MIFIDPRU TP 2 Own funds requirements: transitional provisions

Application

12.1

R

MIFIDPRU TP 2 applies to a MIFIDPRU investment firm on an individual basis.

12.2

R

MIFIDPRU TP 2.23R applies to a UK parent entity when it is applying MIFIDPRU 4 on the basis of its consolidated situation in accordance with MIFIDPRU 2.5.

Purpose

12.3

G

MIFIDPRU TP 2 contains temporary transitional provisions that permit certain MIFIDPRU investment firms to apply a lower own funds requirement than would otherwise apply under MIFIDPRU 4.3. These provisions are designed to provide a smooth transition for firms from their regulatory capital requirements under previous prudential regimes to the requirements under MIFIDPRU.

12.4

G

(1)

MIFIDPRU TP 2 permits a firm (or, in the case of MIFIDPRU TP 2.23R, a UK parent entity) to substitute an alternative requirement for one or more of its standard permanent minimum capital requirement, its fixed overheads requirement or its K-factor requirement. Where a firm does so, the alternative requirement also replaces the standard requirement for the purposes of calculating the firm’s own funds requirement under MIFIDPRU 4.3.

(2)

For example, under MIFIDPRU TP 2.21R, a former exempt BIPRU commodities firm may substitute alternative requirements for its fixed overheads requirement and its K-factor requirement. During the transitional period, the own funds requirement of the firm under MIFIDPRU 4.3.2R would be the highest of:

(a)

its permanent minimum capital requirement;

(b)

the alternative requirement substituted for its standard fixed overheads requirement; and

(c)

the alternative requirement substituted for its standard K-factor requirement.

References to “UK CRR”

12.5

R

Any reference in MIFIDPRU TP 2 to the “UK CRR” is as a reference to the UK CRR in the form in which it stood on 31 December 2021.

Duration of transitional arrangements

12.6

R

MIFIDPRU TP 2 applies until 1 January 2027, except in the circumstances set out in MIFIDPRU TP 2.19R or MIFIDPRU TP 2.20R(4).

Transitional provisions for fixed overheads requirement and K-factor requirement for former IFPRU investment firms and BIPRU firms

12.7

R

(1)

This rule applies to a MIFIDPRU investment firm that, under the rules in force on 31 December 2021, was classified as:

(a)

an IFPRU investment firm (other than an exempt IFPRU commodities firm); or

(b)

a BIPRU firm (other than an exempt BIPRU commodities firm).

(2)

A firm may substitute the alternative requirement in (3) for each of:

(a)

its fixed overheads requirement under MIFIDPRU 4.5; and

(b)

to the extent applicable, its K-factor requirement under MIFIDPRU 4.6.

(3)

Subject to (4), the alternative requirement is an amount equal to twice the following, if it had continued to apply to the firm:

(a)

for a former IFPRU investment firm, the own funds requirement in Chapter 1 of Title I of Part Three of the UK CRR; or

(b)

for a former BIPRU firm, the variable capital requirement in GENPRU 2.1.40R and 2.1.45R.

(4)

The alternative requirement in (3) is subject to:

(a)

for a former IFPRU investment firm (other than a collective portfolio management investment firm), article 93(1) of the UK CRR, with the reference to the initial capital requirement in that provision being read as a reference to the base own funds requirement that would have applied under IFPRU 3.1 if it had continued to apply to the firm;

(b)

for a former BIPRU firm (other than a collective portfolio management investment firm), the base capital requirement that would have applied under GENPRU 2.1.47R and 2.1.48R; or

(c)

for a collective portfolio management investment firm, the base own funds requirement that applies under IPRU(INV) 11.3.1R(1).

12.8

G

(1)

The effect of MIFIDPRU TP 2.7R(2) is that even where MIFIDPRU TP 2.7R applies, it does not affect the calculation of a MIFIDPRU investment firm’s permanent minimum capital requirement under MIFIDPRU 4.4. MIFIDPRU TP 2.13R to MIFIDPRU 2.18R set out the circumstances in which separate transitional arrangements may also apply to the permanent minimum capital requirement of a former IFPRU investment firm or BIPRU firm.

