MiFID investment firms must prioritise the disclosure requirements under the IFPR – MIFIDPRU 8 Disclosures. How can your firm ensure that sufficient resources and attention are dedicated to getting the disclosures right?

These rules apply to all Non-Small and Non-Interconnected firms (Non-SNI firms) and to those ‘Small and Non-Interconnected firms’ (SNI firms) who’ve issued ‘Additional Tier 1’ instruments.

At the outset, these appear to be similar to the Pillar III disclosures under the previous regime, although it is important that firms note the key changes relating to the application, the content and the format of the disclosures, all of which are more structured under the IFPR.

What goes into the disclosures?

1. The disclosures aim to make some key information about your firm become publicly available. The disclosures must include the following:

2. Risk management objectives and policies (MIFIDPRU 8.2)

3. Governance arrangements (MIFIDPRU 8.3)

4. Own funds (MIFIDPRU 8.4)

5. Own funds requirements (MIFIDPRU 8.5)

6. Remuneration policies and practices (MIFIDPRU 8.6)

7. Investment policy (MIFIDPRU 8.7)

Risk management objectives and policies

The disclosures will need to summarise the assessment of harms and the processes in place to reduce the harm, specifically with respect to own funds requirement, concentration risk and liquidity. This should be drawn from the ICARA process, which would be expected to detail out the risk management structure and operations, including your firm’s risk appetite and measurement of the effectiveness of the risk management process.

Governance arrangements

Governance arrangements in place to ensure prudent management of your firm must include segregation of duties and prevention of conflicts of interest to ensure effective risk management. Firms should include disclosure of the number of directorships (executive and non-executive), a summary of the policy in place to promote diversity within the management team, and details surrounding the risk committee (if applicable).

‘Own funds’ and ‘Own funds requirements’

While this data is captured by the quarterly regulatory returns, the intention is to summarise the year-end position and link it to compliance with the ‘overall financial adequacy rule’. Firms are expected to use the template within MIFIDPRU 8 Annex 1R to comply with this disclosure requirement, which essentially includes the breakdown of regulatory capital instruments and a reconciliation to the equity within the audited financial statements. The ‘own funds requirement’ disclosure must show all the applicable K-factors and the ‘fixed overheads requirement’ under MIFIDPRU 4.3, as well as any additional capital/liquidity requirement assessed through the ICARA process.

Remuneration policies and practices

All MIFIDPRU investment firms (whether SNI or Non-SNI) must comply with the MIFIDPRU remuneration code, which obligates all firms to establish, implement and maintain policies that cover ALL aspects of remuneration and ALL staff. Application of the remuneration code at the ‘basic’, ‘standard’ or ‘extended’ level is driven by the classification, complexity and considering other ‘applicable’ remuneration codes (e.g. the AIFMD remuneration code applicable to ‘collective portfolio investment management’ firms). Proportionality and sensitivity of the information will also need to be considered.

Primarily, the requirements are divided into qualitative and quantitative factors.

Qualitative: All MIFIDPRU firms must provide a summary of their remuneration policy, including its approach to the remuneration of all staff, the objectives of the incentives, and a description of your firm’s governance arrangements. This must include a description of the different elements of remuneration and whether these are discretionary/non-discretionary in nature. Non-SNI firms must also disclose which members of staff have been deemed Material Risk Takers (MRTs), plus key elements of their policies, including ex-ante and ex-post risk adjustment to variable remuneration, and finally, how malus and claw-back may be applied.

Quantitative: Non-SNI firms are required to disclose the following for each annual performance period:

1. The total amount of remuneration awarded to all staff, split into fixed and variable elements

2. The total number of MRTs

3. The total remuneration awarded split into three categories – senior management, other MRTs and all other staff – and also split into fixed and variable

4. The total amount of guaranteed variable remuneration awarded, split into senior management and other MRTs

5. The total amount of any severance awards to MRTs, again split into the same categories, plus the amount of the highest single award

Most of the above information is directly linked to MIF008 – Remuneration, which all firms will need to submit via RegData on an annual basis four months after the firm’s financial year end commencing this year.

Investment policy

Lastly, large non-SNI firms have additional disclosure requirements relating to the voting rights attached to their holdings in companies whose shares are admitted to trading on a regulated market. There are several considerations in evaluating the application of these rules, and where relevant, firms must disclose the proportion of voting rights attached to the shares held directly or indirectly by your firm, detailing the geographical split, description of the voting behaviour, use of proxy adviser firms etc.

Firms must use the template available within MIFIDPRU 8 Annex 2R to comply with this disclosure requirement.

Proportionality, timing, and display of the disclosures

Every firm should use its judgement to achieve a level of disclosure that’s appropriate to its size and internal organisation and to the nature, scope, and complexity of its activities.

As a minimum, your firm must publicly disclose the information annually on the date it publishes the annual financial statements. More frequent disclosure is recommended in the event of a major change to the business model or a merger which would render the existing disclosures obsolete.

‘Publicly available’ hasn’t been clarified further, but the industry practice of including them as an appendix to the audited financial statements or on the firm’s website will be acceptable.

Firms with accounting periods ending on 31 December 2022 will be required to make a full set of disclosures in 2023, except on remuneration, where a transitional provision regarding ‘performance periods’ applies.