MIFIDPRU 7.1 Application

MIFIDPRU 7.1.1G
  1. (1)

    1MIFIDPRU 7 applies to the following:

    1. (a)

      a MIFIDPRU investment firm;

    2. (b)

      a UK parent entity of an investment firm group to which consolidation applies under MIFIDPRU 2.5; and

    3. (c)

      a parent undertaking that operates a group ICARA process in accordance with MIFIDPRU 7.9.5R.

  2. (2)

    MIFIDPRU 7.1.3R explains how each section of MIFIDPRU 7 applies to the undertakings in (1).

MIFIDPRU 7.1.2G

1The following table summarises the content of MIFIDPRU 7:

Section

Summary of content

MIFIDPRU 7.2

General requirements relating to a firm’s governance arrangements

2MIFIDPRU 7.2A

Requirements relating to the risk management function

MIFIDPRU 7.3

Requirements relating to risk, remuneration and nomination committees

MIFIDPRU 7.4

The overall financial adequacy rule and a firm’s baseline obligations in relation to the ICARA process

MIFIDPRU 7.5

The requirements of the ICARA process relating to capital and liquidity planning, stress testing and wind-down planning

MIFIDPRU 7.6

Rules and guidance explaining how a firm should assess and monitor the adequacy of its own funds

MIFIDPRU 7.7

Rules and guidance explaining how a firm should assess and monitor the adequacy of its liquid assets

MIFIDPRU 7.8

Requirements relating to the periodic review of the ICARA process and record keeping requirements

MIFIDPRU 7.9

Requirements for firms to monitor group risk and rules explaining when an investment firm group may operate a group-level ICARA process

MIFIDPRU 7.10

Guidance explaining the FCA’s general approach to the SREP

MIFIDPRU 7 Annex 1G

General guidance on assessing potential harms that is potentially relevant to all MIFIDPRU investment firms

MIFIDPRU 7 Annex 2G

Additional guidance on assessing potential harms that is relevant for MIFIDPRU investment firms dealing on own account and firms with significant investments on their balance sheet

MIFIDPRU 7 Annex 3R to MIFIDPRU 7 Annex 6R

Notification forms

MIFIDPRU 7 Annex 7G

Table mapping the rules in MIFIDPRU 7 about the ICARA process to their associated guidance provisions

MIFIDPRU 7.1.3R

1MIFIDPRU 7 applies as follows:

Section of MIFIDPRU 7

Application to SNI MIFIDPRU investment firms

Application to non-SNI MIFIDPRU investment firms

Application at the level of an investment firm group

MIFIDPRU 7.2 (Internal governance)2

Applies

Applies

Applies to the UK parent entity of an investment firm group to which consolidation applies under MIFIDPRU 2.5

2MIFIDPRU 7.2A (Risk management function)

Does not apply

Applies to a non-SNI MIFIDPRU investment firm that has a risk management function in accordance with article 23 of the MIFID Org Regulation

Does not apply

MIFIDPRU 7.3 (Risk, remuneration and nomination committees)

Does not apply

Applies if the firm does not qualify for the exclusion in MIFIDPRU 7.1.4R

Does not apply

MIFIDPRU 7.4 (Overall financial adequacy rule and baseline ICARA obligations)

Applies

Applies

Applies if the investment firm group is operating a group ICARA process

MIFIDPRU 7.5 (Capital and liquidity planning, stress testing and wind-down planning)

Applies

Applies

Applies if the investment firm group is operating a group ICARA process

MIFIDPRU 7.6 (Assessing adequacy of own funds)

Applies

Applies

Applies if the investment firm group is operating a group ICARA process

MIFIDPRU 7.7 (Assessing adequacy of liquid assets)

Applies

Applies

Applies if the investment firm group is operating a group ICARA process

MIFIDPRU 7.8 (Periodic review of the ICARA process and record keeping)

Applies

Applies

Applies if the investment firm group is operating a group ICARA process

MIFIDPRU 7.9 (Group risks and the group ICARA process)

Applies

Applies

Applies if the investment firm group is operating a group ICARA process

MIFIDPRU 7.10 (The FCA’s general approach to the SREP)

Applies as guidance

Applies as guidance

Applies as guidance

MIFIDPRU 7.1.4R
  1. (1)

    1MIFIDPRU 7.3 (Risk, remuneration and nomination committees) does not apply to a non-SNI MIFIDPRU investment firm:

    1. (a)

      where the value of the firm’s on-balance sheet assets and off-balance sheet items over the preceding 4-year period is a rolling average of £100 million or less; or

    2. (b)

      where:

      1. (i)

        the value of the firm’s on-balance sheet assets and off-balance sheet items over the preceding 4-year period is a rolling average of £300 million or less; and

      2. (ii)

        the conditions in (2) are (where they are relevant to a firm) satisfied.

  2. (2)

    The conditions referred to in (1)(b)(ii) are that the:

    1. (a)

      exposure value of the firm’s on- and off-balance sheet trading book business is equal to or less than £150 million; and

    2. (b)

      exposure value of the firm’s on- and off-balance sheet derivatives business is equal to or less than £100 million.

