The FCA has now provided its feedback on its first consultation papers on the new UK prudential regime for MiFID investment firms (IFPR) and draft final rules in the form of policy statement PS 21/6. PS 21/6 provides further clarity on some of the prudential sourcebook for MiFID investment firms known as MIFIDPRU transitional provisions (TPs). TPs 2 and 4 will provide for a phased application of the amount of regulatory capital which firms will have to maintain in order to satisfy the own funds requirements (OFR) and offer some relief for firms when 1 January 2022, the date on which the IFPR is expected to come into force, arrives.

PS 21/6 also contains the TPs for permissions granted by the FCA to firms under the UK CRR (TP1) and for the Group Capital Test (TP3).

We have written previously about the distinction between small and non-interconnected (SNI) firms and non-SNI firms. For non-SNI firms, the consultation papers confirm that the OFR of a non-SNI MIFIDPRU investment firm will be the highest of its: 

• permanent minimum capital requirement (PMR); 
• fixed overheads requirement (FOR); or 
• K-factor requirement (KFR). 

For SNI firms, the OFR will be the higher of its: (a) PMR; or (b) FOR.

For the PMR, the consultation papers repeat the FCA discussion paper issued in June 2020 that the initial capital requirement (i.e. the amount of capital that a firm must hold at the point of authorisation) must not be less than its PMR. The amount of PMR will also be more than the analogous amounts which investment firms are currently required to hold.

The TPs will be important for firms in planning the transition from the current prudential regimes to the IFPR. In the context of the OFR, TPs 2 and 4 contain the transitional provisions for OFR.  TP2 is explained more fully, and some of our observations on TP4, are contained in our accompanying note.

An important practical point for firms moving to the IFPR is that they will be expected to gather data ahead of 1 January 2022; firms need to be focusing now on the new regime.

For more information on the regime, please contact Michael Sholem.