FCA Discusses Prudential Requirements for MiFID Investment Firms

August 21, 2020The Financial Conduct Authority (FCA) published Discussion Paper DP20/3: Prudential requirements for MiFID investment firms. This discussion paper introduces a set of prudential rules for investment firms to further disclose their business models and the risk of harm they pose to consumers and markets. It outlines the EBA Investment Firm Directive and Regulation (IFD/IFR) and calls for industry feedback on the design of a UK regime. The consultation closes on 25 September 2020.

The European Banking Authority’s requirements for a regime for investment firms IFD/IFR is scheduled to be implemented by the end of June 2021. As the regime will be applicable after the planned end of the UK’s transition period to exit the EU, the UK will establish its own prudential regime for investment firms.

This DP is applicable to all solo-regulated investment firms that are currently authorised under MiFID, Collective Portfolio Management Investment Firms and investment firms authorised by the Prudential Regulation Authority (PRA).

For the first time, FCA would provide a regime that has been designed specifically for investment firms, adapting many rules that were created for deposit-taking credit institutions. The FCA expects the on-going regulatory costs for investment firms to be lower.

UK investment firms would be subject for the first time to liquidity requirements which aims to improve overall confidence in their financial stability. The other significant change would be to update the levels of initial capital required for authorisation. As set out in Article 9 of the IFD the new levels are EUR 75k, EUR 150k, and EUR 750k depending on the investment activities.

A new methodology for calculating capital requirements – the K-factor approach would be introduced. The FCA expects it would better align with the business models used by investment firms.

Investment firm groups can be prudentially consolidated according to the IFR requirements which are aligned with the current CRR process. If the regulators deem a group has a sufficiently simple structure and poses no significant risks to clients or to market, they may accept a group capital test to be applied.

FCA would also impose higher regulatory standards to solo-regulated firms and would require investment firms to consider the harms they could pose, as part of their internal assessment of financial adequacy and business models.

In addition, there would be new remuneration and disclosure requirements. Investment firms will all have the same regulatory reporting requirements. The firms that deal in their own name will have to report quarterly the total value of their consolidated assets when this is greater than or equal to EUR 5 billion.


For more information please visit: FCA website.

Jurisdiction: United Kingdom


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