A significant shift in risk management for investment firms
The regulatory frameworks for investment firms in the UK and EU are due to undergo major changes through a range of new prudential regulations coming into force over the next 12 months. This wholesale shift will result in new rules designed specifically for investment firms. Originally developed in the EU, these rules focus exclusively on the investment services and activities that firms provide and associated risks to clients, markets and the firm itself.
In the EU, the new regime is referred to as the Investment Firm Regulation and Investment Firm Directive (IFR/D). Before the UK’s exit from the European Union, the FCA played a pivotal role in the development and design of the EU regime and will implement a matching regime in the UK called the Investment Firm Prudential Regime (IFPR).
Investment firms in scope
All MIFID investment firms will be impacted by the new regime, with some having to meet prudential requirements for the first time. Firms implementing the regime will face a significant challenge given the complexity of the new requirements and their extensive reach which will impact all areas of the business.
An extensive range of new requirements
At the core of the new rules are complex and technical requirements for capital and liquidity that all firms must meet. However, the real challenge will be in implementing a sweeping range of rules that cover a broad variety of themes, including governance, risk management, remuneration, reporting, ESG and disclosure. All of these requirements will have a significant impact as they represent substantial changes compared to existing rules. Due to the wide-ranging scope of change, firms we are working with are already encountering implementation challenges. These can range from issues around availability of data through to having to restructure reward arrangements of key employees.
How KPMG can help
To support and deliver successful implementation of the new regimes, we have a team of individuals with extensive risk, regulatory and transformation experience in financial services. Examples of work we have performed with clients includes:
Please click below for a detailed overview of the new prudential regimes.