Financial Services Update December 2020
In this quarter’s issue we highlight a number of important delays to regimes and their implications for the sector, plus we flag the latest considerations in preparing for Brexit.
10 December 2020
New Prudential Regime Delay
In June 2020 the FCA released a discussion paper which asked for feedback on their proposed implantation of rule changes for a new prudential regime. The Investment Firm Prudential Regime (IFPR) significantly changes how capital adequacy is calculated in firms.
The rules are based on EU legislation called the Investment Firm Regulation (IFR), but the UK will have fully left the EU by the end of 2020. This means the Regime won’t necessarily be adopting the IFR in full, but rather creating new UK rules based very closely upon it. This is what the FCA Discussion Paper focuses on.
The new deadline date
The rules were due to come into effect from June 2021, but this has now been pushed back to 1 January 2022.
What to expect in the rules and how to prepare
Although not finalised, we have a good idea of what the rules are likely to look like and published an article last year covering details of the changes - read it here.
It’s likely that the UK rules will end up being closely aligned with the IFR, so that firms in the UK can continue to transact and interreact with regulated EU firms smoothly. This delay, however, creates a mismatch in EU and UK implementation dates, and for the second half of 2021 the two will be operating under regimes which differ substantially. This could create problems for firms, which are regulated in both the UK and the EU.
Although not due to come into force for a year, firms should begin considering how the new regime will affect them. Also keep an eye out for the FCA’s consultation paper once feedback from the discussion paper has been finalised.
Senior Manager and Certification Regime deadline delay
From 9 December 2019 the Senior Manager and Certification Regime (SM&CR) was extended to cover small (solo regulated) firms. This means the controlled functions were split between Senior Management Functions and Certification Functions.
Firms are required to apply the rules relevant to their classification, but as a reminder, ‘core’ firms need to do the following:
- Each Senior Manager needs a Statement of Responsibilities, and ‘prescribed functions’ which are specific responsibilities need to be assigned to a senior manager.
- Each person carrying out a certified function needs to be issued with a certificate showing what they are certified to do. The firm needs to ensure they are fit and proper.
- Any new Senior Managers need a criminal backgrounds check and it’s the firm’s responsibility to tell the FCA when they are appointed.
The previous transition period ran for a year to 9 December 2020 but this has now been extended to 31 March 2021. Firms will need to ensure they’ve undertaken all their duties in respect of SM&CR by that date.
The FCA has a ‘preparing for Brexit’ section on their website, although while negotiations continue, it is very difficult for firms to prepare. At time of writing, any deal with the EU remains uncertain.
One thing we do know is that the UK Government has ruled out a further extension, and so from 11pm on 31 December 2020 firms will be bound by UK rules as opposed to EU legislation.
The Temporary Permissions Regime
Brexit of course largely impacts firms with EU customers and, as it stands, what’s known as the Temporary Permissions Regime will kick in from 1 January 2021 and run until 31 March 2022. This will give EU firms who passport into the UK, permission to continue to deal with UK customers. If we leave with no deal however, UK firms will lose their EU ‘Passport’. This means they will no longer have the right to conduct business in EEA states based on their UK authorisation.
Many firms have already set up subsidiaries in Europe and authorised them with their local regulatory authority in order to continue to trade after Brexit.
More information can be found on the FCA’s website here
The FCA previously consulted on requiring firms listed on the UK regulated market to electronically tag their financial statements and submit them in ‘xhtml’ format instead of uploading them in PDF format.
This was due to come into effect for periods beginning on or after 1 January 2021, but has been pushed back to 1 January 2022 due to the effects of Covid-19 on the industry as a whole. See PS20/14 here for more information.
Can we help?
If you would like to discuss any of these developments or have questions for our specialist Finance Services team, please do get in touch.
Specific advice should be obtained before taking action, or refraining from taking action, in relation to this summary, if you would like advice or further information, please speak to your usual Shipleys contact.
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