On 16 November 2020 HM Treasury plus the UK’s financial services regulators – the Prudential Regulation Authority and the Financial Conduct Authority – issued a joint statement in which they set a target date for implementation of the UK’s Investment Firms Prudential Regime (‘IFDR’) of 1 January 2022.
In June 2020, the FCA published a discussion paper (DP20/02) that sets out proposals regarding IFDR, which affects MiFID investment firms and other asset managers including certain alternative investment fund managers. Per the FCA proposals, IFDR shall closely replicate the EU’s equivalent legislative package, the Investment Firms Regulation and Investment Firms Directive which shall take effect in EU Member States on 26 June 2021. It had been envisaged that the IFDR would take effect at the same time. However industry feedback expressing concern at the volume of regulatory reform in 2021 prompted the UK authorities to establish a later target date.
IFDR is intended to simplify the prudential framework for investment firms, including – for most firms – de-coupling this framework from the prudential regime for banks and other credit institutions. It affects various aspects of an investment firm’s regulatory requirements including: regulatory capital and the regulatory capital requirement; liquidity; concentration risk; consolidation; governance; remuneration; disclosures; and regulatory reporting.
As a result of this development, the UK and the EU will operate under significantly different prudential frameworks (for investment firms) in the latter half of 2021. This may have implications for firms with institutions in both the UK and the EU. More widely, this might send out a signal that when faced with a choice between EU ‘equivalence’ (in terms of timeframe for adopting regulatory initiatives as well as the scope of the initiatives themselves) and adopting a more pragmatic, outcomes-focussed approach, the UK shall opt for the latter.