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MiFID investment firms across the EU have been subject to the Investment Firms Regulation (IFR) and the Investment Firms Directive (IFD) since June 2021. UK MiFID investment firms have been subject to a distinct but substantially similar UK regime (the Investment Firms Prudential Regime (IFPR)) since January 2022.

Both regimes introduced new capital and risk calculations. Explore our insights and what this might mean for your firm.


The previous prudential regime of the Capital Requirements Regulation and the Capital Requirements Directive (CRR/CRD) was introduced after the financial crisis of 2008. This regime was designed for credit institutions like banks that take deposits and make loans but also captured investment firms.

The new regimes created a prudential framework tailored to various ‘classes’ of investment firms that is intended to be more proportionate, risk-sensitive, and adapted to investment firms’ business models and risk profiles, than the previous CRD regime. The regimes re-focused the prudential requirements and expectations away from the risks the firm faces, to prioritise the assessment of potential harm to clients and the market. Both the UK and EU regimes present a range of challenges for firms covering capital, liquidity, risk management, remuneration, group consolidation, disclosure, and reporting.


With the exclusion of a few large and systemically significant investment firms that remained subject to CRD/CRR, all investment firms that had been authorised under MiFID (including exempt Capital Adequacy Directive (CAD firms)) are in scope of the new regimes. The degree of regulation will depend on the firm's particular business activity, risk profile and structure, which in turn dictates their new prudential "Class".


  • The EU IFD and IFR took effect from June 2021
  • The UK IFPR took effect from 1 January 2022



The Internal Capital Adequacy and Risk Assessment (ICARA) was introduced as a replacement for the Internal Capital Adequacy Assessment Process (ICAAP). Some elements of the ICARA process are similar to the legacy ICAAP, but most firms have needed to adapt to the new framework in line with the FCA objectives of creating a risk-focused and commensurate capital framework.

The ICARA requires firms to have adequate financial resources to remain financially viable throughout the business cycle and enable them to conduct — with appropriate financial resources — an orderly wind-down. The process includes assessing and scoring risks to the business, stress testing, recovery planning and wind-down planning. These components are intended to demonstrate that firms are meeting the Overall Financial Adequacy Rule (OFAR), the minimum threshold for firms' financial resources.

Importantly, the ICARA is intended to provide information to enable senior managers to make decisions on the appropriate amount and quality of own funds and liquid assets that are proportionate to the nature, scale and complexity of their firms’ activities.


EU IFR vs. UK IFPR Divergence

Divergence IFR (EU) IFPR (UK)
Go Live Date 26 June 2021 1 January 2022
Reporting Frequency Class 2 — submit returns on a quarterly basis
Class 3 — submit returns on an annual basis
All firms to submit on a quarterly basis
Class 1 Systemic Frame Systemic investment firms will need to be re-authorised as credit institutions under CRR PRA designated investment firms
Collective Portfolio Management Investment (CPMI) Firms Out of scope — but amendments to Undertakings for the Collective Investment in Transferable Securities/ The Alternative Investment Fund Managers Directive (UCITs/AIFMD) to ensure own funds must not be less than Fixed Overhead Requirement (FOR) In scope
Reporting Template More detailed data requirements

Separate sets of templates for Class 2 and Class 3 firms
Single set of MIFIDPRU templates, simpler in comparison
Prudential Consolidation Investment firm groups can be prudentially consolidated in a similar way to the current process under CRR Applies where this is an investment firm group which can comprise of UK parent, subsidiaries, connected undertaking, investment holding or mixed financial holding company
Capital Deduction (Software) European Banking Authority’s (EBA) Regulatory Technical Standards (RTS) allows intangible assets subject to prudential amortisation to be risk weighted UK regulators have indicated intention to apply full deduction
Liquidity Exemption from liquidity requirements for Class 3 firms at the discretion of national competent authorities Minimum liquidity requirement for all investment firms, including SNIs
Own Funds Requirement for CCP Default Fund Exposures No requirement to capture Must include as part of K-TCD with a risk factor of 1.6% for QCCPs
Remuneration Class 3 firms are exempt All investment firms are subject to elements of the remuneration requirements


IFR/IFD contained a new set of rules on remuneration. Many MiFID investment firms were already subject to, and therefore familiar with, remuneration rules under the previous Capital Requirements Directive, which aligned very closely with the IFD/IFR remuneration rules.


IFD’s renumeration rules apply depending on the investment firm’s classification:

  • Class 3 Firms are exempt from the remuneration requirements whilst Class 1 firms will be subject to the CRD IV’s remuneration requirements
  • Class 2 Firms are in scope and must apply specific requirements to their material risk takers (MRTs) including variable pay in instruments, deferral of a proportion of variable pay, malus and clawback
  • Class 2 Firms will also need to publicly disclose certain aspects of their remuneration policy and may need to establish a remuneration committee

The FCA published its single remuneration code, known as 'the MIFIDPRU Remuneration Code' along with the new SYSC 19G in the FCA Handbook which replaced the BIPRU and IFPRU Remuneration Codes. The new remuneration rules entered into force on 1 January 2022.

The remuneration requirements include:

  • All investment firms are required to comply with a small number of basic remuneration requirements dependent on how the investment firm is classified under the new regime
  • The basic remuneration requirements apply to all staff in investment firms whereas the additional rules to be applied by non-SNIs are applicable only to individuals identified i.e., MRTs.
  • MRTs being identified on the basis of qualitative criteria, and there is no requirement to identify MRTs based on remuneration alone.
  • Allowing MRTs who earn below a certain amount to be exempt from the rules on deferral of variable remuneration, payment in instruments, retention periods and certain rules relating to discretionary pension benefits

Linda Gibson, Head of Regulatory Change (December 2022)

The IFPR came into force on 1 January 2022, and it is probably safe to say the FCA has largely achieved its objective, although not without challenges, to simplify and streamline the prudential requirements for investment firms. There is now consistency in reporting, e.g., a basic liquidity requirement and uniformity in frequency, e.g., quarterly reporting.

Implementation proved challenging for some firms. The FCA also noted in the April 2022 IFPR newsletter that following the review of the first set of returns the quality of some of the submissions did not meet its expectations, with inaccurate and incomplete data common for many firms.

Some unintended consequence of the new regime also created confusion amongst investment firms trying to stay in compliance. For example, as part of implementation of the IFPR the FCA renamed the definition of a ‘significant IFPRU firm’ to a ‘significant SYSC firm’ and moved it the Systems and Controls (SYSC) sourcebook to be used as the criteria for identifying Enhanced firms under the Senior Managers & Certification Regime. This resulted in more firms being brought into scope as Enhanced firms than intended.

If the introduction of the ICARA process is proving to be onerous for many firms completing their inaugural assessments, the new public disclosure requirements, due in 2023, where firms are required to disclose their approach to compliance assessment under the OFAR, risk management objectives and policies, investment policy, remuneration policy and governance structure will not make it any easier.

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