYSC 19G by deleting provisions that are no longer required and ensuring that interactions between existing provisions and MIFIDPRU work in practice
- ‘Significant IFPRU firm’ will now be named ‘significant SYSC firm’
- All non-SNI firms must disclose the number of separate directorships held by each member of the management body, broken down into executive and non-executive directorships. For this purpose, it is not relevant whether the directorship is held in an entity that pursues a predominantly commercial objective.
7. Enforcement
FCA has made minor amendments to Decision Procedure and Penalties manual (DEPP) and Enforcement Guide (EG) to reflect the additional powers the 2021 FS Act has given to enable investigation and impose disciplinary sanctions on non‑authorised parent undertakings and persons knowingly concerned in a breach by the parent undertaking. Sanctions include requirements, prohibitions and financial penalties.
8. Applications and notifications
- FCA’s website contains details of all the MIFIDPRU application and notification forms. The website will be updated as the implementation of the new regime progresses.
- FCA Investment firms should inform FCA immediately as soon as there is a group or the existing group has changed by submitting the group notification form on Connect.
9. Explanation of how we meet our obligations under section 143H (2) of the Financial Services and Markets Act when making Part 9c prudential rules
Part 9C of FSMA placed a duty on us to make rules to impose prudential requirements on FCA investment firms. Under section 143C (2) of FSMA we were required to address the risks to:
- consumers arising from FCA investment firms
- the integrity of the UK financial system arising from FCA investment firms
- which FCA investment firms are exposed.
10. Equality and diversity considerations
FCA does not consider that the rules materially impact any of the groups with protected characteristics under the Equality Act 2010.
Firms falling under IFPR should ensure that they make the necessary preparations to be able to comply with the requirements. FCA investment firms should also ensure that they return the answers to the questionnaire that was sent out on 12 November 2021. This will allow the FCA to schedule the appropriate regulatory returns to each firm and, where appropriate, UK parent entity. Firms should also be reminded that they must begin collecting data on K-factor metrics that are relevant to the activities they undertake by no later than 1 December 2021.
