IFR/IFD: The new prudential regime for MiFID II investment firms

Set to take effect in Europe on 26 June 2021 and in the UK on 1 January 2022, the Investment Firm Regulation (IFR) and the Investment Firm Directive (IFD) will make significant changes to the framework governing investment firms authorised under the revised Markets in Financial Instruments Directive (MiFID II).

For the first time, a prudential regime has been designed with these investment firms in mind, replacing rules that were largely designed for banks. A key component of the new regime is the calculation of ongoing capital requirements using the K-factor methodology. In addition to higher capital requirements, investment firms will need to be mindful of onerous remuneration rules and that certain parts of the new framework apply on a group-wide basis.

The UK IFR/IFD regime is intended to achieve similar outcomes as the EU regime, while taking into consideration the specifics of the UK market. For these reasons, it is important that UK investment firms and mixed EU/UK investment firm groups follow both the EU and the UK developments closely. Whilst UK investment firms may have an additional six months in which to get ready, they should not underestimate the scale of the challenge before them.

In this briefing we will cover:

• EU IFR/IFD: Status update
• UK IFPR: What we know so far
• Sector focus: Commodity firms; asset managers; advisory firms (exempt CAD firms); broker dealer firms (clearing brokers)