March 20, 2018

March 19, 2018

Subscribe to Latest Legal News and Analysis

FCA Publishes “Dear CEO” Letter on Quality of Prudential Regulatory Returns

On February 19, the UK’s Financial Conduct Authority (FCA) published a “Dear CEO” letter that it recently sent to IFPRU investment firms and BIPRU firms (as defined below) concerning the quality of information submitted to the FCA in prudential regulatory returns.

An IFPRU investment firm is an FCA-regulated firm that has its head office in the UK and is not a BIPRU firm, (i.e., not engaged in investment activities or services under the revised Markets in Financial Instruments Directive (MiFID II)). This designation includes the majority of proprietary trading firms.

A BIPRU firm is a firm authorized by the FCA to provide investment services (i.e., the execution of orders on behalf of clients or portfolio management, or the investment services of receiving and transmitting orders and/or providing investment advice, which will include all UK alternative investment fund managers with MiFID top-up permissions/collective portfolio management investment firms (CPMI firms)).

The FCA uses the returns to assess prudential risk and understand firms’ business models, financial positions and risk exposures. The information contained in the returns also forms a key part of firms’ risk management frameworks. Therefore, the way in which the FCA assesses the quality of firms’ risk management is influenced by the quality of data submitted in the returns.

In its Dear CEO letter, the FCA has identified a number of common issues that result in returns containing inaccurate or incomplete data (or both), which hinders the use of data submitted. Common issues identified by the FCA are firms:

  1. failing to complete the underlying templates within the common reporting (COREP) submissions due to inadequate understanding of the prudential rules and inconsistent completion of COREP returns;
  2. failing to submit certain returns, such as the financial reporting return;
  3. incorrectly calculating the total sum of risk exposures across various risk categories, for example market and credit risk, which can lead to an inaccurate figure for firms’ capital requirements;
  4. reporting using incorrect units;
  5. not reporting cumulatively (i.e., on a year-to-date basis) on the FCA’s FSA002, used for detailing firms’ Income Statements.

The FCA notes that while the errors may seem minor in isolation, they can materially distort data aggregated and used by the FCA when it is analyzing a sector or group of firms.

The FCA has therefore asked the chief executive officers of IFPRU investment firms and BIPRU firms to review their firms’ regulatory reporting practices to ensure that they are fit for purpose, comply with the relevant reporting provisions and produce materially accurate data.

As of October 1, the FCA will review a sample of firms’ returns. If it finds that firms continue to submit materially inaccurate, incomplete and/or poor quality data, the FCA will consider taking further steps to improve the standards of returns.

The FCA’s Dear CEO letter is available here.

©2018 Katten Muchin Rosenman LLP


About this Author


John Ahern, partner at Katten Muchin Rosenman UK LLP and head of the London Financial Services group, focuses his practice on banking, financial services, UK and European financial markets, and related regulations. His background in private practice and as in-house counsel at a global investment bank provides him with perspective on the unique regulatory issues facing the wholesale and private banking sectors. John advises multilateral trading facilities, broker-dealers and banks on trading, clearing and settlement as well as custody of securities—both physical and...

+44 (0) 20 7770 5253
Carolyn H. Jackson, International Attorney, Katten Muchin law firm

Carolyn Jackson is a partner in Katten Muchin Rosenman UK LLP and is a Registered Foreign Lawyer. She provides US financial regulatory legal advice to a broad range of market participants, including commercial banks, investment banks, investment managers, broker-dealers, electronic trading platforms, clearinghouses, trade associations and over-the-counter derivatives service providers.

Carolyn guides clients in the structuring and offering of complex securities, commodities and derivatives transactions and in complying with US securities and commodities laws and regulations. 

+44 0 20 7776 7625
Nathaniel Lalone, Katten Muchin Law Firm, Financial Institutions Attorney
Senior Associate

Nathaniel Lalone, a partner at Katten Muchin Rosenman UK LLP, has a broad range of experience in the regulation of financial products and financial markets, and frequently provides regulatory and compliance advice to trading venues, clearing houses and buy-side firms active in the over-the-counter (OTC) derivatives, futures and securities markets. He is actively involved in advising clients on the implementation of MiFID 2 and MiFIR in the European Union as well as the international reach of US financial services regulation. He also has significant experience with structuring...

+44 0 20 7776 7629
Neil Robson, private equity fund managers counselor, Katten Law Firm, London

Neil Robson, a regulatory and compliance partner with Katten Muchin Rosenman LLP, focuses his practice on counseling hedge and private equity fund managers and other investment advisers on operational, regulatory and compliance issues. He regularly addresses Financial Conduct Authority (FCA) and EU authorization and compliance under both the EU Alternative Investment Fund Managers Directive (AIFM Directive) and MiFID, cross-border issues in the financial services sector, market abuse, anti-money laundering and regulatory capital requirements, formations and buyouts of...