How to prepare for IFPR


INSIGHT
Published
May 12th '21
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The UK is seeking to adopt a more proportionate and fit-for-purpose prudential regime for investment firms known as the Investment Firms Prudential Regime (IFPR).

 

IFPR will apply to all firms in scope of the Markets in Financial Instruments Directive 2 (‘MiFID II’). This includes asset managers and investment firms carrying out activities such as transmission of orders in relation to financial instruments, execution of client orders, dealing on own account, managing portfolios, providing investment advice, underwriting financial instruments, and operating trading facilities. However, the most significant – designated – investment firms will remain under the same prudential framework as credit institutions, i.e. CRR/CRDV and future updates.

 

It was initially planned that IFPR would come into force during the summer of 2021. However, in November 2020, the targeted implementation date was delayed by six months, to 1 January 2022.

 

As the UK Regulators had a hand in developing the EU’s IFD/IFR, the intention is to retain their key principles for the UK regime and keep options open to reflect UK market specificities.

 

Deviations from the EU proposal will seek to reflect the number, size and nature of UK investment firms, the UK market structure and how it operates.

 

In practice, to develop the IFPR, the Financial Conduct Authority (FCA) has been examining both responses from the industry to its Discussion Paper DP20/2 and European publications such as European Banking Authority (EBA) Implementing Technical Standards and other guidelines.

 

The introduction of IFPR will see major changes in areas such as:

 

  • Approach to risk and prudential assessment
  • Capital requirements computation
  • Minimum liquidity requirements
  • Remuneration practices and policies
  • Reporting and public disclosures

 

How MiFID Investment Firms should prepare

 

1. Determining the prudential category

  • Determine the firm’s classification based on its activities, systemic importance, size and interconnectedness
  • For firms that are part of a parent group, determine prudential consolidation requirements

 

2. Mapping relevant changing requirements

  • Identify requirements which apply to the prudential category identified above
  • Of these requirements, ascertain which are relevant based on the firm’s business activities and operations

 

3. Performing impact assessment

  • Assess changes to operational set-up, processes, structure, capital and liquidity planning needed to meet the relevant changing requirements by the deadline and to maintain compliance going forward

 

4. Conforming with the new regime

  • Design an action plan which sets out the key actions, timelines, dependencies and stakeholders
  • Implement action plan, monitor progress and ensure quality of outputs

 

How we can help

Our experienced regulatory compliance and risk management specialists will draw upon their detailed understanding of prudential changes, regulatory expectations and best practices to provide high quality services tailored to support your transition to IFPR.

 

  • Advise on technical interpretation of the new prudential regime requirements
  • Assess the impact and understand firm-wide opportunities, challenges and changes required
  • Design and project manage action plan
  • Design and implement changes to processes, models, systems and controls
  • Post-implementation review of processes, reports and documentation to assess and confirm compliance
  • Deliver bespoke training to your teams to increase awareness around the new prudential regime

 

For further information please contact us where our industry experts will be happy to answer your questions.

 

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