MIFIDPRU 1.1 Application and purpose

1There is no overall application provision for MIFIDPRU. Each chapter or section has its own application statement. However, MIFIDPRU broadly applies to the following:

1. (1)

   MIFIDPRU investment firms;

2. (2)

   UK parent entities; and

3. (3)

   parent undertakings in an investment firm group that are incorporated in, or have their principal place of business in, the United Kingdom.

1. (1)

   1The definition of a MIFIDPRU investment firm includes a collective portfolio management investment firm. This means that a collective portfolio management investment firm must comply with the rules in MIFIDPRU, except to the extent that a provision of MIFIDPRU otherwise provides.

2. (2)

   A collective portfolio management investment firm is also subject to the prudential requirements in IPRU-INV 11 (Collective Portfolio Management Firms and Collective Portfolio Management Investment Firms). These firms should refer to IPRU-INV 11.6 for further guidance on how the requirements in MIFIDPRU interact with the requirements in IPRU-INV 11.

3. (3)

   As explained in MIFIDPRU 1.1.5G, many requirements in MIFIDPRU apply only in relation to the MiFID business of a firm and therefore will not apply to the collective portfolio management activities carried on by a collective portfolio management investment firm. However, some requirements in MIFIDPRU apply to the firm as a whole.

1MIFIDPRU does not directly apply to an undertaking which is not incorporated in, and does not have its principal place of business in, the United Kingdom. However, MIFIDPRU imposes some obligations on UK parent entities and responsible UK parents relating to undertakings established in a third country that form part of the same investment firm group. MIFIDPRU 2 (Levels of application) contains additional guidance on the application of MIFIDPRU to investment firm groups.

1. (1)

   1This guidance provision applies to a third country MIFIDPRU investment firm. It is without prejudice to the FCA’s general approach to authorising overseas firms.

2. (2)

   The FCA will not normally give a Part 4A permission to a third country MIFIDPRU investment firm unless the FCA is satisfied that the applicant will be subject to prudential regulation by a regulatory body in its home jurisdiction and the regulatory requirements are broadly equivalent to the requirements that would apply under MIFIDPRU.

3. (3)

   When conducting the assessment in (2), the FCA will take into account the following non-exhaustive list of factors:

   1. (a)

      whether the requirements of the jurisdiction are likely to achieve similar prudential outcomes to MIFIDPRU;

   2. (b)

      how the overseas regulatory body supervises and enforces those requirements in practice;

   3. (c)

      the broader legal framework applicable to the applicant in the jurisdiction; and

   4. (d)

      whether there are adequate arrangements in place between the FCA and the overseas regulatory body to facilitate any necessary supervisory cooperation.

4. (4)

   The FCA considers that the approach described in (2) and (3) is consistent with the following:

   1. (a)

      The requirements in the threshold conditions including, in particular, the effective supervision threshold condition described in COND 2.3, the appropriate resources threshold condition described in COND 2.4 and the suitability threshold condition described in COND 2.5.

   2. (b)

      The need for the FCA to be able to apply effective supervision to a third country MIFIDPRU investment firm to ensure appropriate protection for consumers or potential consumers. This relies on cooperation between the FCA and the overseas regulatory body that supervises that third country MIFIDPRU investment firm and on the FCA being able to place appropriate reliance on the supervision applied by that overseas regulatory body.

5. (5)

   If a third country MIFIDPRU investment firm is not subject to prudential regulation by a regulatory body in its home jurisdiction which is broadly equivalent to the requirements that would apply under MIFIDPRU, the FCA will normally expect it to establish a subsidiary in the United Kingdom. That subsidiary would need to be authorised as a MIFIDPRU investment firm and would then be directly subject to the requirements in MIFIDPRU. The subsidiary would need to demonstrate that it meets the threshold conditions to obtain authorisation.

6. (6)

   Although a third country MIFIDPRU investment firm that is granted a Part 4A permission is not subject to MIFIDPRU, it must still comply with the requirements in the threshold conditions and Principles on an ongoing basis. This includes the obligation under Principle 11 (Relations with regulators) to inform the FCA of anything of which the FCA would reasonably expect notice, which may include interactions between the firm and its overseas regulatory body.

1The purpose of MIFIDPRU is to set out the detailed prudential requirements that apply to a MIFIDPRU investment firm. MIFIDPRU does not apply to a designated investment firm, which is subject to prudential regulation by the PRA. Generally, the rules in MIFIDPRU are intended to cover the MiFID business undertaken by a firm, but certain requirements apply to a firm as a whole.

1The requirements in MIFIDPRU expand upon the basic requirements under the appropriate resources threshold condition referred to in COND 2.4 and the requirement in Principle 4 for a firm to maintain adequate financial resources.

1. (1)

   1Certain provisions of MIFIDPRU refer to, or apply in relation to, tied agents. The definition of a tied agent refers to a person who, on behalf of an investment firm (including a third country investment firm):

   1. (a)

      promotes investment services or ancillary services to clients or prospective clients;

   2. (b)

      receives and transmits instructions or orders from the client in respect of investment services or financial instruments;

   3. (c)

      places financial instruments; or

   4. (d)

      provides advice to clients or prospective clients in respect of investment services or financial instruments.

2. (2)

   The references in MIFIDPRU to tied agents do not include appointed representatives that do not meet the definition of a tied agent (for example, because the relevant appointed representative does not carry on its activities in relation to the MiFID business of its principal firm). However, a firm’s potential responsibility for appointed representatives (whether or not they are also tied agents) will be a relevant factor for a firm’s ICARA process under MIFIDPRU 7 (Governance and risk management).

1. (1)

   1If a firm applies stricter measures than those required under MIFIDPRU in accordance with MIFIDPRU 1.1.8R, the firm must still ensure that it meets the basic requirements of MIFIDPRU. This is illustrated by the following two examples:

   1. (a)

      Example 1: A firm decides to hold own funds of 0.03% of its average AUM, rather than 0.02% as required under MIFIDPRU 4.7.5R. This would be a stricter measure that still met the basic requirements of MIFIDPRU and therefore would be permitted under MIFIDPRU 1.1.8R.

   2. (b)

      Example 2: A firm decides to hold a significant amount of additional own funds instead of applying the deductions from its common equity tier 1 capital required under MIFIDPRU 3.3.6R. This is on the basis that the additional own funds far exceed the estimated value of the required deductions and the firm considers that the deduction calculations are too onerous. While the firm may consider that holding these additional own funds is a stricter measure, this approach would not meet the basic requirements of MIFIDPRU, which require the firm to calculate and apply the deductions. In addition, the failure to apply the correct deductions to common equity tier 1 capital may result in the firm incorrectly applying the concentration risk requirements and limits in MIFIDPRU 5. This approach would therefore not be permitted under MIFIDPRU 1.1.8R because it does not meet the basic requirements of MIFIDPRU.

2. (2)

   If a firm wishes to apply a stricter measure but is unsure of whether that measure would meet the basic requirements of MIFIDPRU, it should discuss the proposal with the FCA before applying the measure.