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    2018-04-01

IFPRU 1.1 Application and Purpose

Application

IFPRU 1.1.1 G RP

There is no overall application for IFPRU. Each chapter or section has its own application statement. However, IFPRU broadly applies in the following manner:

  1. (1)

    only IFPRU 7 (Liquidity) and IFPRU 9 (Public disclosure) apply to an exempt IFPRU commodities firm and IFPRU 8.1 (Prudential consolidation) may apply subject to the conditions in that section; and

  2. (1A)

    IFPRU 101 (Capital buffers) applies to an IFPRU investment firm, unless it is an:

    1. (a)

      exempt IFPRU commodities firm; or

    2. (b)

      IFPRU limited-licence firm; and

  3. (2)

    other than in (1) and (1A)1, the whole of IFPRU applies to an IFPRU investment firm.

IFPRU 1.1.2 R

IFPRU applies to a firm for the whole of its business, except where a particular provision provides for a narrower scope.

IFPRU 1.1.3 G RP
  1. (1)

    IFPRU applies to a collective portfolio management investment firm that is an IFPRU investment firm in parallel with IPRU(INV) 11 (see IPRU(INV) 11.6).

  2. (2)

    Generally, IFPRU only applies to a collective portfolio management investment firm'sdesignated investment business (excluding managing an AIF and managing a UCITS). However, IFPRU 2.2 (Internal capital adequacy assessment process) and IFPRU 2.3 (Supervisory review and evaluation process: Internal capital adequacy standards) apply to the whole of its business.

Purpose

IFPRU 1.1.4 G RP
  1. (1)

    The purpose of IFPRU is to implement, in part, CRD and certain national discretions afforded to the FCA as competent authority under EU CRR.

  2. (2)

    Save as provided in the Glossary, any expression in the Handbook for the purpose of IFPRU which is defined or used in EU CRR shall have the meaning given by, or used in, those Regulations.

Exclusion of certain types of firms

IFPRU 1.1.5 R RP

None of the following is an IFPRU investment firm:

  1. (1)

    an incoming EEA firm;

  2. (2)

    an incoming Treaty firm;

  3. (3)

    any other overseas firm;

  4. (4)

    a designated investment firm;

  5. (5)

    a BIPRU firm;

  6. (6)

    an insurer; and

  7. (7)

    an ICVC.

Types of IFPRU investment firm

IFPRU 1.1.6 R RP

An IFPRU investment firm includes a collective portfolio management investment firm that is not excluded under IFPRU 1.1.5 R (Exclusion of certain types of firms).

IFPRU 1.1.7 G RP

In accordance with articles 95 and 96 of EU CRR, IFPRU investment firms are divided into the following categories:

  1. (1)

    full-scope IFPRU investment firm;

  2. (2)

    IFPRUlimited licence firm; and

  3. (3)

    IFPRUlimited activity firm.

Alternative classification of IFPRU investment firms

IFPRU 1.1.8 R RP

IFPRU investment firms are divided into the following classes for the calculation of the base own funds requirement and any other provision of the Handbook that applies this classification:

  1. (1)

    an IFPRU 50K firm;

  2. (2)

    an IFPRU 125K firm;

  3. (3)

    an IFPRU 730K firm; and

  4. (4)

    a collective portfolio management investment firm.

Types of IFPRU investment firm: IFPRU 125K firm

IFPRU 1.1.9 R RP

An IFPRU 125K firm means an IFPRU investment firm that satisfies the following conditions:

  1. (1)

    it does not:

    1. (a)

      deal on own account; or

    2. (b)

      underwrite issues of financial instruments (as referred to in Section A of Annex I of MiFID) on a firm commitment basis;

  2. (2)

    it holds clients' money or securities for investment services it provides or is authorised to do so;

  3. (3)

    it offers one or more of the following services (all as referred to in Section A of Annex I of MiFID):

    1. (a)

      reception and transmission of investors' orders for financial instruments; or

    2. (b)

      the execution of investors' orders for financial instruments; or

    3. (c)

      the management of individual portfolios of investments in financial instruments;

  4. (4)

    it is not a collective portfolio management investment firm; and

  5. (5)

    it does not operate either2 a multilateral trading facility or an organised trading facility, or both2.