(2)

Therefore, where the permanent minimum capital requirement (where applicable, as limited by MIFIDPRU TP 2.13R to 2.18R) is higher than the alternative requirement in MIFIDPRU TP 2.7R(3), the firm must still ensure that it has sufficient own funds to meet that higher permanent minimum capital requirement in accordance with MIFIDPRU 4.3.

12.9

G

Where a MIFIDPRU investment firm applies the transitional arrangements in MIFIDPRU TP 2.7, the alternative requirement under MIFIDPRU TP 2.7R(3) reflects how the previous requirements under the UK CRR or GENPRU would have applied to the firm on an ongoing basis. The firm should therefore recalculate the alternative requirement under the UK CRR or GENPRU regularly. The FCA considers that it would be appropriate for the firm to carry out such calculations at least as frequently as it reports information on its own funds requirement to the FCA under MIFIDPRU 9.

Transitional provisions for fixed overheads requirement and K-factor requirement for former exempt CAD firms

12.10

R

(1)

This rule applies to a MIFIDPRU investment firm that under the rules in force on 31 December 2021 was classified as an exempt CAD firm.

(2)

A firm may substitute the alternative requirement in (3) for each of:

(a)

its fixed overheads requirement under MIFIDPRU 4.5; and

(b)

to the extent applicable, its K-factor requirement under MIFIDPRU 4.6.

(3)

The alternative requirement is:

(a)

from 1 January 2022 to 31 December 2022, an amount equal to the firm’s permanent minimum capital requirement after any transitional relief that may apply under MIFIDPRU TP 2.12R has been taken into account; and

(b)

from 1 January 2023 to 31 December 2026:

(i) in relation to the firm's fixed overheads requirement, the relevant percentage specified in (4) of the firm's fixed overheads requirement (as that requirement would be determined if the substitution in (2)(a) did not apply); and

(ii) in relation to the firm's K-factor requirement, the relevant percentage specified in (4) of the firm's K-factor requirement (as that requirement would be determined if the substitution in (2)(b) did not apply).

(4)

The relevant percentage is:

(a)

from 1 January 2023 to 31 December 2023: 10%;

(b)

from 1 January 2024 to 31 December 2024: 25%;

(c)

from 1 January 2025 to 31 December 2025: 45%; and

(d)

from 1 January 2026 to 31 December 2026: 70%.

Transitional provisions for K-factor requirement for firms not in existence before 1 January 2022

12.11

R

(1)

This rule applies to a MIFIDPRU investment firm that immediately before 1 January 2022:

(a)

was not in existence; or

(b)

did not have a Part 4A permission that permitted the firm to carry on any investment services and/or activities.

(2)

A firm may substitute the alternative requirement in (3) for its K-factor requirement under MIFIDPRU 4.6 (to the extent that such a requirement applies).

(3)

The alternative requirement is an amount equal to twice the fixed overheads requirement of the firm calculated in accordance with MIFIDPRU 4.5 from time to time.

Transitional provisions for permanent minimum capital requirement: former exempt CAD firms

12.12

R

(1)

This rule applies to a MIFIDPRU investment firm that under the rules in force on 31 December 2021 was classified as an exempt CAD firm.

(2)

A firm may substitute the alternative requirement in (3) for its permanent minimum capital requirement under MIFIDPRU 4.4.

(3)

The alternative requirement is as follows:

(a)

from 1 January 2022 to 31 December 2022: £50,000;

(b)

from 1 January 2023 to 31 December 2023: £55,000;

(c)

from 1 January 2024 to 31 December 2024: £60,000;

(d)

from 1 January 2025 to 31 December 2025: £65,000; and

(e)

from 1 January 2026 to 31 December 2026: £70,000.

(4)

This rule is subject to MIFIDPRU TP 2.19R.

Transitional provisions for permanent minimum capital requirement: former IFPRU investment firms

12.13

R

(1)

Subject to (2), this rule applies to a MIFIDPRU investment firm that under the rules in force on 31 December 2021 was classified as an IFPRU 50K firm.

(2)

This rule does not apply to a firm to which MIFIDPRU TP 2.18R applies.

(3)

A firm may substitute the alternative requirement in (4) for its permanent minimum capital requirement under MIFIDPRU 4.4.

