The IFPR introduces a new prudential regime for MiFID investment firms regulated by the FCA. It will create a single, proportionate regime that reflects firms’ size and business.

The regime focuses prudential requirements on the potential harm to consumers, clients, and the market. It includes the amount of liquid assets and capital levels a firm should hold to enable it to wind down in an orderly way if required.

The regime should provide for better competition between firms and simplify requirements for new market entrants.

In the second of its three consultations, the FCA is asking for views on:

• Remaining aspects on own funds requirements (such as the Fixed Overheads Requirement).
• The basic liquid assets requirement.
• Remuneration requirements.
• Risk management – the Internal Capital and Risk Assessment (ICARA) process.

The UK IFPR rules aim to streamline and simplify prudential requirements for solo-regulated UK firms, authorised under the Markets in Financial Instruments Directive (MiFID).

The first consultation introduced the UK IFPR and focused on the categorisation of investment firms, prudential consolidation, own funds and own funds requirements, and new reporting requirements. The FCA said it received constructive feedback from across the industry. It will publish the Policy Statement and near-final rules on the first consultation in Q2 2021.

Following this second consultation, the FCA will issue a third consultation in Q3 2021. Policy Statements and rules for the second and third consultations will be published over the course of this year.

The FCA is also consulting earlier on more complex issues where possible to allow firms to prepare for the regime, which will be introduced in January 2022.

The second consultation will close on 28 May 2021.

David Croker, PwC partner, commented on the launch of the consultation. He said: “The second and perhaps most significant IFPR consultation has landed today. We now have a crucial part of the jigsaw of what is fundamentally a new prudential regime for all asset and wealth management firms. Despite the importance of the consultation, firms only have a little over five weeks to respond.

“A large part of today’s rules focus on the new ICARA process. For anyone familiar with the ICAAP this should and will feel very different; for others it will be entirely new. As the FCA states, the ICARA process should be ‘the centrepiece of firms’ risk management processes’, and the means through which the FCA monitors firms. Organisations should also note the FCA’s focus on governance and Senior Manager accountability.”

He added: “Firms must now also finalise their modelling of the new capital requirements, with the details on the remaining K-factors now clear. Most firms have undertaken analysis based on the previous consultation, so this should allow them to rapidly conclude this part of their implementation work, and focus on the additional elements from today’s consultation.

“With the final implementation date only eight months away - and just over two months for firms with EU entities - this is a big ask. Those firms that got ahead of the curve will be best placed to successfully tackle this, but there is still much work to do.”