The Investment Firm Regulation (IFR) [1] and the Investment Firm Directive (IFD) [2] were published in the European Union’s Official Journal on 5 December 2019, and investment firms and competent authorities in EU Member States will be required to comply with them from 26 June 2021. The IFD and IFR are intended to provide a new prudential regime for investment firms.

Earlier this summer, the FCA released its Discussion Paper (DP) 20/2 –which sets out its opinions on certain technical details of the IFD/IFR and its views on how the new rules could be implemented in the UK (IFPR).

In this blog we consider the impact of the IFPR proposals for certain types of commodities firms in the UK.  We will focus in particular on the implications for those commodity and emission allowance dealers [3], i.e. firms that are currently classified as exempt IFPRU/BIPRU and exempt-CAD firms, for whom the IFPR will represent a significant change relative to their existing regulatory obligations. 

For further background on the IFPR and its expected impact on investment firms in general, please refer to our earlier IFR / IFD blogs here and here, and our blog on post-Brexit regulatory divergence here.

Which commodities firms are impacted by the IFPR and how?

Commodities firms will be affected differently by the IFPR depending on their current regulatory status and not all commodities firms will be subject to the new regime.

For regulatory purposes, commodities firms can broadly be divided into three  main categories:



Pure Oil Market Participants (OMP) and Energy Market Participants (EMP) i.e. excluding exempt commodities firms;

Pure OMP/EMP firms that are not also exempt IFPRU/BIPRU firms are by definition not MIFID investment firms.  As the new regime essentially applies to MIFID investment firms, pure OMP/EMP firms are not currently within scope.

Exempt IFPRU/BIPRU commodities firms, which may also be OMPs or EMPs;

Exempt-CAD firms [4] (firms restricted to investment advisory services and/or reception and transmission of orders, which do not hold client money or securities).


Firms most significantly impacted by IFPR will be a subset of commodities firms comprised of exempt IFPRU/BIPRU commodities firms and exempt-CAD commodities firms.

To determine the overall impact of the new regime, exempt IFPRU/BIPRU commodities firms and exempt-CAD firms should first consider whether they meet the definition of a Small and Non-Interconnected firm (SNI), as SNIs are subject to simpler obligations [5].  


These firms will be subject to a wide range of new regulatory obligations[6] including:

  • a new definition of capital resources and deductions from capital;
  • more comprehensive consolidation requirements for firms that are part of a wider group;
  • a new minimum capital requirement based on “K-factors”, fixed overheads (FOR);
  • a requirement to perform and document an Internal Capital Adequacy and Risk Assessment (ICARA), which will be subject to the FCA’s Supervisory Review and Evaluation Process (SREP); and
  • additional regulatory reporting requirements.

IFPRU/BIPRU commodities firms;

Currently in scope of the Capital Requirements Regulation (CRR); therefore IFPR is likely to represent a smaller change relative to their existing regulatory obligations, with key areas of change set out in our earlier IFR / IFD blogs here and here.

What should firms be doing now to prepare for the IFPR? 

Exempt IFPRU/BIPRU commodities firms and exempt-CAD firms which are in scope of the IFPR should assess the impact of the new prudential regime in each of the areas outlined above, and set up a comprehensive change programme to implement the changes. 

Senior Management should focus in particular on the following elements which are likely to represent a significant change relative to the existing prudential requirements for these firms, and will therefore require significant time and resource investment:

  • K-factors and FOR:
    • Quantification of capital requirements
    • Consider adequacy of systems, controls and processes to support data collection, monitoring and reporting as appropriate
  • ICARA and risk management:
    • Restructuring of the current ICAAP process to meet the expectations of an ICARA including, but not limited to, assessment of Pillar 2 capital requirements in line with the new risk taxonomy, application of the new wind-down analysis
  • Prudential consolidation
    • Assessment of how the new prudential regime may affect group structure and prudential consolidation




[3] commodity and emission allowance dealer” means an undertaking the main business of which consists exclusively of the provision of investment services or activities in relation to commodity derivatives or commodity derivative contracts referred to in points (5), (6), (7), (9) and (10), derivatives of emission allowances referred to in point (4), or emission allowances referred to in point (11) of Section C of Annex I to Directive 2014/65/EU;

[4] a firm as defined in article 4(1)(2)(c) of the EU CRR that is authorised to provide only one or more of the following investment services:(a) investment advice; (b) receive and transmit orders from investors as referred to in Section A of Annex I of MiFID and whose head office (or, if it has a registered office, that office) is in the United Kingdom.

[5] Please refer to Figure 3.2: “Threshold criteria to be an SNI” of the DP 20/2 to determine whether the firm is an SNI or non-SNI

[6] Less applicable to SNIs