(4)

The alternative requirement is as follows:

(a)

from 1 January 2022 to 31 December 2022: £50,000;

(b)

from 1 January 2023 to 31 December 2023: £55,000;

(c)

from 1 January 2024 to 31 December 2024: £60,000;

(d)

from 1 January 2025 to 31 December 2025: £65,000; and

(e)

from 1 January 2026 to 31 December 2026: £70,000.

(5)

This rule is subject to MIFIDPRU TP 2.19R.

12.14

R

(1)

Subject to (2), this rule applies to a MIFIDPRU investment firm that:

(a)

under the rules in force on 31 December 2021 was classified as an IFPRU 125K firm; or

(b)

is a collective portfolio management investment firm that would be subject to a permanent minimum capital requirement of £150,000 under MIFIDPRU 4.4.3R if this rule did not apply.

(2)

This rule does not apply to a firm to which MIFIDPRU TP 2.18R applies.

(3)

A firm may substitute the alternative requirement in (4) for its permanent minimum capital requirement under MIFIDPRU 4.4.

(4)

The alternative requirement is as follows:

(a)

from 1 January 2022 to 31 December 2022: £125,000;

(b)

from 1 January 2023 to 31 December 2023: £130,000;

(c)

from 1 January 2024 to 31 December 2024: £135,000;

(d)

from 1 January 2025 to 31 December 2025: £140,000; and

(e)

from 1 January 2026 to 31 December 2026: £145,000.

(5)

This rule is subject to MIFIDPRU TP 2.19R.

12.15

R

(1)

This rule applies to a MIFIDPRU investment firm that under the rules in force on 31 December 2021 was classified as an IFPRU 730K firm.

(2)

A firm may substitute the alternative requirement in (3) for its permanent minimum capital requirement under MIFIDPRU 4.4.

(3)

The alternative requirement is as follows:

(a)

from 1 January 2022 to 31 December 2022: £730,000;

(b)

from 1 January 2023 to 31 December 2023: £735,000;

(c)

from 1 January 2024 to 31 December 2024: £740,000;

(d)

from 1 January 2025 to 31 December 2025: £745,000; and

(e)

from 1 January 2026 to 31 December 2026: £750,000.

(4)

This rule is subject to MIFIDPRU TP 2.19R.

Transitional provisions for permanent minimum capital requirement: former BIPRU firms

12.16

R

(1)

This rule applies to a MIFIDPRU investment firm that under the rules in force on 31 December 2021 was classified as a BIPRU firm (other than an exempt BIPRU commodities firm or a collective portfolio management investment firm).

(2)

This rule does not apply to a firm to which MIFIDPRU TP 2.18R applies.

(3)

A firm may substitute the alternative requirement in (4) for its permanent minimum capital requirement under MIFIDPRU 4.4.

(4)

The alternative requirement is as follows:

(a)

from 1 January 2022 to 31 December 2022: £50,000;

(b)

from 1 January 2023 to 31 December 2023: £55,000;

(c)

from 1 January 2025 to 31 December 2025: £65,000; and

(d)

from 1 January 2024 to 31 December 2024: £60,000;

(e)

from 1 January 2026 to 31 December 2026: £70,000.

(5)

This rule is subject to MIFIDPRU TP 2.19R.

12.17

G

(1)

The transitional arrangements in MIFIDPRU TP 2.13R to 2.16R permit the relevant MIFIDPRU investment firms to substitute an alternative requirement for their permanent minimum capital requirement. Those provisions do not affect the fixed overheads requirement or, where applicable, the K-factor requirement for such firms.

(2)

The effect of (1) is that where the fixed overheads requirement or the K-factor requirement of the relevant MIFIDPRU investment firm (in each case, as modified by any other relevant transitional arrangements in this section) is higher than the alternative requirement substituted for the firm's permanent minimum capital requirement, the firm’s own funds requirement under MIFIDPRU 4.3 will still be the higher of those other two requirements.

