Understanding the impact of new prudential capital rules on UK asset management firms

April 11, 2019 by Michael Chambers


New prudential capital rules will be coming into force for the UK asset management industry – and for some firms, the amount of change required to the business will be significant.

The UK asset management industry should soon receive the final version of the new EU prudential capital rules within the EU’s Investment Firm Regulation (IFR) and Investment Firm Directive (IFD). Despite Brexit, it is highly unlikely that the Financial Conduct Authority (FCA) will end up with a regime that is materially dissimilar – firms should begin to prepare now.

The coming rules create a new prudential capital framework that is more tailored to the asset management industry – the previous structure was more focused on banks. While the changes will be modest for some firms, others will be significantly impacted by these new rules. Compliance with the new regulatory capital requirements could cause changes to the fundamental assumptions of firms’ business models – firms impacted to this degree should begin their planning immediately.

To help firms better understand how they will be impacted by these changes, we have prepared a paper that outlines the potential impact on firms of different types:

Exempt-CAD firms – Examines how the amount of capital these firms will have to hold will rise by at least 50% and highlights the impact of the requirement to conduct and annually review and document an internal capital adequacy assessment process (ICAAP) for the first time.

MiFID managers – Discusses the changes MiFID manager firms will have to make in the face of the new rules

Commodity trading firms – Notes how commodity trading firms are being brought into the prudential capital framework and the significant impact of this change on those organisations and highlights the impact of the requirement to conduct and annually review and document an ICAAP for the first time.

If firms see that they are going to have to hold more capital – or much more capital – as a result of these changes, they should begin planning today.

Download our whitepaper to find out how this upcoming regulation directly affects your firm.
 

How we can help

We have a range of solutions designed to help you meet your Investment Firm Regulation (IFR) obligations. 

These include: 

  • Impact assessment – to help you understand how the new prudential framework impacts your firm. This includes categorisation, capital requirements and resources, liquidity requirement and resources, group rules, regulatory reporting, ICAAP and public disclosure. 
  • Regulatory reporting – we can look after your on-going regulatory reporting burden allowing your team to focus on the day-to-day business. 
  • ICAAP reporting services – all firms will be required to annually conduct and document is Internal Capital Adequacy Assessment Process (ICAAP) to assess the level of capital that adequately addresses future and current risks in their business. ACA assists firms in developing and documenting their ICAAP as well as advising how the key underlying processes can be embedded in day-to-day governance. 

Contact Alistair Youngs at +44 (0)20 7042 0560 to learn more.

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About the Author

Michael Chambers is Head of Prudential Practice within ACA’s Financial and Regulatory Reporting team, responsible for regulatory reporting and prudential consulting services, technical interpretation of new and existing rules and prudential training sessions for clients.

Michael works with ACA’s clients including alternative fund managers, corporate finance firms, broker dealers and other investment firms, across a variety of strategies to address their obligations. He represents ACA in its Affiliate Membership with the Investment Association on their Prudential Committee.

Michael holds a BSc (Hons) degree in Accounting and Management Information Systems from the University of Hertfordshire, and is an Associate Chartered Accountant with the ICAEW.