[Note: article 29(1) of CRD]

Types of IFPRU investment firm: IFPRU 50K firm

IFPRU 1.1.10 R RP

An IFPRU 50K firm is a IFPRU investment firm that satisfies the following conditions:

  1. (1)

    the conditions in IFPRU 1.1.9 R(1) and (3);

  2. (2)

    it does not hold clients' money or securities for investment services it provides and is not authorised to do so;

  3. (3)

    it is not a collective portfolio management investment firm; and

  4. (4)

    it does not operate either2 a multilateral trading facility or an organised trading facility, or both2.

[Note: article 29(3) of CRD]

Types of IFPRU investment firm: IFPRU 730K firm

IFPRU 1.1.11 R RP
  1. (1)

    An IFPRU investment firm that is not a collective portfolio management investment firm, an IFPRU 125K firm or an IFPRU 50K firm is an IFPRU 730K firm.

  2. (2)

    An IFPRU investment firm that operates either2 a multilateral trading facility or an organised trading facility or both2 is an IFPRU 730K firm.

[Note: article 28(2) of CRD]

Meaning of dealing on own account

IFPRU 1.1.12 R RP
  1. (1)

    For the purpose of IFPRU and the EU CRR, dealing on own account means the service of dealing in any financial instruments for own account as referred to in point 3 of Section A of Annex I to MiFID, subject to (2) and (3).

  2. (2)

    In accordance with article 29(2) of CRD (Definition of dealing on own account), an investment firm that executes investors' orders for financial instruments and holds such financial instruments for its own account does not, for that reason, deal on own account if the following conditions are met:

    1. (a)

      such position only arise as a result of the investment firm's failure to match investors' orders precisely;

    2. (b)

      the total market value of all such positions is no higher than 15% of the investment firm'sinitial capital;

    3. (c)

      (for an investment firm that is an IFPRU investment firm or an EEA firm) it complies with the requirements in articles 92 to 95 (Own funds requirements for investment firms with limited authorisation to provide investment services) and Part Four (Large exposures) of the EU CRR;

    4. (d)

      (for any other investment firm) it would comply with the requirements in (2)(c) if it had been an investment firm on the basis of the assumptions in IFPRU 1.1.13 G (1)(a) and (b); and

    5. (e)

      such positions are incidental and provisional in nature and strictly limited to the time required to carry out the transaction in question.

  3. (3)

    In accordance with article 29(4) of CRD, the holding on non-trading book positions in financial instruments in order to invest in own funds is not dealing on own account for the purposes of IFPRU 1.1.9 R (Types of IFPRU investment firm: IFPRU 125K firm) and IFPRU 1.1.10 R (Types of IFPRU investment firm: IFPRU 50K firm).

Interpretation of the definition of types of firm and undertaking

IFPRU 1.1.13 G RP

A firm whose head office is not in an EEA State is an investment firm if it would have been subject to the requirements imposed by MiFID (but it is not a bank, building society, credit institution, local firm2, exempt CAD firm and BIPRU firm) if:

  1. (1)

    its head office had been in an EEA State; and

  2. (2)

    it had carried on all its business in the EEA and had obtained whatever authorisations for doing so as are required under MiFID.

IFPRU 1.1.14 G RP

A firm also falls into one of the categories of an IFPRU investment firm listed in IFPRU 1.1.7 G (Types of IFPRU investment firm) or IFPRU 1.1.8 R (Alternative classification of IFPRU investment firms) if its Part 4A permission contains a requirement that it must comply with the rules in IFPRU applicable to that category of firm. If a firm is subject to such a requirement, and it would otherwise also fall into another category of IFPRU investment firm, it does not fall into that other category.

IFPRU 1.1.15 G RP

For the purposes of the definitions in IFPRU and Part Three, Title I, Chapter 1, Section 2 of the EU CRR (Own funds requirements for investment firms with limited authorisation to provide investment services), a person does any of the activities referred to in IFPRU and the EU CRR if:

  1. (1)

    it does that activity anywhere in the world; or

  2. (2)

    its permission includes that activity; or

  3. (3)

    (for an EEA firm) it is authorised by its Home State regulator to do that activity; or

  4. (4)

    (if the carrying on of that activity is prohibited in a state or territory without an authorisation in that state or territory) that firm has such an authorisation.

IFPRU 1.1.16 G RP

For the purposes of the definitions in IFPRU and Part Three, Title I, Chapter 1, Section 2 of the EU CRR (Own funds requirements for investment firms with limited authorisation to provide investment services), a person offers any of the services referred to in articles 95 and 96 of the EU CRR (Own funds requirements for investment firms with limited authorisation to provide investment services) if:

  1. (1)

    it offers that service anywhere in the world; or

  2. (2)

    any of IFPRU 1.1.15 G(1) to (4) apply.

