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IFPR - implementation delayed by six months

On 16 November 2020, the FCA, the Prudential Regulation Authority (PRA) and HM Treasury announced that the implementation of the Investment Firms Prudential Regime (IFPR) would be delayed until 1 January 2022.

Last updated: 19 November 2020

The joint statement on the implementation of prudential reforms, contained in the Financial Services Bill, also indicates a revised implementation date of the Capital Requirements Regulation 2 (CRR2).

The FCA published its discussion paper (DP20/2) in June 2020 on the proposed requirements of IFPR, and this was originally expected to be implemented, in line with the European equivalent regime IFR/IFD, on 26 June 2021. The delay in IFPR’s introduction will be welcomed by many firms as they continue to grapple with the uncertainties surrounding the end of the Brexit transition period, the impact of COVID-19 and the wider markets, and the general volume of recent regulatory reform.

However, this delay may have implications for some firms with entities regulated in both the UK and the EU. Due to the different implementation dates, the UK and EU will effectively be regulating under two different regimes for most of the second half of 2021. While the initial intention was for these two legislations to be closely aligned, the additional delay could result in a divergence of the core initiatives of a new prudential regime.

Over the last six months, the FCA has conducted a number of surveys, most of which focus on performance in light of the ongoing pandemic. The latest survey, however, seeks feedback on the cost benefit analysis of the IFPR, and requires firms to provide routinely reported information, such as staff numbers and remuneration, as well as financial data relating to the new K-factor requirements, for which most firms would not have had to report before.

Although the implementation date may now be just over a year away, the FCA are already expecting firms to start preparing for the new regulation, sooner rather than later, and take advantage of the extension to prepare themselves for the potential impact of IFPR on their business.

As a quick reminder, assessment of the impact of the new regime should include the following key actions:

  • Establish the classification of your firm either as a ‘small & non-interconnected’ or ‘non-small & non-interconnected’ firm.
  • Calculate the capital requirements under the IFPR, especially as some of the K-factor calculations can be complicated. As a minimum, all firms need to calculate a ‘fixed overheads requirements’ which will apply to some firms for the first time.
  • Understand the requirements relating to the risk assessment framework which is expected to apply to all firms, including the additional documentation challenges such as the ‘Internal Capital & Risk Assessment Process’ document (‘the ICARA’), the wind down plan.
  • Consider the impact of the new rules under the regime relating to prudential consolidation and/or the group capital test, liquidity monitoring and concentration risk monitoring. 

For more information on the new regime please refer to our previous articles published earlier this year:

About the authors

Priya Mehta

+44 (0)20 7556 1372
mehtap@buzzacott.co.uk
LinkedIn

Jonathan Aseervatham

+44 (0)20 7556 1260
aseervathamj@buzzacott.co.uk
LinkedIn

Last updated: 19 November 2020

The joint statement on the implementation of prudential reforms, contained in the Financial Services Bill, also indicates a revised implementation date of the Capital Requirements Regulation 2 (CRR2).

The FCA published its discussion paper (DP20/2) in June 2020 on the proposed requirements of IFPR, and this was originally expected to be implemented, in line with the European equivalent regime IFR/IFD, on 26 June 2021. The delay in IFPR’s introduction will be welcomed by many firms as they continue to grapple with the uncertainties surrounding the end of the Brexit transition period, the impact of COVID-19 and the wider markets, and the general volume of recent regulatory reform.

However, this delay may have implications for some firms with entities regulated in both the UK and the EU. Due to the different implementation dates, the UK and EU will effectively be regulating under two different regimes for most of the second half of 2021. While the initial intention was for these two legislations to be closely aligned, the additional delay could result in a divergence of the core initiatives of a new prudential regime.

Over the last six months, the FCA has conducted a number of surveys, most of which focus on performance in light of the ongoing pandemic. The latest survey, however, seeks feedback on the cost benefit analysis of the IFPR, and requires firms to provide routinely reported information, such as staff numbers and remuneration, as well as financial data relating to the new K-factor requirements, for which most firms would not have had to report before.

Although the implementation date may now be just over a year away, the FCA are already expecting firms to start preparing for the new regulation, sooner rather than later, and take advantage of the extension to prepare themselves for the potential impact of IFPR on their business.

As a quick reminder, assessment of the impact of the new regime should include the following key actions:

  • Establish the classification of your firm either as a ‘small & non-interconnected’ or ‘non-small & non-interconnected’ firm.
  • Calculate the capital requirements under the IFPR, especially as some of the K-factor calculations can be complicated. As a minimum, all firms need to calculate a ‘fixed overheads requirements’ which will apply to some firms for the first time.
  • Understand the requirements relating to the risk assessment framework which is expected to apply to all firms, including the additional documentation challenges such as the ‘Internal Capital & Risk Assessment Process’ document (‘the ICARA’), the wind down plan.
  • Consider the impact of the new rules under the regime relating to prudential consolidation and/or the group capital test, liquidity monitoring and concentration risk monitoring. 

For more information on the new regime please refer to our previous articles published earlier this year:

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