FCA consults on new prudential regime for UK investment firms
The UK Financial Conduct Authority (FCA) has launched a consultation on its proposed rules to introduce the UK Investment Firm Prudential Regime (IFPR) for FCA prudentially-regulated investment firms.
This is the first of three consultations that the FCA will issue to introduce the regime in January 2022. Final rules will be published over the course of next year.
The new regime will streamline and simplify the prudential requirements for solo-regulated investment firms in the UK. At present, there are many different regimes which apply depending on size of firm and type of investment business.
The new rules will extend the framework for prudential requirements to consider the potential harm FCA investment firms pose to clients, consumers and the market. This includes the amount of capital and liquid assets the FCA investment firm should hold so that if it does have to wind down, it can do so in an orderly manner.
There are approximately 3,200 FCA investment firms in the UK, the regulator says. Many people have products with investment firms, ranging from workplace or personal pensions and investment ISAs to those who use a platform to trade stocks themselves. The FCA notes that FCA investment firms have to minimise the harm they could cause consumers.
Introducing the IFPR means that there will be a single prudential regime for all FCA investment firms. It should reduce barriers to entry and allow for better competition between investment firms.
The new regime represents a major change for FCA investment firms. It is critical that firms adequately prepare for the regime.
The consultation period for this first consultation closes on Friday, February 5, 2021.
This consultation follows the Discussion Paper DP20/2: Prudential Requirements for MIFID Investment Firms issued in June 2020. That set out the FCA’s initial views on introducing the IFPR, as well as technical details on the European Union’s (EU) Investment Firm Directive (IFD) and the Investment Firm Regulation (IFR). It requested feedback to support the FCA’s development of a UK version of the EU’s proposed regime. The FCA has taken this feedback into account when developing this and subsequent consultations.
The FCA supports the aims of the IFD/IFR. The FCA proposes that the IFPR will achieve the same overall outcomes.
However, as it is introducing the regime after the UK has exited the EU, the FCA believes it is right to also consider what amendments are appropriate to account for the specifics of the UK market, and its duties to have regard to certain factors, including those set out in the Government’s recently introduced Financial Services Bill.