In a combined statement issued on 16 November 2020, from HM Treasury, the Prudential Regulation Authority (“PRA”) and the Financial Conduct Authority (“FCA”), the UK confirmed that its implementation of the much anticipated and discussed Investment Firms Prudential Regime (“IFPR”), as contained within the Financial Services Bill, will be delayed in the UK until 1 January 2022.
The EU back-drop
The EU’s major reform of the prudential regime for MiFID investment firms, comprising the Investment Firms Directive and Regulation (collectively “IFR”) is due to come into force on 26 June 2021. This timetable has proved awkward for the UK - too late after the end of the Brexit process to be directly applicable, but too close to ignore at a time when equivalence remains an important policy objective.
The UK response
In June 2020, the FCA published its Discussion Paper (DP20/2): a new UK prudential regime for MiFID investment firms. This contained some significant pointers to the FCA’s thinking, including some areas of possible divergence from the EU approach.
Since then, despite the Financial Services Bill’s current progress through Parliament, the UK financial services industry has been somewhat in the dark about the latest thinking, expected consultation periods, and ultimately the definitive dates for implementation. Faced with a number of significant initiatives for regulatory change in 2021, the UK authorities felt it necessary to update the industry on its planned timelines.
This week’s announcement further confirmed that HM Treasury will ensure the relevant secondary legislation is in place in good time and that the regulators will endeavour to provide the industry with as much sight of the final rules as possible ahead of next January to support effective implementation.
ACA is of the view that there is nothing in the announcement to indicate any change in the thinking of the UK authorities. However, the delay is consistent with the UK’s “wait and see” approach to EU regulatory developments in other spheres (for example, the Sustainable Finance Disclosures Regulation), and hence may add to speculation that significant divergence is contemplated in some areas. One example could be remuneration, where the UK has traditionally taken a more laissez faire approach.
Through recent client contact, ACA can confirm that the FCA has started gathering data on key aspects of the current regime as it applies in the UK, including a Data Request from a number of firms that must be completed by 4 January 2021.
The FCA has already committed itself to publishing a full Consultation Paper during the first quarter of 2021. This will take in industry responses to the earlier Discussion Paper and, presumably, the current Data Request. Upon release, ACA will disseminate the publication and provide our guidance.
How We Help
This joint statement has not altered the approach ACA is taking towards this substantial prudential change, and we continue to provide assurance, education and implementation planning on the forthcoming regime.