February 24, 2021

Volume XI, Number 55


February 24, 2021

Subscribe to Latest Legal News and Analysis

February 23, 2021

Subscribe to Latest Legal News and Analysis

February 22, 2021

Subscribe to Latest Legal News and Analysis

UK FCA Discussion Paper on UK Prudential Regime for Investment Firms

On 23 June 2020, the UK Financial Conduct Authority (“FCA”) published a discussion paper (“DP 20/2”) in relation to a new UK prudential regime for investment firms authorised under the Markets in Financial Instruments Directive 2014/65/EU (“MiFID”).

Purpose of the proposed new regime

DP20/2 has been published by the FCA following the publication of the Investment Firm Directive[1] and Investment Firm Regulation[2] (“IFD/IFR”) last year, which is to be implemented across Member States of the European Economic Area (“EEA”) by 26 June 2021.

The UK proposes to introduce a regime that will achieve similar intended outcomes for the financial services sector as the IFD/IFR, while keeping in mind the specific requirements that apply to the UK market – particularly in light of Brexit.

The UK Government has already stated that the UK will not implement the IFD/IFR, rather it intends to legislate to introduce its own regime for UK investment firms. The Treasury has also published a policy statement: Prudential Standards in the Financial Services Bill: June update

Therefore DP20/2 is intended to set out the details of the IFD/IFR and seek feedback from stakeholders on the appropriate rules to be applied in the UK.

Key areas of change and firms expected to be impacted by the proposed new regime

They major areas of change highlighted in DP20/2 relate to the following:

  • an update to the initial capital required for authorisation;
  • changes to the rules on the definition of capital;
  • new own funds requirements, including the introduction of the K factor methodology;
  • new rules on prudential consolidation, group risk and concentration risk;
  • applying liquidity requirements to all investment firms;
  • a new approach for investment firms’ internal risk and prudential assessments, and the supervision of those requirements;
  • new requirements relating to remuneration policies; and
  • changes to reporting and disclosure obligations.

Types of UK regulated firms that will be impacted by the proposed changes include:

  • solo-regulated investment firms currently authorised under MiFID, including “exempt-CAD” firms and firms that would be exempt from MiFID under Article 3 of MiFID but have chosen to “opt-in” to MIFID;
  • collective portfolio management investment firms; and
  • investment firms authorised by the Prudential Regulation Authority.

What’s next?

The FCA has stated that stakeholders should send any comments and/or responses to the questions on the potential implementation proposals contained in DP20/2 by 25 September 2020.

The FCA intends to subsequently publish a Consultation Paper towards the end of this year.

UK firms within the scope of IFD/IFR should monitor developments in relation to the FCA’s approach to the new regime closely as they will need to comply with the new requirements when they come into force next year.

[1] Directive 2019/2034/EU

[2] Regulation 2019/2033/EU

© 2020 Proskauer Rose LLP. National Law Review, Volume X, Number 177



About this Author

Kirsten Lapham FInancial Services Attorney Proskauer Rose Law Firm, United Kingdom

Kirsten Lapham is a partner specialising in financial services regulation. She advises a broad range of both institutional and individual clients on a variety of financial services regulatory and compliance issues. Her practice has a specific emphasis on the regulatory issues arising under the AIFMD, and MiFID II for a range of EU and indirectly impacted firms outside of the EU.

Experience in this area includes advising multiple clients on the EU marketing and registration regimes and overlaying local regulatory considerations, such as the U.K. retail distribution...

John Verwey, UK, European Level, Finance, Attorney, Proskauer Rose Law Firm
Special Regulatory Counsel

John Verwey is a special regulatory counsel in the Corporate Department and a member of the Private Investment Funds Group.

John advises on a wide number of regulatory issues at a national UK and European level, including firm authorisations, change in control, market abuse, Electronic Money Regulations, Payment Services Regulations and client money rules. He represents a variety of clients that range from private equity firms and insurance intermediaries to global investment banks and sovereign wealth funds. 

A particular area of focus for John is the implementation of...

Andrew Wingfield Corporate Lawyer with Proskauer in London, UK

Andrew Wingfield is a partner in the Corporate Department and a member of our Private Equity Mergers & Acquisitions Group. As businesses globally are impacted by the Coronavirus (COVID-19) pandemic, Andrew is a member of the firm’s Coronavirus Response Team helping clients respond and solve issues across myriad fronts.

Andrew undertakes a broad range of domestic and cross-border corporate and commercial work for both corporate and private equity clients, advising on acquisitions and disposals, joint ventures, mergers and public takeovers,...


Michael Singh is an associate in the Corporate Department and a member of the Private Funds Group. Mr. Singh graduated from the University of South Wales in 2012.

Amar Unadkat Corporate Lawyer Proskauer Rose Law Firm

Amar Unadkat is an associate in the Corporate Department and a member of the Private Funds Group.

Amar advises on a variety of regulatory issues including AIFMD, PSD II and MiFID II, both in the UK and at European level.

His clients include investment fund managers, FinTech companies, wealth management businesses, crowdfunding businesses (including P2P lending platforms), banks and funds seeking to market to investors