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    2022-04-01

MIFIDPRU 4.6 Overall K-factor requirement

MIFIDPRU 4.6.1R

1The K-factor requirement of a MIFIDPRU investment firm is the sum of each of the following that apply to the firm:

  1. (1)

    K-AUM requirement;

  2. (2)

    K-CMH requirement;

  3. (3)

    K-ASA requirement;

  4. (4)

    K-COH requirement;

  5. (5)

    K-NPR requirement;

  6. (6)

    K-CMG requirement;

  7. (7)

    K-TCD requirement;

  8. (8)

    K-DTF requirement; and

  9. (9)

    K-CON requirement.

MIFIDPRU 4.6.2G
  1. (1)

    1The rules and guidance in MIFIDPRU 4.7 to MIFIDPRU 4.16 explain how a MIFIDPRU investment firm should calculate each component of its overall K-factor requirement.

  2. (2)

    The manner in which firms carry on activities that are potentially relevant to one or more K-factor metrics may vary considerably. It is not practical for the FCA to give an exhaustive set of rules and guidance covering every conceivable business arrangement that firms may operate when carrying on such activities.

  3. (3)

    If a firm is unsure whether a particular arrangement is within scope of one or more components of the K-factor requirement, the FCA expects the firm to apply a purposive approach to the interpretation of the requirement, as required by GEN 2.2.1R. Among other factors, the FCA would therefore expect the firm to consider:

    1. (a)

      whether the arrangement is sufficiently analogous to another arrangement that is clearly covered by any rules or associated guidance;

    2. (b)

      the risks that the relevant component of the K-factor requirement is designed to address and whether the same or similar risks arise in relation to the arrangement in question; and

    3. (c)

      where the component of the K-factor requirement is calculated by reference to a specific investment service and/or activity, the approach that the firm has adopted to applying other rules or guidance elsewhere in the Handbook to the arrangement, where those rules or guidance refer to the same investment service and/or activity.

  4. (4)

    The FCA expects that if asked, a firm will be able to justify the approach that the firm has taken to applying the K-factor requirement to a particular activity.

  5. (5)

    MIFIDPRU investment firms are reminded that even if an activity does not contribute towards the K-factor requirement, they should still consider, in accordance with the requirements in MIFIDPRU 7, whether that activity may give rise to potential material risks of harm or may be relevant to the firm’s wind-down analysis.