Second Consultation on New Prudential Regime for UK Investment Firms

The FCA has issued the second of three consultation papers (CPs), CP21/7 (CP2), on the UK’s proposed MIFIDPRU sourcebook—the UK’s domestic implementation of the investment firm prudential regime (IFPR). In the UK, the target date for MIFIDPRU to come into force is 1 January 2022. MIFIDPRU and other FCA sourcebooks (e.g., SYSC19) will introduce a new prudential and remuneration code regime for UK MiFID investment firms, including collective portfolio management investment firms. The new regime aims to simplify the prudential requirements; minimize potential harm to clients, firms, and the market; and be proportionate to the size and nature of relevant firms.

The FCA’s discussion paper DP20/2, which introduced the UK’s domestic IFPR, and the first FCA consultation, CP20/24 (CP1), dealt with various areas, including the categorization of firms, trading book K-factors and the new reporting requirements.

In CP2, the FCA deals with the following:

• Remaining aspects on own funds requirements (fixed overheads requirement, K-AUM [assets under management], K-COH [client orders handled], K-ASA [assets safeguarded and administered] and K-CMH [client money held], as well as revisiting K-DTF [daily trading flow])

• Minimum liquid assets (MLA) requirements

• Remuneration requirements

• Risk management:  internal capital and risk assessment (ICARA) process

The deadline for feedback on the CP2 closed on 28 May 2021. The FCA intends to publish CP3 in Q3 2021 and publish the policy statement and rules from the second and third consultations in October/November 2021.