There is now only three months to go before the UK Investment Firms Prudential Regime (IFPR) comes into force. For businesses within the scope of the IFPR, the implementation timescale is daunting.
Most of the new requirements will appear in a new Financial Conduct Authority sourcebook called MIFIDPRU, and businesses within the scope of the regime will be collectively referred to as MIFIDPRU investment firms.
The new rules will apply to Mifid investment firms authorised and regulated by the FCA, including current BIPRU and IFPRU firms and exempt CAD firms, among others.
The new rules also potentially apply to any regulated and unregulated holding companies that own a MIFIDPRU investment firm.
The aim of the IFPR is to "streamline and simplify" the prudential requirements for Mifid investment firms. There is an extensive range of new rules to get to grips with and some significant, practical challenges around implementation. Some technical details are still unclear.
At this point, the IFPR feels a long way from being either streamlined or simple. Despite calls for a delay, the FCA is sticking resolutely to an implementation date of January 1 2022.
With only three months to go, where should businesses be focusing their efforts between now and the end of the year? Below are some actions that need to be firmly at the top of the IFPR to-do list.
Groups: document and analyse corporate structure
Some of the largest IFPR headaches affect firms within group structures. Historically, the treatment of groups has been inconsistent and the FCA is using the IFPR to address some of those legacy issues.
The changes include: a new definition of what constitutes an FCA investment firm group; making parent companies, which can be non-regulated holding companies, responsible for complying with the prudential requirements; removing the consolidation waiver that some BIPRU firms currently use to avoid being treated as a consolidation group; and introducing a new group capital test (GCT) as an alternative to full, prudential consolidation for groups with a sufficiently simple structure.
An essential first step for any firm that is part of a group structure is to produce a structure chart showing the status and location of each entity in the group and the activities it undertakes. Other connected undertakings sitting outside the group structure may need to be considered too.
The corporate structure then needs to be analysed, considering the various new regulatory definitions, to decide whether it constitutes an ‘FCA investment firm group’. The rationale behind any decisions made should be clearly documented.
Determining whether an FCA investment firm group is formed may not be straightforward, so it is vital to set aside sufficient time and resources to do it properly.
Some of the new definitions are not clear cut. Firms might want to seek individual advice from their compliance consultant, if they have one. Groups with complex structures may need to take appropriate legal or accounting advice.
Where an investment firm group has been formed, the next step is to weigh up the pros and cons of full prudential consolidation in comparison with the GCT. Both approaches require detailed analysis of the accounts of the holding company and its relevant subsidiaries to decide which is best.