FCA publishes first consultation on new prudential regime for UK investment firms

The FCA is seeking views on its proposed rules to introduce the UK Investment Firm Prudential Regime (IFPR) for FCA prudentially-regulated investment firms (FCA investment firms).

This is the first of three consultations that the FCA will issue to introduce the regime in January 2022. Final rules will be published over the course of next year. Where possible the FCA is consulting earlier on the more complex topics. This is to give investment firms as much time as possible to ready themselves.

The FCA said the new regime will streamline and simplify the prudential requirements for solo-regulated investment firms in the UK. At present, there are many different regimes which apply depending on size of firm and type of investment business.

The new rules will extend the framework for prudential requirements to consider the potential harm FCA investment firms pose to clients, consumers and the market. This includes the amount of capital and liquid assets the FCA investment firm should hold so that if it does have to wind down, it can do so in an orderly manner.

"There are approximately 3,200 FCA investment firms in the UK. Many people have products with investment firms, ranging from workplace or personal pensions and investment ISAs to those who use a platform to trade stocks themselves. It’s important that FCA investment firms minimise the harm they could cause consumers," the FCA added.

"Introducing the IFPR means that there will be a single prudential regime for all FCA investment firms. It should reduce barriers to entry and allow for better competition between investment firms.The new regime represents a major change for FCA investment firms. It is critical that firms adequately prepare for the regime."

The FCA is keen to receive feedback from stakeholders through this and later consultations. Feedback will allow the FCA to develop final rules that achieve its, and Parliamentary, objectives for the regime, and that are also workable for FCA investment firms.

The consultation period for this first consultation closes on 5 February 2021.

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