Less Than Two Months Until Firms Have to Comply with the FCA’s New Prudential Rules - Are You Ready?

Jane Stoakes

Most firms have been working towards complying with the new prudential rules that come into force from 1st January 2022, but for some firms we understand there will still be work to do. These new rules will apply to MiFID firms, including Collective Portfolio Management Investment (CPMI) firms, and will be implemented through a new sourcebook called MIFIDPRU.

Key areas of focus:

  • Understanding your firm’s classification as a small, non-interconnected (SNI) firm, or a non-SNI firm, as this will drive the rules and capital requirements that apply
  • Understand the capital requirements that apply to your firm
  • Analyse any possible consolidation requirements
  • Calculate K-factors if your firm is a non-SNI firm
  • Ensure the key components of the ICARA process are in place, such as stress testing on capital and capital requirements, implementation of wind-down plan and ensuring the firm’s liquidity policy is fit for purpose
  • Updating the remuneration policy to comply with the new requirements

To assist, we have developed an IFPR implementation toolkit.  The toolkit consists of the following:

  • IFPR Guide

    • This provides an overview and guidance on the requirements of IFPR and provides information on how firms should use the toolkit
  • Internal Capital and Risk Assessment (ICARA) templates

    • This assists firms to document their ICARA process, which should be ongoing. To help firms with these exercise we have developed the following templates:

      • Business Model Assessment, Capital and Liquidity Planning (BMA)
      • BMA stress test
      • ICARA liquidity policy
      • Cashflow forecasts and stress tests
      • Wind-down plan
      • Risk register
  • Template Remuneration Policy

    • Firms can tailor this template to document their Remuneration Policy to comply with the new requirements.

If you would like to obtain further information on our IFPR toolkit, please contact your relationship manager.

The FCA and Bank of England Encourage Liquidity Providers to Adopt New Quoting Conventions

Kristian Sotiriou and Warren Radloff

A major recommendation made by the Working Group on Sterling Risk-Free Reference Rates (‘the Working Group’) is to stop the opening of new cross-currency derivatives with a LIBOR-linked sterling leg expiring after 2021, during Q2/Q3 2021, other than for risk management of existing positions.

In the US, the Commodity Futures Trading Commission (CFTC’s) Market Risk Advisory Committee (MRAC) recommended a series of the Secured Overnight Financing Rate (SOFR First) initiatives in US dollar markets, starting with interdealer swap markets and then moving towards replacing the use of LIBOR with RFRs in cross-currency swaps. The FCA and the Bank of England have openly encouraged UK market participants, including liquidity providers, to support the ‘SOFR First’ initiative. They’ve also liaised with authorities across LIBOR jurisdictions regarding the initiative for cross-currency swaps in September.

The FCA and the Bank of England now encourage all participants in the LIBOR cross-currency swaps market to take the necessary steps for preparing and implementing the relevant changes and shift liquidity away from LIBOR to RFRs.

Click here for the full article

FCA Proposes Streamlined Decision-Making Process

Mark Ford and Warren Radloff

In CP21/25 issued on 29th July 2021, the FCA proposed changes to its decision-making process, moving some decision-making from its Regulatory Decisions Committee to its Authorisations, Supervision and Enforcement divisions. The consultation is proposing that certain decisions will now be made by FCA staff including:

  • Imposing a requirement on a firm or varying its permissions
  • Making a final decision in relation to an authorisation, or individual, application that has been challenged
  • Making a final decision to cancel the permissions of a firm that doesn’t meet the FCA’s regulatory requirements
  • The decision to start civil and/or criminal proceedings

Emily Shepherd, Executive Director of Authorisations, said “The changes will help to increase the speed and reduce the regulatory costs of dealing with firms and individuals that fail to meet the FCA’s standards.”

This consultation, which can be found here, closed on 17 September 2021 and the FCA aims to publish a policy statement around November 2021.

Further details on the Regulatory Decisions Committee can be found here.

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