  3. (3)

    For the purposes of paragraph (1), paragraph (4) applies where a non-SNI MIFIDPRU investment firm does not have monthly data covering the 4-year period referred to in that paragraph.

  4. (4)

    Where this paragraph applies, a non-SNI MIFIDPRU investment firm must calculate the rolling averages referred to in paragraph (2) using the data points that it does have.

MIFIDPRU 7.1.5G
  1. (1)

    1For the purposes of MIFIDPRU 7.1.4R(3), the FCA expects a non-SNI MIFIDPRU investment firm to have insufficient data for a period only where it did not carry on any MiFID business during that period, or where (for periods prior to the application of MIFIDPRU) the firm did not record the relevant data on a monthly basis.

  2. (2)

    Where a firm does not have all the monthly data points, the firm should use the data points it has in the way that paints the most representative picture of the period in question. For example, if a firm has monthly data for 2 years of the 4- year period, but prior to that only recorded the relevant data on a quarterly basis, the firm could sensibly calculate its rolling average by using the quarterly figure for each of the three monthly data points in each quarter.

MIFIDPRU 7.1.6R
  1. (1)

    1The amounts referred to in MIFIDPRU 7.1.4R must be calculated on an individual basis, and:

    1. (a)

      in the case of on-balance sheet assets, in accordance with the applicable accounting framework;

    2. (b)

      in the case of off-balance sheet items, using the full nominal value.

  2. (2)

    The value of the on-balance sheet assets and off-balance sheet items in MIFIDPRU 7.1.4R(1)(a) and (b) must be the arithmetic mean of the assets and items over the preceding 4 years, based on monthly data points.

  3. (3)

    A firm may choose the day of the month that it uses for the data points in (2), but once that day has been chosen the firm may only change it for genuine business reasons.

MIFIDPRU 7.1.7R
  1. (1)

    1When calculating the amounts referred to in MIFIDPRU 7.1.4R(1)(a) and (b), a firm must use the total amount of its on-balance sheet assets and off-balance sheet items.

  2. (2)

    A firm must calculate the exposure values referred to in MIFIDPRU 7.1.4R(2)(a) and (b) by adding together the following items:

    1. (a)

      the positive excess of the firm’s long positions over its short positions in all trading book financial instruments, using the approach specified for K-NPR in MIFIDPRU 4.12.2R to calculate the net position for each instrument; and

    2. (b)

      the exposure value of contracts and transactions referred to in MIFIDPRU 4.14.3R, calculated using the approach specified for K-TCD in MIFIDPRU 4.14.8R.

  3. (3)

    Any amounts in foreign currencies must be converted into sterling using the relevant conversion rate.

  4. (4)

    A firm must determine the conversion rate in (3) by reference to an appropriate market rate and must record which rate was chosen.

MIFIDPRU 7.1.8G

1An example of an appropriate market rate for the purposes of MIFIDPRU 7.1.7R(4) is the relevant daily spot exchange rate against sterling published by the Bank of England.

MIFIDPRU 7.1.9R
  1. (1)

    1This rule applies to a non-SNI MIFIDPRU investment firm that did not meet the conditions in MIFIDPRU 7.1.4R(1)(a) or (b) but subsequently does.

  2. (2)

    MIFIDPRU 7.3 (Risk, remuneration and nomination committees) ceases to apply to the firm in (1) if:

    1. (a)

      the firm has met the conditions in MIFIDPRU 7.1.4R(1)(a) or (b) for a continuous period of at least 6 months (or such longer period as may have elapsed before the firm submits the notification in (b)); and

    2. (b)

      the firm has notified the FCA that it has met the conditions in (a).

  3. (3)

    The notification in (2)(b) must be submitted through the online notification and application system using the form in MIFIDPRU 7 Annex 3R.

MIFIDPRU 7.1.10G

1The effect of MIFIDPRU 7.1.9R(2)(a) is that a firm may move between meeting the conditions in MIFIDPRU 7.1.4R(3)(a) and (b) during the 6-month period.

MIFIDPRU 7.1.11R

1Where a non-SNI MIFIDPRU investment firm has met the conditions in MIFIDPRU 7.1.4R(1)(a) or (b) but then ceases to do so, it must comply with MIFIDPRU 7.3 within 6 months from the date on which the firm ceased to meet the conditions.

MIFIDPRU 7.1.12R
  1. (1)

    1Where a non-SNI MIFIDPRU investment firm ceases to meet the conditions in MIFIDPRU 7.1.4R(1)(a) or (b), it must promptly notify the FCA.

  2. (2)

    The notification in (1) must be submitted through the online notification and application system using the form in MIFIDPRU 7 Annex 3R.

MIFIDPRU 7.1.13G

1Where a firm ceases to meet the conditions in MIFIDPRU 7.1.4R(1)(a) or (b), but subsequently meets the conditions again within a period of 6 months, the firm will still be subject to MIFIDPRU 7.3 6 months after the date on which it first ceased to meet the conditions. The firm will only cease to be subject to MIFIDPRU 7.3 where it meets the conditions in MIFIDPRU 7.1.9R.