Transitional provisions for permanent minimum capital requirement: former IFPRU and BIPRU firms that relied on IFPRU 1.1.12R or BIPRU 1.1.23R (former “matched principal” firms)

12.18

R

(1)

This rule applies to a firm that, under the rules in force on 31 December 2021, was classified as one of the following:

(a)

an IFPRU 50K firm, due to the application of IFPRU 1.1.12R (Meaning of dealing on own account);

(b)

an IFPRU 125K firm, due to the application of IFPRU 1.1.12R (Meaning of dealing on own account); or

(c)

a BIPRU firm, due to the application of BIPRU 1.1.23R (Meaning of dealing on own account).

(2)

A firm may substitute the alternative requirement in (3) for its permanent minimum capital requirement under MIFIDPRU 4.4.

(3)

The alternative requirement is as follows:

(a)

from 1 January 2022 to 31 December 2022:

(i) for a former BIPRU firm or a former IFPRU 50K firm: £50,000; or

(ii) for a former IFPRU 125K firm: £125,000;

(b)

from 1 January 2023 to 31 December 2023: £190,000;

(c)

from 1 January 2024 to 31 December 2024: £330,000;

(d)

from 1 January 2025 to 31 December 2025: £470,000; and

(e)

from 1 January 2026 to 31 December 2026: £610,000.

Disapplication of permanent minimum capital requirement transitional provisions because of changes to a firm’s permissions

12.19

R

The transitional arrangements in MIFIDPRU TP 2.12R to 2.16R and MIFIDPRU TP 2.18R2 cease to apply if there is a change to the permissions of the relevant MIFIDPRU investment firm, or any limitation or requirement that applies to the firm, on or after 1 January 2022 that increases the permanent minimum capital requirement that would apply to the firm under MIFIDPRU 4.4.

Transitional provisions for own funds requirement: former local firms

12.20

R

(1)

Subject to (4), this rule applies to a MIFIDPRU investment firm that:

(a)

was in existence before 25 December 2019; and

(b)

under the rules in force on 31 December 2021, was classified as a local firm.

(2)

A firm may substitute the alternative requirement in (3) for its own funds requirement under MIFIDPRU 4.3.

(3)

The alternative requirement is as follows:

(a)

from 1 January 2022 to 31 December 2022: £250,000;

(b)

from 1 January 2023 to 31 December 2023: £350,000;

(c)

from 1 January 2024 to 31 December 2024: £450,000;

(d)

from 1 January 2025 to 31 December 2025: £550,000; and

(e)

from 1 January 2026 to 31 December 2026: £650,000.

(4)

This rule ceases to apply to a firm where:

(a)

there is a change to the permissions of the firm, or any limitation or requirement that applies to the firm, on or after 1 January 2022; and

(b)

if the change in (a) had occurred immediately before 1 January 2022, the firm would have ceased to meet the definition of a local firm.

Transitional provisions for fixed overheads and K-factor requirements: exempt commodities firms

12.21

R

(1)

This rule applies to a MIFIDPRU investment firm that, under the rules in force on 31 December 2021, was classified as:

(a)

an exempt IFPRU commodities firm; or

(b)

an exempt BIPRU commodities firm.

(2)

A firm may substitute the alternative requirement in (3) for each of:

(a)

its fixed overheads requirement under MIFIDPRU 4.5; and

(b)

to the extent applicable, its K-factor requirement under MIFIDPRU 4.6.

(3)

Subject to (5), the alternative requirement is:

(a)

from 1 January 2022 to 31 December 2022: an amount equal to the firm’s permanent minimum capital requirement;

(b)

from 1 January 2023 to 31 December 2026:

(i) in relation to the firm's fixed overheads requirement, the relevant percentage specified in (4) of the firm’s fixed overhead requirement (as that requirement would be determined if the substitution in (2)(a) did not apply); and

(ii) in relation to the firm's K-factor requirement, the relevant percentage specified in (4) of the firm's K-factor requirement (as that requirement would be determined if the substitution in (2)(b) did not apply).

(4)

The relevant percentage is:

(a)

from 1 January 2023 to 31 December 2023: 10%;

(b)

from 1 January 2024 to 31 December 2024: 25%;

(c)

from 1 January 2025 to 31 December 2025: 45%; and

(d)

from 1 January 2026 to 31 December 2026: 70%.

(5)

Subject to (6), if the firm was subject to IPRU(INV) 3 on 31 December 2021, the alternative requirement can never be lower than the amount of the financial resources requirement that would have applied to the firm if it had continued to be subject to IPRU(INV) 3 in the form in which that chapter stood on that date.

