Status: Please note you should read all Brexit changes to the FCA Handbook and BTS alongside the main FCA transitional directions. Where these directions apply the 'standstill', firms have the choice between complying with the pre-IP completion day rules, or the post-IP completion day rules. To see a full list of Handbook modules affected, please see Annex B to the main FCA transitional directions.


Status: This chapter was amended on 31 December 2020 as a result of Brexit. However, it is subject to the FCA Prudential Transitional Direction, which means that firms should not comply with these provisions yet. Instead, firms must follow this link and continue to comply with pre-IP completion day requirements https://www.handbook.fca.org.uk/handbook?date=31-12-2020&timeline=True (unless specified otherwise in the Direction). To see a full list of Handbook modules affected, please see Section B of the Annex to the Direction.

IFPRU 2.1 Application and purpose

[Note: On 19 December 2014, the EBA published “Guidelines2 on common procedures and methodologies for the supervisory review and evaluation process (SREP)”, EBA/GL/2014/132. The FCA has confirmed its intention to make every effort to comply with these guidelines2.]1

Application

IFPRU 2.1.1RRP

IFPRU 2 applies in the following manner:

  1. (1)

    to an IFPRU investment firm, unless it is an exempt IFPRU commodities firm; and

  2. (2)

    the general stress and scenario testing rule (and related rules and guidance) applies only to a significant IFPRU firm.

Purpose

IFPRU 2.1.2GRP

This chapter implements certain provisions of CRD relating to governance and contains guidance related to Section III of Chapter 2, Title VII of CRD (Supervisory review and evaluation process).

IFPRU 2.1.3GRP

This section amplifies Principle 4, under which a firm must maintain adequate financial resources. It is concerned with the adequacy of the financial resources that a firm needs to hold in order to meet its liabilities as they fall due. These resources include both capital and liquidity resources.

IFPRU 2.1.4GRP

This section has rules requiring a firm to identify and assess risks to its ability to meet its liabilities as they fall due, how it intends to deal with those risks, and the amount and nature of financial resources that the firm considers necessary. IFPRU 2.2.43 R (Documentation of risk assessment) provides that a firm should document that assessment. The FCA will review that assessment as part of its own assessment of the adequacy of a firm's capital under its supervisory review and evaluation process (SREP). When forming a view of any individual capital guidance to be given to the firm, the FCA will also review the regulator's risk assessment and any other issues arising from day-to-day supervision.

IFPRU 2.1.5GRP

This section has rules requiring a firm to carry out appropriate stress tests and scenario analyses for the risks it has previously identified and to establish the amount of financial resources and internal capital needed in each of the circumstances and events considered in that analyses. The FCA will consider, as part of its SREP, whether the firm should hold a capital planning buffer and the amount and quality of that buffer. The capital planning buffer is an amount separate, though related to, the individual capital guidance in so far as its purpose is to ensure that a firm is able to continue to meet the overall financial adequacy rule throughout the relevant capital planning period in the face of adverse circumstances, after allowing for realistic management actions. Therefore, when forming its view on a firm's capital planning buffer, the FCA will take into account the assessment made in relation to the firm's ICG.

IFPRU 2.1.6GRP

1This section has rules on the individual, sub-consolidated basis and consolidated basis application of:

  1. (1)

    the ICAAP rules in IFPRU 2.2.45R to IFPRU 2.2.49R (Level of application: ICAAP rules);

  2. (2)

    the risk control rules in IFPRU 2.2.58R to IFPRU 2.2.60R (Level of application: risk control rules); and

  3. (3)

    the overall financial adequacy rule in IFPRU 2.2.61R to IFPRU 2.2.63R (Level of application: overall financial adequacy rule).