IFPRU 1.1.17 G RP

For the purposes of the definitions in IFPRU and Part Three, Title I, Chapter 1, Section 2 of the EU CRR (Own funds requirements for investment firms with limited authorisation to provide investment services), a person has an authorisation to do any of the activities referred to in articles 95 and 96 of the EU CRR (Own funds requirements for investment firms with limited authorisation to provide investment services) if any of IFPRU 1.1.15 G(1) to (4) apply.

IFPRU 1.2 Significant IFPRU firm

Purpose

IFPRU 1.2.1 G RP

Throughout CRD and the EU CRR there are various policies which have restricted application based on a firm's scope, nature, scale, internal organisation and complexity. These policies are provided in the following:

  1. (1)

    article 76 of CRD on the establishment of an independent risk committee;

  2. (2)

    article 88 of CRD on the establishment of an independent nominations committee;

  3. (3)

    article 91 of CRD on the limitations on the number of directorships an individual may hold;

  4. (4)

    article 95 of CRD on the establishment of an independent remuneration committee;

  5. (5)

    article 100 of CRD on supervisory stress testing to facilitate the SREP under article 97 of CRD;

  6. (6)

    articles 129 and 130 of CRD on applicability of the capital conservation buffer and the countercyclical capital buffer (provided that an exemption from the application of these articles does not threaten the stability of the financial system of the EEA State);

  7. (7)

    article 6(4) of the EU CRR on the scope of liquidity reporting on an individual 1basis;

    1
  8. (8)

    article 11(3) of the EU CRR on the scope of liquidity reporting on a consolidated basis; and

  9. (9)

    article 450 of the EU CRR on disclosure on remuneration.

IFPRU 1.2.2 G RP

The articles in IFPRU 1.2.1 G do not always carry the same wording in describing what may be significant in terms of a firm's scope, nature, scale, internal organisation and complexity, but the articles have a general policy to restrict the application of those requirements to institutions which pose higher risks by virtue of broadly their size, types of business and complexity of activities. The FCA's policy is to apply an objective definition with pre-defined thresholds to determine which firms are considered as significant for the purpose of these articles. In order to clarify which firms these policies apply to, IFPRU 1.2.3 R defines the factors which determine if a firm is a significant IFPRU firm.

Definition of significant IFPRU firm

IFPRU 1.2.3 R RP

A firm is a significant IFPRU firm if it meets, at any time, one or more of the following conditions:

  1. (1)

    its total assets exceeds £530 million;

  2. (2)

    its total liabilities exceeds £380 million;

  3. (3)

    the annual fees and commission income it receives in relation to the regulated activities carried on by the firm exceeds £160 million in the 12-month period immediately preceding the date the firm carries out the assessment under this rule on a rolling basis;

  4. (4)

    the client money that it receives or holds exceeds £425 million; and

  5. (5)

    the assets belonging to its clients that it holds in the course of, or connected with, its regulated activities exceeds £7.8 billion.

IFPRU 1.2.4 R RP
  1. (1)

    This rule defines some of the terms used in IFPRU 1.2.3 R.

  2. (2)

    "Total assets" means the firm's total assets

    1. (a)

      set out in the most recent relevant report submitted to the FCA under SUP 16.12 (Integrated regulatory reporting); or

    2. (b)

      (where the firm carries out the assessment under this rule at any time after the date of its most recent report in (a)) as the firm would report to the FCA in accordance with the relevant report, as if the reporting period for that report ends on the date the assessment is carried out.

  3. (3)

    "Total liabilities" means the firm's total liabilities:

    1. (a)

      set out in the most recent relevant report submitted to the FCA under SUP 16.12 (Integrated regulatory reporting); or

    2. (b)

      (where the firm carries out the assessment under this rule at any time after the date of its most recent report in (a)) as the firm would report to the FCA in accordance with the relevant report, as if the reporting period for that report ends on the date the assessment is carried out.

  4. (4)

    The client money means the money that a firm receives or holds in the course of, or in connection with, all of the regulated activities defined in paragraphs (1) to (4) of the Glossary that it carries on:

    1. (a)

      as set out in the most recent client money and client asset report submitted to the FCA under SUP, as applies to the firm in SUP 16.12 (Integrated regulatory reporting); or

    2. (b)

      (where the firm carries out the assessment under this rule at any time after the date of its most recent report in (a)) as the firm would report to the FCA in accordance with the relevant report, as if the reporting period for that report ends on the date the assessment is carried out.