(6)

When determining the amount of the financial resources requirement under IPRU(INV) 3 for the purposes of (5), a firm may determine the delta of an option as follows:

(a)

if an option is traded on an exchange, the firm must use the delta provided by that exchange; or

(b)

if the delta is not available from the exchange, or if the option is an over-the-counter option, the firm may use its own estimates of delta where the conditions in MIFIDPRU 4.12.10R are met.

12.22

G

MIFIDPRU TP 2.21R(5) means that the alternative fixed overheads requirement and alternative K-factor requirement of an exempt IFPRU commodities firm or an exempt BIPRU commodities firm under the transitional arrangements are subject to a floor if the firm was previously subject to IPRU(INV) 3. The base requirement under IPRU(INV) 3-71R (in the form in which it stood on 31 December 2021) is calculated by reference to the highest of an absolute minimum requirement, an expenditure requirement and a volume of business requirement. The firm should therefore recalculate the alternative requirement under IPRU(INV) 3 regularly. The FCA considers that it would be appropriate for the firm to carry out such calculations at least as frequently as it reports information on its own funds requirement to the FCA under MIFIDPRU 9.

Transitional provisions for consolidated own funds requirement

12.23

R

(1)

This rule applies to a UK parent entity that is required to apply prudential consolidation to an investment firm group in accordance with MIFIDPRU 2.5.

(2)

A UK parent entity may substitute the alternative requirements in (3) for the following, as they result from applying MIFIDPRU 4 to its consolidated situation:

(a)

the consolidated fixed overheads requirement; and

(b)

the consolidated K-factor requirement.

(3)

Subject to (8), the alternative requirement is:

(a)

in relation to the fixed overheads requirement, an amount calculated in accordance with the formula in (4); and

(b)

in relation to the K-factor requirement, an amount calculated in accordance with the formula in (6).

(4)

The formula for calculating the alternative requirement for the consolidated fixed overheads requirement is:

A = B - C

where:

A = the alternative requirement for the consolidated fixed overheads requirement.

B = the consolidated fixed overheads requirement that results from applying MIFIDPRU 4 to the consolidated situation in accordance with MIFIDPRU 2.5 without applying MIFIDPRU TP 2.

C = the transitional credit, determined in accordance with (5).

(5)

For the purposes of (4), the transitional credit (C) is the sum of the output of the following formula as applied to each MIFIDPRU investment firm in the investment firm group:

C = D - E

where:

D = the individual fixed overheads requirement that would apply to the MIFIDPRU investment firm under MIFIDPRU 4, ignoring any transitional relief under MIFIDPRU TP 2.

E = the alternative requirement that applies to the MIFIDPRU investment firm under MIFIDPRU TP 2 in place of the individual fixed overheads requirement. If no alternative requirement applies to the firm in place of its individual fixed overheads requirement, the value of E is equal to D.

(6)

The formula for calculating the alternative requirement for the consolidated K-factor requirement is:

F = G - H

where:

F = the alternative requirement for the consolidated K-factor requirement.

G = the consolidated K-factor requirement that results from applying MIFIDPRU 4 to the consolidated situation in accordance with MIFIDPRU 2.5 without applying MIFIDPRU TP 2.

H = the transitional credit, determined in accordance with (7).

(7)

For the purposes of (6), the transitional credit (H) is the sum of the output of the following formula as applied to each MIFIDPRU investment firm in the investment firm group:

H = J - K

where:

J = the K-factor requirement that would apply to the individual MIFIDPRU investment firm under MIFIDPRU 4, ignoring any transitional relief under MIFIDPRU TP 2.

K = the alternative requirement that applies to the MIFIDPRU investment firm under MIFIDPRU TP 2 in place of the individual K-factor requirement. If no alternative requirement applies to the firm in place of its individual K-factor requirement, the value of K is equal to J.

