Investment Firms Prudential Regime (IFPR)

With just about three months left before the 1 January implementation date of the new IFPR, MiFID firms will be well advanced in their preparations for the new requirements.

Fulcrum Compliance has been in regular contact with retained clients on this subject.

At this stage, firms should look out for the following:

• an FCA “IFPR Set-Up Questionnaire”, due to be sent to all existing FCA investment firms in the autumn. This will ask for various key information, such as your expected SNI status, whether you are in a group and your expected ICARA submission date. FCA will then use this data to set up reporting schedules and update their systems – so it’s important to get your responses right;
• the ICARA submission date is the date on which you plan to complete the new ICARA process reporting form, MIF007. It’s a date after the Board has completed its review of the ICARA process, which is itself a date after the ICARA reference date, the date on which the underlying data used to carry out the review of the ICARA process were prepared. The ICARA reference date is likely to be your year-end date, so work back from then;
• new FCA reports: these will roll out in RegData from 1 January. These include quarterly reports on Own Funds, SNI thresholds and Liquid Assets, as well as annual reports on remuneration and ICARA;
• new Remuneration Policy templates will be available from FCA later in the year.

FCA have set up a new web page where they will be posting updates – make sure you bookmark it.

Diversity

We’ve written previously of FCA’s agenda on non-financial misconduct, and of FCA’s belief that the financial sector as a whole is more stable when there is a diversity of thought at the most senior levels of firms.

Previously only evident in speeches and enforcement cases where individuals had already been sentenced in the criminal courts, FCA’s thinking and expectations took a step forward in July with the publication of Discussion Paper 21/2 “Diversity and inclusion in the financial sector – working together to drive change”.

Writing in their joint introduction, Nikhil Rathi (CEO, FCA), Jon Cunliffe (Deputy Governor, BoE) and Sam Woods (CEO, PRA) state that “research shows evidence of correlations between diversity and inclusion and positive outcomes in risk management, good conduct, healthy working cultures, and innovation.

These outcomes directly contribute to the stability, fairness and effectiveness of the firms, markets and infrastructure that together make up the financial sector.”

Likely to be a harbinger of new rules, the following initiatives are some of those suggested by the DP:

• regular reporting to FCA in relation to employee data;
• firms to develop metrics that enable monitoring of their diversity and inclusion;
• the Board to hold management to account for promoting diversity and inclusion;
• upcoming Board appointments should be considered in the context of diverse representation.

And none of this comes without a stick. As the DP states, “ultimately, where firms fail to meet our minimum expectations, we will be prepared to use our regulatory powers, and take action where appropriate.”

Whilst consultation on this DP doesn’t closes until 30 September, FCA has already proposed in its August CP 21-26 on IFPR disclosures that non-SNI firms should publish their diversity policy and details of how it is met. And that takes effect from 1 January…

So you’d better get ready.

Dear CEO letter: AML failings

It’s often been our view that firms don’t often get disciplined for breach of new, complex or often misunderstood rules. It’s the old chestnuts that keep on giving FCA a rich seam of enforcement activity. In this vein everybody should read the salutary Dear CEO letter of 21 May in relation to “common control failings identified in anti- money laundering frameworks”.

Whilst this letter may have been sent only to retail banks and only require action by them, FCA releases these letters to the public domain so that we can all learn from them. In that spirit, you don’t want FCA to see at your firm the failures they have noted here. Common areas of weakness included:

• front office staff not owning or fully understanding the financial crime risk faced by the firm, allowing compliance to do the due diligence on new clients;
• poor senior management sign-off or oversight of higher risk scenarios or clients;
• origin and legitimacy of a customer’s wealth not clearly understood or verified;
• transaction monitoring systems based on arbitrary thresholds, often using ‘off-the-shelf’ calibration provided by the vendor.

Do have a look at the Dear CEO letter – make sure that the same couldn’t be said about you.