A longer advent: FCA extends its festive IFR data collection

15 December 2020

by Andrew Strange Director, PwC United Kingdom

Email +44 (0)7730 146626

Many investment firms received a private data request from the FCA recently. This isn’t unusual, but can give some useful context to the regulator’s activities.

The UK version of the Investment Firms Prudential Regime is due to be implemented by 1 January 2022. The new rules substantially develop the prudential framework for all investment firms - covering capital, liquidity, remuneration, reporting and the underlying supervisory approach.

The data collection exercise seeks a range of data on the proposed ‘K factors’, which will drive the pillar 1 capital requirements of firms. The outputs are to be used in the FCA’s statutory cost-benefit analysis (CBA), which will accompany the upcoming consultation.

The original request had a deadline of 4 January 2021 (which, as the first working day of the year, effectively echoed your advent calendar with a pre-Christmas deadline in practical terms for many). But this has been extended to 18 January 2021.

As the FCA has only published the first stage of the consultation this week, and published a discussion paper on implementing the broader regime, has deferred final implementation by six months, and now extended the response time for the data request, there is a risk that firms take the wrong messages from this. For me, there are three key issues.

Firstly, firms should consider how they respond. The exercise to collate the data isn’t easy, as I’ll explore, but it is necessary. I would use this as a sense check of how much work your firm has done. And I would think about the quality of submissions. Up to a couple of weeks ago, firms should have been preparing for a June 2021 implementation for the regime; those with EU entities still should be. So a firm that is significantly struggling to respond to the data request today would have been alarmingly behind the curve had the delay not been made. That isn’t a message I would want to confer to the FCA.

Secondly, this is a great opportunity to understand the complexities of the regime - or at least part of it. Many firms we’ve spoken to are realising that assets under management (AUM) as a metric is a real challenge. Whereas this could have been historically compiled from finance data and the P&L, this now needs data from trading systems; firms are having to dive into the details of the underlying services they offer - with those offering trade execution services (in particular for foreign entities) finding the scope of AUM to be tough. There are numerous other examples too, including the complexity of separating data for ‘client orders handled’ and ‘AUM’ to avoid double counting.

The final point to consider is the CBA. The FCA’s original discussion paper deviated slightly from the EU rules. But much of the feedback from industry challenged elements of the regime, particularly in terms of international competitiveness - this was written by the EU for the EU, and we are in a very different world now. Given the apparently last-minute nature of the data request from the FCA for the CBA, I am left wondering how much political interest there is in the new rules, and therefore in the accuracy and completeness of the CBA. If these rules are going to have a material impact on your business (with debt-funded acquisitions an obvious contender) making that clear through your data, or making appropriate representations, is crucial.

by Andrew Strange Director, PwC United Kingdom

Email +44 (0)7730 146626