A respite, not a break - timeline revised for investment firm prudential rules

17 November 2020

by Andrew Strange Director, PwC United Kingdom

Email +44 (0)7730 146626

The Financial Conduct Authority (FCA), Prudential Regulation Authority (PRA) and HM Treasury (HMT) issued a joint statement on 16 November 2020, confirming a revised target implementation date for the UK versions of the Investment Firms Prudential Regime (IFPR) and Capital Requirements Regulation 2 (CRR2) rules.

The EU initiatives are due to be implemented by 26 June 2021. But because the rules aren’t in force, the UK hasn't ‘onshored’ them like other existing rules, such as MiFID II or CRR. Instead, the rules will be introduced via the FS Bill and other secondary legislation, allowing for a more pragmatic approach to implementation. The new target date for the UK regimes is 1 January 2022.

The original June 2021 date was always ambitious. In the EU, the European Banking Authority (EBA) only started consulting on technical standards in July 2020, with phases three and four of the technical standards due after the in force date. The UK’s first FCA discussion paper only closed for comment in September.

For firms there are two key messages. Firstly, the IFPR regime is complex and this complexity is partially driving the delay. This means firms have more time to implement the rules, not an extension that allows them to put off implementation. The additional time also suggests the FCA will be less forgiving of missed deadlines.

Secondly, there is a clear message about the volume of regulatory change. The FCA notes this in the statement, with the September version of the regulators’ initiative Grid looking particularly challenging. Whereas businesses often feel the pinch of regulatory change, the FCA appears more supportive and understanding than it has been; we’ve also seen the cancellation of further work in platform exit fees, and delays to the Duty of Care proposals.

The realities of Brexit are also dawning, with UK initiatives such as the creation of the Long-Term Asset Fund (LTAF) within 12 months likely to draw upon the bandwidth of regulators and firms. And this is all set against a backdrop of COVID-19’s operational, market and economic challenges.

So what should firms do? We’re expecting the FCA to consult on the IFPR this winter, providing a significant degree of direction on its approach and more meat on the bones of the rules. Firms will need to rapidly analyse the impact, with a particular focus on capital, liquidity and data requirements. It should also be noted that in areas such as remuneration many firms with December year-ends will not see any delay, as the first performance period in scope remains unchanged. Firms with an EU presence will now have the added divergence of two ‘similar’ regimes with differing implementation deadlines - June 2021 for EU entities, and January 2022 for UK businesses, so this complexity will also have to be navigated. And firms should also note that if the regulator is worried by the burden of regulation, firms should take stock of how they too must prepare.

by Andrew Strange Director, PwC United Kingdom

Email +44 (0)7730 146626