The Investment Firms Prudential Regime (IFPR) came into force on 1 January 2022. The new regime applies to all ‘FCA investment firms’; consisting of UK Markets in Financial Instruments Directive (MiFID) investment firms (excluding Prudential Regulation Authority (PRA) designated investment firms) and collective portfolio management investment firms. Certain UK parent entities within groups that contain one or more FCA investment firm are also covered under IFPR.
The new regime consists of firms that were subject to different prudential regimes prior to 1 January 2022, including firms previously regulated under the Exempt CAD, BIPRU and IFPRU regimes. As a result of this, the FCA confirmed within their second IFPR policy statement (PS21/9) in July 2021, that all FCA investment firms and UK parent entities that had not previously been subjected to the UK Capital Requirements Regulation (CRR), including Exempt CAD and BIPRU firms, would need to notify the FCA under MIFIDPRU TP 7 if they wanted to treat existing capital instruments as own funds under MIFIDPRU 3. This allowed the relevant firms to bypass the process of obtaining approval from the FCA and instead self-certify that their capital instruments met the conditions to be recognised as MIFIDPRU own funds.
The exception to this notification requirement was IFPRU investment firms which had previously been subjected to the UK CRR. The FCA confirmed that the pre-existing permissions for common equity tier 1 (CET1), additional tier 1 (AT) and tier 2 (T2) instruments would automatically convert into their equivalent MIFIDPRU 3 approval without the need for notification. This is due to the similarities between the definition of own funds previously contained within the IFPRU sourcebook and the current definition contained within MIFIDPRU 3.
In March 2022, the FCA published a Consultation Paper (CP22/4) which outlined their concerns at receiving significantly fewer notifications than anticipated and, as a result, their new proposal to extend the deadline for MIFIDPRU TP 7.4R(2)(b) notifications until 29 June 2022. Alongside this extension, the FCA also proposes to extend the scope of the MIFDPRU TP 7 to include IFPRU investment firms and former consolidating UK CRR parent undertakings where those entities did not obtain approvals under the UK CRR or IFPRU prior to 1 January 2022. Further, the FCA have outlined how this extension can be used for firms to update the terms of non-MIFIDPRU 3-compliant capital instruments issued before 1 January 2022 to make them compliant before self-certifying them via the MIFDPRU TP 7 notification, avoiding the need to prepare a MIFIDPRU 3 application for approval.
Extending the MIFIDPRU TP 7 notification deadline to 29 June 2022 has significance as all FCA investment firms MIF001 own funds reports are due by 30 June 2022. Firms which have failed to notify the FCA under MIFIDPRU TP 7 by this date will have not obtained the necessary FCA approval for their capital instruments and will therefore have to report their own funds as zero. Consequently, it is essential that all relevant firms submit a MIFIDPRU TP 7.4R(2)(b) in line with the new deadline to avoid any ramifications related to their MIF001 returns.
