On 22 June 2021, HM Treasury issued the response to its February 2021 consultation that outlined how the Government was intending to exercise its powers under the Financial Services Act 2021 (Act) to ensure the effective implementation of the Investment Firms Prudential Regime (IFPR) and the outstanding Basel 3 standards.

In the response HM Treasury sets out its views on the following that were the subject of the earlier consultation:

  • The revocation of sections of the UK Capital Requirement Regulation (UK CRR) to be replaced by PRA’s rules, which will implement updated requirements.
  • The equivalence regime for exposures to units or shares of a collective investment undertaking.
  • Disallowing globally systemically important institutions from including eligible liabilities, issued by one of their subsidiaries, to meet their total loss absorbing capacity requirements.
  • The implementation of reporting requirements for the final set of Basel updates to the Fundamental Review of the Trading Book (FRTB) Standardised Approach.
  • Amendments required to ensure the macro-prudential framework, in relation to the Financial Policy Committee’s powers of direction, is consistent with the updated prudential regime for banks, following the passing of the Act and associated secondary legislation.
  • Definitions regarding the entities within a group structure to whom the FCA’s IFPR rules may apply on a consolidated basis.
  • Consequential changes to legislation, in particular to the Financial Services and Markets Act 2000 (PRA-regulated Activities) Order 2013, as a result of changes to the level of initial minimum capital for investment firms, which will be set in FCA rules.
  • The applicability of the UK resolution regime in Part 1 of the Banking Act 20096 to FCA investment firms.

In the response, HM Treasury has decided, among other things, to:

  • Remove the equivalence provision in Article 132 of the UK CRR on the basis that it is a disproportionate method for addressing the prudential risks arising from UK banks’ investments in overseas funds.
  • Implement the FRTB reporting requirements alongside the FRTB revisions to Pillar 1 capital requirements (that is, as part of Basel 3.1 and not from 1 January 2022) due to concerns about implementation costs.
  • Move forward with its proposal to amend the Financial Services and Markets Act (PRA-Regulated Activities) Order 2013 so that the reference to the EUR 730,000 initial capital requirement (ICR) is removed. The amendment will not, in of itself, designate these firms for prudential supervision by the PRA.
  • Remove FCA-regulated EUR 730,000 ICR firms from the scope of the UK resolution regime.