United Kingdom (and EU regulation)

FCA PS21/6: Implementation of Investment Firms Prudential Regime

By Jochen Vester (UK) and Simon Lovegrove (UK) on June 30, 2021 Posted in Regulation and compliance, United Kingdom

On 29 June 2021, the FCA published Policy Statement 21/6: Implementation of Investment Firms Prudential Regime (PS21/6).

PS21/6 is the FCA’s first policy statement on the UK Investment Firm Prudential Regime (IFPR). In PS21/6 the FCA provides feedback on the comments it received on its first consultation paper on IFPR (Consultation Paper 20/24: A new UK prudential regime for MiFID investment firms (CP20/24)) and sets out near final rules.

The structure of PS21/6 is as follows:

Chapter 2 provides a summary of the feedback the FCA received on its proposals for categorising FCA investment firms as either small and non-interconnected firms (SNI) or not (non-SNIs) and its response.
Chapter 3 provides a summary of the feedback the FCA received on its proposals for prudential consolidation and the group capital test (GCT).
Chapter 4 summarises the feedback the FCA received on its proposals for the types and treatment of own funds and its The FCA defines own funds and the items that should be deducted for common equity tier 1 purposes.
Chapter 5 summarises the feedback received on the FCA’s proposals for own funds requirements and its responses. The FCA also responds to feedback on the amounts of ongoing permanent minimum requirement that will apply to FCA investment firms and how this interacts with the initial capital requirement. The chapter also covers the feedback on the applicability and calculation of the K-factor requirements for firms trading on their own account.
Chapter 6 summarises the feedback the FCA received on transitional provisions that will apply to own funds requirements and the FCA’s responses. This includes the transitional provisions relating to the initial collection and use of K-factor metrics.
Chapter 7 summarises the feedback the FCA received on its proposals concerning concentration risk.
Chapter 8 summarises the feedback received on the FCA’s proposals for reporting.

PS21/6 contains near final rules. These rules will be made final once the Financial Services Bill receives royal assent and the relevant statutory instruments are in place. The FCA states that it does not expect to make any changes to these rules before they are made final, unless this is essential due to ongoing policy work and feedback received on other consultations on IFPR.

The FCA issued a second consultation paper on the IFPR earlier this year (CP21/7). The FCA intends to publish a further consultation paper this year and two further policy statements which will summarise the feedback received and bring together all the final rules.