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Resources

Financial Services Update – January 2023

Resources

Financial Services Update – January 2023

Our January update has a round-up of the proposed removal of the bonus cap, the FCA's proposed changes to MIFIDPRU, plus a summary of the FCA's fees for 2023/24.

11 January 2023

A very Happy New Year to you all and we hope you’ve had a promising start to 2023.

Contents:

The Removal of The Bonus Cap

In Liz Truss’ short tenure as Prime Minister, one of the policies implemented was to reverse the bonus cap on financial services firms. As this affects a wide scope of firms there is currently a joint consultation paper from the FCA and PRA (see CP22/28 – PRA CP15/22).

The paper consults on changes to rules implemented in 2014 with the introduction of the CRD IV EU legislation (which was transposed into UK rules as a result of Brexit).

While the rules didn’t cap the total amount of remuneration paid to certain individuals within firms, it did put a cap on the ratio of variable vs fixed remuneration. There was previously a 100% limit on variable vs fixed remuneration (or 200% with shareholder approval).

The new proposals retain some rules, but remove this limit. See the consultation paper for more details.

It is anticipated these changes will come into effect from Q2 2023 and for financial years starting after that point (which for most firms will be 2024).

MIFIDPRU and the FCA’s proposed changes

MIFIDPRU came into effect in January 2022, and the FCA have proposed some changes to clarify certain areas and correct errors. This is discussed in CP22/26. We’ve highlighted below some of the key changes.

Investment Firm Groups

The proposals amend the rules which set out which entity is required to submit the MIF006 form. This will allow a MIFIDPRU investment group to designate a MIFIDPRU investment firm to make the report.

This should resolve the issue of unauthorised holding companies having to obtain a separate FRN solely for the purpose of group reporting and reduce the administrative burden on firms.

There are also proposals to clarify group calculations for FOR and K-factors, so they do not arrive at higher figures than the FCA originally intended with the rules.

CET1 Capital

Amendments are proposed to bring LLPs in line with limited companies with regard to seeking permission from the FCA to reduce partnership capital within the firm (which would contribute to CET1).

Firms are required to submit a notification form through the FCA Connect system at least 20 days before the proposed transaction is due to take place.

Liquid asset requirement

There is a proposal to amend to the calculation of liquid assets. The proposition is that the proportion of assets which are in a non-pound sterling currency that can be held to meet the basic liquid asset requirement (BLAR) cannot be more than the proportion of fixed overheads or guarantees to clients that the firm has in that same currency.

The FCA’s Market Watch Newsletter

The FCA has issued a Market Watch newsletter in which it focuses on transactional reporting, including common issues and items for clarification. Firms which are in scope for transaction reporting can read it here: Market Watch 70 | FCA

FCA fees 2023/24

The FCA has released CP22/23 in which they discuss changes to the annual fees for the upcoming year.

They propose to increase fees by the CPI rate as at December 2022. In addition, new areas which are being brought under FCA scope and new projects (including Future Regulatory Framework Consumer Duty and Pre-paid funeral plans) are added onto this and proposed to be spread over all fee blocks.

In April 2023 firms will also be required to complete a new form on RegData to collect information for HM Treasury’s Economic Crime Levy.

This will apply to firms which the FCA is responsible for supervising under the Money Laundering Regulations.  The fees will be based on total UK revenue and charged according to size bands. Fees for 2023/24 are:

Total UK Revenue BandsFee
Small (under £10.2m)  Exempt
Medium (£10.2m – £36m)£10,000
Large (£36m – £1bn)   £36,000
Very Large (over £1bn)    £250,000

The above will be included as part of the normal FCA invoicing process.

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 2023

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