DEVIL IN THE DETAIL: PREPARING FOR THE IFPR
Any new regime brings with it a number of whys and wherefores and dos and don’ts. In the UK, the Investment Firm Prudential Regime (IFPR) is no exception, with investment firms needing to prepare and be ready for the regime when it comes into force on 1 January 2022.
A world-leading industry, the UK houses the largest centre of investment in Europe and, after the US, the second-largest globally. According to the Investment Association’s ‘Investment Management in the UK: 2019-2020’ report, across Europe, the UK is responsible for 37 percent of total assets under management (AUM).
The IFPR aims to streamline and simplify the prudential requirements for Markets in Financial Instruments Directive (MiFID) investment firms that are prudentially regulated by the Financial Conduct Authority (FCA) in the UK. It will refocus prudential requirements and expectations away from the risks firms face, to also consider and look to manage the potential harm the firm itself can pose to consumers and markets.
Moreover, the IFPR will determine the amount of liquid assets and capital levels a firm should hold to enable it to wind down in an orderly way if required. Essentially, the intention of the IFPR is to facilitate better competition between firms and simplify requirements for new market entrants – a single, proportionate regime that reflects firms’ size and business.
“Currently, investment firms are subject to the same prudential regime applicable to banks that intends to capture the risks associated with their activities,” says Carol Dratovsky Goes, a senior associate at Cleveland & Co. “The main purpose of the IFPR is to implement a regime specifically designed for investment firms in consideration of the risks they pose to financial markets, customers and themselves. As a result, the FCA expects that the new requirements implemented by the IFPR will be more proportionate than the current prudential regime.”
Oct-Dec 2021 Issue
Fraser Tennant