Here are six key areas to consider when preparing for the UK implementation of IFPR;  

1. Governance and oversight
Is your Board and Senior Management aware of the changes and impact of IFPR ? Have preparations been made for the oversight of and implementation of IFPR for your investment firm/and group ?

  • Firms should consider the Financial Conduct Authority’s (“FCA”) broader prudential objectives and expectations as set out in their Finalised Guidance on Assessing Adequate Financial Resources (FG 20/1).
  • Firms should consider how prudential consolidation will apply and the way in which to meet any new requirements.

 

2. K-factors (for those that are not small and non-interconnected investment (“SNI”) firms)
Have you assessed the information required to calculate the K-Factor Requirement and the potential K-Factor Requirement itself ?

  • For a number of firms, the implementation and embedding of data management processes and controls may require significant management action and preparation.
  • Firms should consider the availability of the required historical data and the adequacy of the internal arrangements, on which senior management will rely, in order to capture, calculate, assess, approve, monitor and report against these factors.


 3. Waivers
Have you considered whether your existing waivers will continue to apply or whether you will have to apply for any new waivers under IFPR ?

  • Firms that currently have waivers from prudential consolidation will need to consider how they meet the conditions for use of the Group Capital Test (“GCT”) and if new permission is required.
  • Some waivers, for example in relation to own funds, are expected to continue under IFPR.

 

4. Internal Capital Adequacy and Risk Assessment (“ICARA”) and risk management
How will your current risk classification and assessment processes need to change to align to the outcomes focused objectives of IFPR ?

  • Firms will need to consider how their ICARA will be performed in order to meet the holistic and outcome focused objectives and structure of the IFPR.
  • A significant change from existing requirements is that the ICARA must be undertaken, by default, at an entity level in addition to the potential requirement to undertake a consolidated ICARA.

 

5. ESG
Are you considering Environmental Social and Governance (“ESG”) risks within your risk management framework ?

  • The FCA has indicated that it will encourage firms to consider material ESG-related risks when calculating their capital and liquidity requirements.
  • ESG may also be considered as an element of FCA supervisory reviews.
  • The European Banking Authority (“EBA”) recently published its Discussion Paper on ESG risks management and supervision.  The paper provides a comprehensive proposal on how ESG factors and ESG risks could be included in the regulatory and supervisory framework for credit institutions and investment firms, including common definitions of ESG risks and specific recommendations for the incorporation of ESG risks into business strategies, governance and risk management.


 6. Remuneration
Have you considered whether remuneration requirements will require any changes to your existing policy and framework ?

  • It is expected that non-SNI investment firms will be required to adopt remuneration principles in relation to policy, governance and fixed and variable remuneration. Firms should consider what changes, if any, would be required in order to meet these requirements.

 

Things to look out for:

  • FCA feedback on Consultation Paper DP20/2 which is expected in Q4 2020 (You can read our previous blog on DP20/2 here). Specific details and guidance from the FCA on the following is also expected;
    • Expectations for the ICARA process and document, along with the approach to wind-down planning;
    • FCA’s approach to calculating and articulating ‘Pillar 2R’, ‘Pillar 2G’ and specific liquidity requirements; and
    • Remuneration requirements for groups with one or more credit institutions.
  • A Regulatory Initiatives Grid has been published by the Financial Services Regulatory Initiatives Forum and shows timings for key financial services regulatory initiatives.

  • The June 2020 consultations on various draft technical standards closed on 04 September 2020 and the final technical standards are expected by December 2020.

  • Investment Firm Regulation (“IFR”)/Investment Firm Directive (“IFD”) will apply in the EU from 26 June 2021.The EBA’s Roadmap contains further details on timing of other associated mandates arising from IFR/IFD.


Some areas of the new requirements may require significant consideration in preparation for implementation, and we are aware firms may require further guidance and confirmation from the FCA to finalise these IFPR areas. This includes for example, the treatment of assets delegated from other jurisdictions or regimes, clarification of how firms will be assessed as ‘simple’ for the purposes of prudential consolidation and finalisation of deductions from fixed overheads

Please feel free to reach out to any of the contacts below should you wish to discuss the information set out above; 

Vicki Rawstorne: virawstorne@deloitte.co.uk
Brian Thornhill: bthornhill@deloitte.co.uk
Elena Afanasieva: eafanasieva@deloitte.co.uk
Katherine Davidge: kdavidge@deloitte.co.uk
Marilena Do Rosario: mdorosario@deloitte.co.uk