  5. (5)

    "Assets belonging to its clients" means the assets to which the custody rules apply:

    1. (a)

      as set out in the most recent client money and client asset report submitted to the FCA under SUP, as applies to the firm in SUP 16.12 (Integrated regulatory reporting); or

    2. (b)

      (if the firm carries out the assessment under this rule at any time after the date of its most recent report in (a)) as the firm would report to the FCA in accordance with the relevant report, as if the reporting period for that report ends on the date the assessment is carried out.

IFPRU 1.2.5 R RP

A firm must regularly assess whether it, at any time, becomes a significant IFPRU firm.

IFPRU 1.2.6 R RP
  1. (1)

    If a firm, at any time, becomes aware that it is likely to become a significant IFPRU firm, it must forthwith make arrangements to establish and have in place sound, effective and comprehensive strategies, processes and systems to achieve compliance with the requirements that apply to a significant IFPRU firm.

  2. (2)

    The firm in (1) must comply with the requirements that apply to a significant IFPRU firm on the expiry of a period of three months from the date it meets any one of the conditions in IFPRU 1.2.3 R.

IFPRU 1.2.7 R RP

If a firm that is a significant IFPRU firm ceases to meet any of the conditions in IFPRU 1.2.3 R, it must continue to comply with the rules and requirements applicable to a significant IFPRU firm until the first anniversary of the date on which the firm ceased to be a significant IFPRU firm.

IFPRU 1.2.8 G RP

The FCA may, on a case-by-case basis, require a firm which does not meet any of the conditions in IFPRU 1.2.3 R to comply with the rules and requirements that apply to a significant IFPRU firm if the FCA considers it appropriate to do so to meet its strategic objective or to advance one or more of its operational objectives under the Act.

IFPRU 1.2.9 G RP
  1. (1)

    A firm may apply to the FCA under section 138A of the Act to waive any one or more of the conditions in IFPRU 1.2.3 R if it believes that one or more of the governance requirements in (2) that apply to a significant IFPRU firm may be disproportionate to it. In its application for such waiver, the FCA expects the firm to demonstrate, taking into account size, nature, scope and complexity of its activities in the context of it being a member of a group and the internal organisation of the group, that it should not be considered as significant.

  2. (2)

    The governance requirements referred to in (1) are:

    1. (a)

      1SYSC 4.3A.6 R1 on the limitations in the number of directorships; or

    2. (b)

      1SYSC 4.3A.8 R1 on the nomination committee; or

    3. (c)

      SYSC 7.1.18 R on the risk committee; or

    4. (d)

      SYSC 19A.3.12 R on the remuneration committee.

  3. (3)

    The effect of such waiver is that the firm would not be a significant IFPRU firm only for the purpose of the particular governance requirement in (2) that the waiver is expressed to apply to. For the avoidance of doubt, such firm would still be a significant IFPRU firm for the purpose of the other rules in the FCA Handbook that apply to a significant IFPRU firm.

IFPRU 1.3 Supervisory benchmarking of internal approaches for calculating own funds requirements

IFPRU 1.3.1 R RP

Except for operational risk, a firm that is permitted to use internal approaches for the calculation of risk weighted exposure amounts or own fund requirements must report annually to the FCA:

  1. (1)

    the results of the calculations of its internal approaches for its exposures or positions that are included in the benchmark portfolios; and

  2. (2)

    an explanation of the methodologies used to produce those calculations in (1).

[Note: article 78(1) of CRD]

IFPRU 1.3.2 G RP

A firm must submit the results of the calculations referred to in IFPRU 1.3.1 R (1), in line with the template set out in the Commission Regulation adopted under article 78(8) of CRD, to the FCA and to EBA.

IFPRU 1.3.3 R RP

Where the FCA has chosen to develop specific portfolios in accordance with article 78(2) of CRD, a firm must report the results of the calculations separately from the results of the calculations for EBA portfolios.

[Note: article 78(2) of CRD]

IFPRU 1.4 EU CRR permissions1

IFPRU 1.4.1 R RP

A firm which has applied for, or has been granted, a permission under the EU CRR must notify the FCA immediately if it becomes aware of any matter which could affect the continuing relevance or appropriateness of the application or permission.

1 1
IFPRU 1.4.2 G RP

The reference to 'permission' in IFPRU 1.4.1 R includes any approval, consent or agreement referred to under the EU CRR for which the FCA has been conferred powers as competent authority by the EU CRR.