Investment Firms Directive 

 

The Investment Firms Prudential Regime

This page (together with those linked to above) sets out key information relating to the Investment Firms Prudential Regime (IFPR) that came into effect on 1 January 2022 via the Financial Services (Investment Firms) (Prudential Requirements) Regulations 2021 (IFPR Regulations)

The IFPR provides a purpose-built prudential regime for firms with MiFID permissions that are not credit institutions, and also impacts Alternative Investment Fund Managers (AIFMs) and UCITS management companies. 

It was developed in line with the equivalent EU and UK regimes to address the inefficiencies of regulating investment firms’ prudential requirements under legislation which was primarily designed for banks (the current Capital Requirements Directive (CRD) and Capital Requirements Regulation (CRR)). It sets out a more bespoke regulatory approach which better reflects the nature, scale and complexity of investment firms’ activities and underlying business models.

This  framework introduces changes to the risk management and prudential requirements for investment firms, and cuts across a range of areas, from capital and liquidity through to governance and remuneration requirements.

Under the IFPR, investment firms will fall within one of four prudential classes, depending on the nature and scale of the activities they are authorised to perform, and this classification will determine the extent of the requirements which they are subject to under the regime.

The IFPR will maintain a similar three-pillar structure to that which applied to investment firms under CRD and CRR:

  • Pillar 1 - minimum regulatory capital, liquidity buffer and concentration risk limits; 
  • Pillar 2 - the ICARA (replacing the ICAAP) and SREP processes which will form the basis for any capital add-ons, and 
  • Pillar 3 - disclosure and reporting requirements. 

 Information relating to each of these topics is included as separate tabs above.

If you have any questions/queries relating to this information please contact: the Markets, Investment and Banking Conduct team via email at [email protected]