(8)

The alternative requirement can never be lower than the following:

(a)

in relation to the consolidated fixed overheads requirement, the sum of the following in relation to the investment firm group:

(i) for each MIFIDPRU investment firm that is subject to an alternative requirement under MIFIDPRU TP 2 in place of its individual fixed overheads requirement, that alternative requirement; and

(ii) for every other MIFIDPRU investment firm, the firm’s individual fixed overheads requirement;

(b)

in relation to the consolidated K-factor requirement, the sum of the following in relation to the MIFIDPRU investment firms in the investment firm group:

(i) for each MIFIDPRU investment firm that is subject to an alternative requirement under MIFIDPRU TP 2 in place of its individual K-factor requirement, that alternative requirement; and

(ii) for other MIFIDPRU investment firms, the individual K-factor requirement.

Interaction between alternative fixed overheads requirement and basic liquid assets requirement

12.24

R

(1)

This rule applies where:

(a)

a firm is applying an alternative requirement for its fixed overheads requirement under any of the following:

(i) MIFIDPRU TP 2.7R(2)(a);

(ii) MIFIDPRU TP 2.10R(2)(a);

(iii) MIFIDPRU TP 2.21R(2)(a); or

(b)

a UK parent entity is applying an alternative requirement for its consolidated fixed overheads requirement under MIFIDPRU TP 2.23R(2)(a).

(2)

Where this rule applies to a firm in (1)(a), the requirement in MIFIDPRU 6.2.1R(1) applies as if the reference to the fixed overheads requirement is a reference to the alternative requirement.

(3)

Where this rule applies to a UK parent entity in (1)(b), the requirement in MIFIDPRU 6.2.1R(1), as it applies on a consolidated basis, applies as if the reference to the fixed overheads requirement is a reference to the alternative requirement.

12.25

G

(1)

The effect of MIFIDPRU TP 2.24R is that where a firm is applying an alternative requirement for its fixed overheads requirement under a transitional provision in this annex, the amount of core liquid assets that it must hold under MIFIDPRU 6.2.1R(1) is calculated by reference to the alternative requirement. This does not affect any amount of core liquid assets that the firm must hold under MIFIDPRU 6.2.1R(2) in relation to guarantees provided to clients.

(2)

MIFIDPRU TP 2.24R also applies on an equivalent basis to a UK parent entity that is applying an alternative requirement for its consolidated fixed overheads requirement.

(3)

The following is an example of how MIFIDPRU TP 2.24R applies in practice:

(a)

A former exempt CAD firm is calculating its basic liquid assets requirement under MIFIDPRU 6.2.1R after MIFIDPRU has been in force for 18 months. The firm’s fixed overheads requirement (calculated without any transitional relief) is 900. The firm has provided total guarantees to clients of 100.

(b)

Under MIFIDPRU TP 2.10R(2)(a), the firm can apply an alternative requirement of 10% of its standard fixed overheads requirement in accordance with MIFIDPRU TP 2.10R(4)(a). The alternative requirement is therefore 90 (i.e. 10% of 900).

(c)

Under MIFIDPRU TP 2.24R, the firm calculates the amount of core liquid assets that it requires under MIFIDPRU 6.2.1R(1) by reference to the alternative requirement. This means that the firm must hold core liquid assets of 30 for these purposes (i.e. one third of 90).

(d)

Under MIFIDPRU 6.2.1R(2), the firm must also hold core liquid assets of 1.6% of the total amount of the guarantees it has provided to clients. In this case, that means that the firm must hold a further 1.6 in core liquid assets (i.e. 1.6% of 100). This amount is not affected by the transitional relief in MIFIDPRU TP 2.24R.

(e)

The firm would therefore need to hold core liquid assets of 31.6 to satisfy its basic liquid assets requirement.

Interaction between alternative requirements under MIFIDPRU TP 2, own funds wind-down trigger and own funds threshold requirement

22.25A

R

(1)

Where a firm is applying an alternative requirement for its:

(a)

fixed overheads requirement under any of the following: MIFIDPRU TP 2.7R(2)(a), MIFIDPRU TP 2.10R(2)(a), or MIFIDPRU TP 2.21R(2)(a);

(b)

K-factor requirement under any of the following: MIFIDPRU TP 2.7R(2)(b); MIFIDPRU TP 2.10R(2)(b); MIFIDPRU TP 2.11R(2); or MIFIDPRU TP 2.21R(2)(b);

(c)

permanent minimum capital requirement under any of the following: MIFIDPRU TP 2.12R(2), MIFIDPRU TP 2.13R(3), MIFIDPRU TP 2.14R(3), MIFIDPRU TP 2.15R(2), MIFIDPRU TP 2.16R(3), or MIFIDPRU TP 2.18R(2); or

(d)

own funds requirement under MIFIDPRU TP 2.20R(2);

that firm may substitute the alternative requirement for the corresponding requirement when calculating its own funds threshold requirement in accordance with MIFIDPRU 7.6.4G.

