How to get ready for the second Investment Firm Prudential Regime (IFPR) consultation

by David Croker Partner, PwC United Kingdom

Email +44 (0)7718 097331

With the second of the FCA's Investment Firm Prudential Regime (IFPR) consultations expected soon, now is a great time to take stock of your preparations for the new regime.

Unlike typical policy formation, the IFPR rules are being consulted on in three distinct ‘thirds’, rather than iteratively. This means rules from the first consultation are not likely to materially differ in subsequent consultations. It is therefore very important to keep on top of each consultation to allow maximum time for the next set of rules as they emerge.

With the overall UK deadline just nine months away, and a three-month deadline for anyone with European entities, firms cannot afford to wait for the full suite of consultations before starting work.

Where are firms in the IFPR process?

The types of firms covered by the rules are very broad and we're seeing varying levels of engagement depending on firm type. The first consultation included rules relating to own funds, some of the more complex k-factor requirements, aspects of the remuneration and reporting regimes, and crucial areas such as group consolidation. This all builds on the wider discussion paper from July 2020.

By now firms should have conducted an initial gap analysis of the rules using a combination of detail from the consultation, further background from the discussion paper and insight from the European directive, regulation and technical standards, where appropriate.

This in turn should have allowed firms to identify their material risk takers, to make an assessment of the consolidation rules and to begin to model the impact on their capital requirements. Those firms that received the data request by the FCA earlier this year will understand the scale of the data ask; those that didn’t receive the request should already be talking to technical teams about managing the various systems to secure relevant data – including trading systems, financials and balance sheets.

Where next?

All these steps are important. But for most firms they’re really the warm up. The second consultation is likely to cover the core k-factor requirements, and introduce the new internal capital and risk assessment (ICARA) process. For those used to the internal capital adequacy assessment process (ICAAP) this will be fundamentally different; for those MiFID firms not producing an ICAAP, it could be an entirely new shock.

At this stage, staying on top of the ‘knowns’ is vital. No one is going to want to play catch-up, and tackling the parts of the implementation as and when you can is vital. No one wants to uncover any shocks.

by David Croker Partner, PwC United Kingdom

Email +44 (0)7718 097331

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