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Financial Services Update – February 2022

In this bumper-packed issue we cover the latest compliance and policy developments, plus fresh FCA guidance on IFPR, Crypto Assets, Appointed Representatives, LIBOR and more.

16 February 2022

The Investment Firm Prudential Regime (IFPR) and MIFIDPRU

Since 1 January 2022, investment firms covered by the Markets in Financial Instruments Directive (MiFID) have fallen under the new MIFIDPRU regime. The previous Common Reporting Framework (COREP) and Asset Encumbrance Reporting have now gone for IFPRU firms and RegData will shortly (if not already) be showing the new ‘MIF’ forms that in scope firms are required to complete.

Firms wishing to apply the Group Capital Test exemption from preparing consolidated returns needed to apply by 31 January 2022. Firms which applied can take a temporary exemption from consolidated reporting while the FCA processes all the applications. This process is expected to last up to two years.

New MIFIDPRU Remuneration rules also apply from 1 January and at their core is the principle that the policy should be proportionate to the nature, scale and complexity of the risks within the business.

The FCA have released some useful templates for documenting policy which can be found here:

MIFIDPRU Remuneration Code (SYSC 19G) | FCA

In November 2021 the FCA also released the final policy statement (PS21/17) in relation to its implementation of the UK Investment Firm Prudential Regime (IFPR). In general, major points for most firms were covered in previous policy statements, but this latest statement covered final areas including technical implementation and enforcement.

The FCA ran two webinars on the implementation of IFPR which addressed common questions. Their recordings are well worth a watch and can be found here Webinars – FCA Webinars

The webinars also give guidance on the new ICARA process and documentation, which in scope firms will need to have in place by the end of 2022.

Crypto assets

The FCA has taken a further step towards the oversight of firms in the UK in the crypto asset industry.

In 2021 there was a requirement for some crypto asset firms to register for AML purposes as a ‘registered’ firm with the FCA . In Consultation paper CP22/2 the FCA proposes to bring crypto assets under the Financial Promotions Oversight rules.

In practice this means marketing crypto assets to the mass market will still be permitted, but with certain warnings and a ban on inducements.

Certain direct promotions are subject to tighter restrictions, so firms should be familiar with the rules and seek advice where necessary. The rules are currently only at consultation phase, but due to come into effect in Summer 2022.

Appointed Representatives

The Senior Managers and Certification Regime (SM&CR) looked to strengthen the requirements and oversight of Appointed Representatives (ARs) by placing more accountability with principal firms. The FCA has now gone one step further and in CP 21/34  proposes changes to the AR regime to include:

Feedback on the proposals is due by 3rd March.

MiFID conduct and Organisational Requirements

In Summer 2021 the FCA consulted on a number of rollbacks to previous requirements for some MiFID firms. The final rules are in PS21/20.

These changes will be pertinent to broker dealers with changes to the Research and Inducement rules, exempting the bundling of research with broking fees under some circumstances (something which previously under MiFID II had to be split out).

This applies to research on entities with a market capitalisation below £200m and other specific types of instrument. The new rules come into effect from March 2022.

The FCA are also removing the requirement to publish reports linked to best execution, as these don’t appear to benefit users in the FCA’s opinion. This have been no longer be needed as of December 2021.

Long Term Asset Funds

The FCA have proposed a new category of authorised Open Ended Investment Company (OEIC) called a Long Term Asset Fund (LTAF).

Policy Statement PS 21/14 sets out final rules which create a category of authorised open-ended fund designed specifically to facilitate investment in long-term, illiquid assets. These assets include venture capital, private equity, private debt, real estate and infrastructure.

The FCA have also said an LTAF could potentially be listed on the stock exchange in the UK.

LIBOR and DTO

Policy Statement 21/13 covers the effect of the discontinuation of the London Interbank Offered Rate (LIBOR) benchmark from 1 January 2022 on the Derivatives Trading Obligation (DTO).

The Bank of England has transition plans to move UK LIBOR related derivatives to be based on the Sterling Overnight Index Average (SONIA). Modifications to contracts subject to the Derivatives Clearing Obligation (DCO) and the liquidity profile of the contracts as a result of switching benchmarks, has meant the FCA has considered the implication for these securities on the DTO.

This policy statement will be of particular interest to financial counterparties (such as banks and investment firms) and non-financial counterparties that are, or may become, subject to the DTO.

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.

Copyright © Shipleys LLP 2022

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