(2)

Where a firm is applying an alternative requirement for its fixed overheads requirement under any of the provisions listed in (1)(a), the firm’s own funds wind-down trigger is:

(a)

the alternative requirement for its fixed overheads requirement; or

(b)

another amount specified by the FCA in a requirement applied to the firm.

(3)

Where a firm is applying an alternative requirement for its own funds requirement under MIFIDPRU TP 2.20R(2), the firm’s own funds wind-down trigger is:

(a)

the lower of its fixed overheads requirement and the alternative requirement for its own funds requirement; or

(b)

another amount specified by the FCA in a requirement applied to the firm.

22.25B

G

(1)

The effect of MIFIDPRU TP 2.25AR(1) is that a firm may substitute an alternative requirement under a transitional provision in this annex for its corresponding requirement when calculating its own funds threshold requirement. This is illustrated by the example in (2).

(2)

MIFIDPRU TP 2.12R(2) permits a MIFIDPRU investment firm (that was classified under the rules in force on 31 December 2021 as an exempt CAD firm) to substitute the alternative requirement in TP2.12R(3) for its permanent minimum capital requirement under MIFIDPRU 4.4. MIFIDPRU TP 2.25AR(1) further allows such firm to substitute the alternative requirement for its permanent minimum capital requirement when determining its own funds wind-down threshold requirement in accordance MIFIDPRU 7.6.4G.

Continuing validity of UK CRR market risk permissions

12.26

R

(1)

This rule applies to any permission listed in column (A) of the table in MIFIDPRU TP 2.27R, where that permission was granted to a firm by the FCA for the purposes of the UK CRR before 1 January 2022.

(2)

Where this rule applies, a permission in column (A) of the table in MIFIDPRU TP 2.27R is deemed to have the effect described in column (B) in the same row of that table.

12.27

R

This table belongs to MIFIDPRU TP 2.26R.

1Articles 329, 352(1) or 358 UK CRR: permission to use own estimates for delta for the purposes of the standardised approach for the market risk of options

The permission in column (A) is deemed to be a valid notification under MIFIDPRU 4.12.10R for equivalent purposes

Article 331 UK CRR: permission to use sensitivity models to calculate interest rate risk

The permission in column (A) is deemed to have been granted on equivalent terms for its remaining duration under MIFIDPRU 4.12.66R

12.28

G

(1)

MIFIDPRU 4.12.10R requires a MIFIDPRU investment firm that wishes to use its own estimates of delta for the purposes of the standardised approach for the market risk of options to notify the FCA that it meets certain minimum standards before doing so. Previously, firms that were subject to the UK CRR were required to seek the FCA’s permission before using their own estimates of delta for these purposes. The effect of MIFIDPRU TP 2.25R and 2.26R is that any permission granted for these purposes to a former CRR firm that has subsequently become a MIFIDPRU investment firm will be treated as a valid notification for the purposes of MIFIDPRU 4.12.10R. This means that the firm does not need to submit a new notification under MIFIDPRU 4.12.10R to use its own estimates of delta under that rule for which the firm previously had permission.

(2)

The effect of MIFIDPRU TP 2.26R and 2.27R is that a former CRR firm that was granted a permission to use interest rate sensitivity models under article 331 UK CRR and that has subsequently become a MIFIDPRU investment firm can treat that permission as having been granted on equivalent terms for the purposes of the corresponding requirement under MIFIDPRU. The duration of the original permission is not affected. For example, if a firm was granted permission to use an interest rate sensitivity model on 1 June 2021 for a one-year duration, that permission will be treated from 1 January 2022 as if it had been granted under MIFIDPRU, but will still expire on 1 June 2022.