Investment Firm Prudential Regime: FCA Consultation

Investment Firm Prudential Regime: FCA Consultation


The FCA's first consultation paper on the new UK prudential regime for investment firms.

Following its Discussion Paper earlier in the year, the Financial Conduct Authority (FCA) published this week the first of three Consultation Papers on the Investment Firm Prudential Regime (IFPR).

Following Brexit, the UK will not directly implement the EU's Investment Firms Regulation and Directive but will, instead, introduce its own regime for UK investment firms: the IFPR.  The IFPR is expected to come into force in January 2022.

This first Consultation Paper (CP20/24) includes a number of topics which we set out at a very high level below:

The categorisation of investment firms

This addresses in particular the FCA's proposed categorisation of "small and non-interconnected investment firms" (SNIs); gives helpful context in relation to the other group entities which will need to be combined with a firm in order to undertake the SNI threshold calculations; and gives more context around the proposals for a firm transitioning above or below the SNI thresholds.

Prudential consolidation and the group capital test

This addresses the circumstances in which prudential consolidation will be triggered; the members of the relevant group which must be included in the prudential consolidation net; and detailed guidance on how to perform consolidated capital and liquidity calculations.  The FCA also sets out further practical guidance in relation to the eligibility for, and application of, the so-called Group Capital Test or "GCT" which "sufficiently simple" groups are expected to be able to apply instead of full prudential consolidation. 

Own funds and own funds requirements 

This addresses the definition and composition of own funds (i.e. regulatory capital) and contains some additional detail about the way in which firms must calculate the amount of capital they must hold.  Further detail is given in relation to the K-factors applicable only to firms with permission to deal on own account: future consultations will address the fixed overheads requirement and the remaining K-factors.

Transitional provisions

These will enable firms to increase their capital to the new levels gradually, over a period of five years.  In particular, the FCA proposes a very welcome new transitional regime for firms which are currently exempt CAD firms (also known as adviser-arrangers), in addition to the transitional regimes previously trailed, and has clarified that the transitional provisions will also apply to the calculation of capital on a consolidated basis. Whether a transitional provision will also be available to collective portfolio management investment (or CPMI) firms (such as AIFMs and UCITS managers which also undertake "top-up" MiFID activities) will be addressed in a future paper.

Concentration risk

Concentration risk monitoring will apply to all firms: the concentration risk limits and the related K-factor (K-CON) are applicable only to firms with permission to deal on own account.

The new requirements for reporting to the FCA

The FCA is planning to rationalise the forms so that there is a single suite of forms for all firms which will need to be submitted on a quarterly basis. Groups may nominate a single firm to submit reports (although individual group members will remain responsible).


Two further consultations, covering the remaining topics, are expected in Q2 and Q3 2021.

The consultation also includes a significant amount of detail in draft rules, which we will review and update clients as appropriate.

If you would like further information or assistance in understanding the consultation paper and its potential impact, please speak to your usual Travers Smith contact or any of the individuals below.


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