27th October 2022
In January 2022, when the Investment Firms Prudential Regime (IFPR) came into effect, we held a webinar covering practical steps to prepare for the new financial reports. Now, nearly a year on, what has the impact of the IFPR been, and how has it been received?
The aim of the IFPR was to streamline and simplify the prudential requirements for MiFID investment firms. Perhaps the biggest benefit of the changes that have been implemented is that all firms are now required to undertake quarterly reporting. Previously, there was a variety in frequency of reporting, meaning that there was a lack of uniformity. Indeed, the IFPR has largely been good news for companies. While reporting is required more regularly, the reports themselves are more straightforward.
The FCA released guidelines to support in the transition from existing and legacy regimes to the IFPR. In Q1, the first reporting period, a lot of work was required for companies to understand the new reporting requirements and finalise all reports – in a short timeframe. Ultimately, this resulted in collaboration between accountants, clients, and the FCA compliance teams, to ensure that the process remained smooth. However, it has undoubtedly been a learning curve for all involved in the process.
Looking ahead – annual reporting
As with most changes, there has been an adjustment period. Now, in Q4, firms and accountants are more accustomed to the changes and the reporting has become a simpler process.
However, firms should be aware that the upcoming Annual reports will pose a further potential stumbling block. The IFPR introduced new public disclosure requirements, requiring firms to disclose information relating to their own funds, behaviour or investment policy and culture, including risk management, governance and renumeration. For instance, the annual report required from investment firms now includes a fixed overhead requirement, and a breakdown of their K-factor requirements (non-SNI only). All firms are also required to disclose how they approach compliance assessments as regards to the overall rule on overall financial adequacy.
Undoubtedly, the IFPR has created a degree of confusion, even though it is aimed to simplify and streamline reporting requirements. In particular, the new liquidity requirements introduced have been somewhat of a headache for firms. The IFPR introduced the Internal Capital Adequacy Risk Assessment process (ICARA), which is subject to ongoing scrutiny due to the FCAs ICARA annual questionnaire regulatory reporting obligation. This aims to gather information on firms’ ICARA document, looking at the process of review by governing bodies themselves, their own funds and monitoring the adequacy of liquid assets held.
IFPR – burden or boon
The FCA, in introducing the IFPR, could perhaps have placed a greater focus on education – ensuring that firms understood the changes and were not caught out. Compliance is a learning process and we all aim to interpret the FCA guidebook to the best of our abilities.
That being said, the IFPR has ultimately had a positive impact. Requirements are more streamlined, resulting in more effective reporting. The shift to examine liquidity and capital, although a change and the cause of an initial administrative burden, makes sense and is positive. On the most part, the IFPR has achieved what it set out to do.
Here to help
At haysmacintyre, we are here to help firms understand the IFPR and prepare for the impact it may have on their financial reports.
Your compliance advisors are best placed to advise on specific changes affecting your business. However, our Financial Services team can assist with the new financial reports which firms will be required to complete under the new regime. We can support you by reviewing areas such as capital adequacy and liquidity calculations for RegData filings.