Implementing The IFPR In The UK: What Firms Need To Consider Now

The overall objective of the FCA’s new Investment Firm Prudential Regime (‘IFPR’) is to give most investment firms a new prudential framework that focuses on the specific risks attached to their business models.

Its introduction will see a distinction between FCA prudential supervision based on the new IFPR and PRA banking prudential supervision based on Basel IV. All firms that conduct one or more MiFID listed investment activities are in scope, except those investment firms prudentially regulated by the PRA.

Whilst these changes are intended to be practical and simplify prudential risk compliance, if firms have not yet considered the changes, there may be unexpected and complicated consequences.

Implementation

The new rules will be implemented from 1st January 2022 with some transitional arrangements. With the FCA’s latest consultation on IFPR (CP21/7), firms now have all the key information needed to assess its impact on existing governance and risk, capital and liquidity management and plan for implementation. Any subsequent amendments are expected to be clarifications and the final details.

Scope

A distinction is made between Small and Noninterconnected investment firms (SNIs) and others (Non SNIs). This is based on a defined set of metrics used to assess the nature and scale of the firm’s activities - including new K factors. All firms that deal on their own account are expected to be Non SNIs. Other firms will need to check their IFPR classification based on these prescribed metrics. Firms that are non SNIs will be subject to additional capital requirements and more scrutiny of their governance, risk management and remuneration arrangements.
The FCA has also clarified that groups that include investment firms will be subject to consolidated supervision unless they can apply for a waiver based on a new Group Capital Test or CGT.

Coverage 

The IFPR is comprehensive. Key topics include:

• Risk-Based Regulatory Reporting
• New Capital Requirements
• Governance, Risk and Capital Management and the new ICARA
• Liquidity Risk Management
• Remuneration
• Interactions with the FCA

Additional details for each of these topics are included in the pdf of this article.

What should you do now?

Developing an IFPR Implementation Plan
To ensure your firm addresses the relevant key changes before the 1st January 2022, an effective IFPR implementation plan needs to be developed now. It should be developed after considering the following:

The Scope of the IFPR
Firms need to check their IFPR classification based on the new FCA metrics and determine whether they are a SNI or not and whether or not consolidated supervision will apply. The relevant remuneration codes and any available exemptions will also need to be identified.

Likely Capital Impact
An initial estimate should cover both the new FCA prescribed minimum requirements and additional capital requirements and, where relevant, the mitigation from transitional rules. The long term commercial impact of likely changes will also need to be considered and planned for.

Impact on Governance
Firms will need to review their governance to identify required changes to their structure, committee terms of reference and senior management responsibilities and to build in sufficient time for boards to consider, review, approve and implement those changes.

Impact on Risk Management
Firms must identify and assess all key risks in the new ICARA, including business risks not covered by the new K factors. An early high-level mapping between key risks in their current ICAAP or the equivalent to the expected ICARA content will help firms develop a transition roadmap. Impact on Liquidity Risk Management Firms should identify what changes may be needed to their current arrangements and assess their potential impact. For firms with variable or complex funding needs the setting of internal thresholds should be considered early so any issues can be flagged.

Regulatory Reporting
Firms need to consider how they can collect, store and use the data needed for reporting the new K factors. Firms need to analyse all applicable reporting requirements, define necessary changes to systems, support processes and reports and agree on testing and implementation schedules.

How can CCL Academy help?

CCL Academy can provide you with: 

• Bespoke workshops to assist you in developing an effective IFPR implementation plan.
• Briefings for your Board and senior managers on the impact of IFPR for your firm.

If you have any questions about this update, or if would like to know how CCL Academy can support your firm contact us.