Topic: Investment Firms Prudential Regime final rules published
Overview: The FCA have today made final rules to streamline and simplify prudential requirements for solo-regulated UK firms authorised under the Markets in Financial Instruments Directive (MiFID). This is part of the Investment Firms Prudential Regime, a major change for FCA investment firms. If you’re an FCA investment firm, it’s critical that you prepare for the regime which comes into force on 1 January 2022.
The IFPR will streamline and simplify our prudential requirements. It will refocus requirements and expectations away from the risks that firms face, to also consider and look to manage the potential harm firms can pose to consumers and markets.
The FCA have converted the near-final rules from the first two policy statements of the Investment Firms Prudential Regime (IFPR) into final rules.
The final rules are in the legal instruments – FCA 2021/38 and FCA 2021/39. Minor updates made since the near-final versions of the instruments are in PS21/9.
Topic: FCA finalises rules for a new type of fund designed to invest efficiently in long-term assets
Overview: The FCA has confirmed that it will be taking forward proposals to create a new type of open-ended authorised investment fund which will help support investment in assets like infrastructure and private equity. Investment in these assets has the potential to generate better returns for investors, including those saving for retirement in defined contribution (DC) pension schemes and appropriately managed, can also benefit the wider economy by supporting the economic recovery from Covid-19 and supporting financial stability.
Currently, some investors are unable, or unwilling, to invest in long-term assets, even though these assets could meet their investment goals.
Nikhil Rathi, Chief Executive of the FCA, said:
‘We are supporting fresh collaborative thinking designed to improve the effectiveness of UK markets while protecting standards. If this innovative fund structure, created by our rules, is taken up by the asset management industry, it may provide alternative routes to returns for investors, while supporting economic growth and the transition to a low carbon economy.‘
The new rules create a Long-Term Asset Fund (LTAF) regime, a new FCA regulated fund that is designed specifically to help investment in assets including venture capital, private equity, private debt, real estate and infrastructure.
As investments in this type of fund may take longer to sell, the FCA has put in place rules to ensure there is a consistency between how long it will take to sell assets and how often and quickly an investor will be able to sell out of the fund.
The LTAF structure is one of the FCA’s wholesale market priorities as set out in its Business Plan 2021-22 and marks its commitment as a regulator to being more innovative, assertive and adaptive.
Topic: The Climate Financial Risk Forum publishes its second set of guides to help the financial industry effectively manage climate-related financial risks
Overview: A second round of guides to help financial firms manage climate-related financial risk has been published by the Climate Financial Risk Forum (CFRF).
The guides focus on risk management, scenario analysis, disclosure, innovation and climate data and metrics. The guides published today build on those published in July 2020 and will help firms respond effectively to climate-related financial risks.
The CFRF has been running since March 2019 and is chaired jointly by the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA), reflecting the importance of climate change to their respective strategic objectives.
Nikhil Rathi, Chief Executive of the FCA commented:
‘These guides will help firms overcome some of the difficulties they’ve faced. Importantly, they also focus on innovation, so financial firms can see the opportunities, as well as challenges, from more effective climate-related financial risk management.’
he five CFRF working groups below are collectively publishing a total of 10 deliverables today which are summarised as follows:
Risk Management. The outputs for the Risk Management Working Group (RMWG) are designed to help retail banks, corporate banks, insurers and asset managers produce and implement risk appetite statements that integrate climate-related financial risks. Additionally, the RMWG has produced a paper that summarises a firm’s training needs for climate risks and opportunities and how they could be delivered as a coherent syllabus.
Scenario Analysis. The Scenario Analysis Working Group (SAWG) has produced practical examples on how firms can incorporate sector specific points when developing an effective approach to scenario analysis. The SAWG will publish a publicly available online scenario analysis tool in Q1 2022. The tool is designed for use by smaller firms who may not have the experience or resources to attempt independently.
Disclosure. The Disclosure Working Group (DWG) has collated a number of case studies on disclosure from a variety of organisations that will be of interest to firms as they develop their approach to climate-related disclosures. The DWG have also produced guidance highlighting the legal risks associated with publishing a climate-related disclosure and how these risks can be effectively managed.
Innovation. The Innovation Working Group (IWG) has focused on identifying and sharing practical opportunities to mobilise financial capital and steward an economy-wide transition to meet climate targets and the resultant briefing paper highlights the key points. Additionally, the IWG have produced a set of 7 short films highlighting innovative approaches to mobilising finance in support of the transition to net-zero.
Climate Data and Metrics. The report on climate data and metrics recommends five areas where climate-related metrics could be employed: Transition Risks; Physical Risks; Portfolio decarbonisation; Mobilising transition finance and Engagement. The first part of the report provides detail on each of these areas. The second part focusses on implementation and provides practical guidance and support on convergence towards a set of common and consistent climate metrics.