The new prudential regime for investment firms: prudential consolidation and issues for groups

The new prudential regime for investment firms: prudential consolidation and issues for groups

Financial Services analysis: Ash Saluja, Financial Services partner, Tom Callaby, senior associate, and Yasmin Johal and Maggie Lund, associates of CMS discuss the new prudential regime for investment firms, prudential consolidation and how this is expected to work in the UK post-Brexit.

In this article, we look at the new prudential consolidation regime for investment firm groups set to be introduced by the Investment Firms Regulation (IFR) and the Investment Firms Directive (IFD) (IFR/D) in the EU on 26 June 2021. We also look at how prudential consolidation is expected to work in the UK post-Brexit, following the announcements from the UK government and the Financial Conduct Authority (FCA) in June 2020, which committed to introducing an equivalent UK Investment Firms Prudential Regime (the UK IFPR) by summer 2021.

We focus on some of the key points that both EU and UK investment firm groups will need to be aware of when planning for the new regimes, whether considering the potential impact of consolidated capital or liquidity requirements for the first time, restructuring an existing group or integrating an acquisition. For example, groups where the only investment firms they contain are currently ‘exempt CAD’ firms for UK/FCA prudential purposes and cross-border investment firm groups operating in both the EU and the UK should follow developments in these areas as the changes may have a significant impact.


The IFD and IFR

From 26 June 2021, it is expected that the IFR/D will apply in the EU (subject to certain transitional provisions). Having played a significant role of the design of IFR/D pre-Brexit, the UK government and the FCA have also committed to introducing an updated and more appropriate prudential regime for investment firms in the UK. On 23 June 2020, the FCA published a Discussion Paper (DP20/2) setting out its initial views on the IFR/D and requesting industry feedback on the design of an equivalent UK regime, ahead of its plans

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