Latest consultation clarifies MIFIDPRU reporting

RegTech Showcase: Transaction reporting

The FCA’s quarterly consultation papers don’t always make the most exciting reading. But CP22/26 provided some clarity on changes to regulatory reporting and gave an interesting insight into the regulator’s direction of travel in this area. Returns are often a firm’s only point of contact with the FCA, so errors are often alarm bells which trigger interest in other areas of the business.

Many MIFIDPRU firms have struggled to complete their new MIF returns either because they are unclear what is supposed to be reported or because the FCA’s guidance notes are ambiguous. In CP22/26, the FCA sets out how it is looking to amend and clarify some of the notes on reporting requirements.

Changes to rules on calculation of fixed overhead requirement on a group basis

Investment firm groups can – and do – look different from accounting groups as only firms that are “relevant financial undertakings” need to be included in the scope of consolidation. However, MIFIDPRU asks firms to start with the costs contained in consolidated annual financial statements when calculating fixed overhead requirement (FOR).

The FCA has clarified that, where the consolidated annual financial statements of a group include entities that are not also part of the investment firm group, the group can exclude the costs of these entities. In our experience, firms were doing this in any case.

Consolidated K-AUM, COH or DFT

Provided they have obtained prior permission from the FCA, firms are allowed to exclude transactions or arrangements between two or more entities within the consolidation group. The FCA intends to provide added guidance to clarify that this provision does not apply to transactions or arrangements that involve counterparties or clients that are external to the investment firm group.

Group capital test applications

To simplify the application process, the FCA intends to allow firms to designate a MIFIDPRU investment firm, that is not a parent undertaking, to submit a MIF006 on behalf of GCT parent undertakings in the group.

Composition of investment firm groups

Firms need to submit a notification form to the FCA to advise of changes to an investment firm group. The FCA intends to make changes to the reporting instructions for this form to align it with instructions set out in its online submission system Connect.

Reduction of Common Equity Tier 1 capital for LLPs

The FCA intends to make changes to MIFIDPRU 3.3.17 to clarify that LLPs can also reduce Tier 1 capital with prior consent. This amendment will make it clear that the capital contributed by partners in a partnership, or by members in a limited liability partnership, can be reduced in the same way as the process in place for limited companies.

K-factor calculations in MIFIDPRU 4

A number of minor amendments were set out to the text in MIFIDPRU 4 on K-AUM, K-COH and K-TCD.

Liquid asset calculation  

There were some minor amendments made to the rules and clarification around the proportion of assets in a currency that is not pound sterling being held to meet the basic liquid asset requirement (BLAR) not being able to exceed the proportion of fixed overheads that the firm has in that same currency.

Non-core liquid assets

The FCA are looking to amend an “oversight” so short-term non-sterling deposits at a UK bank can be treated as non-core liquid assets.

Guidance note changes for MIF001, MIF002 and MIF007


For Q3, firms will be able to input a negative CET1 number if this is applicable and for Q26, firms should enter its most recent assessment of its own funds threshold requirement.


Similar to the above, firms should enter its most recent assessment of its liquid assets threshold requirement.

Transitional relief provisions

Firms who had lower capital requirements under the old prudential regime, such as such as former Exempt CAD firms can use transitional relief for five years so they have time to build up their capital resources. Ultimately, all firms need to hold a minimum of Fixed overhead requirement (FOR) as capital at the end of the transitional relief period.

However, there are 2 places where this rule seems to be contradictory. In the MIF001 return, firms are asked to input their wind down trigger capital. The guidance notes define this trigger as always being FOR, implying this is the minimum amount of capital all firms need to hold. The FCA sets out in CP22/26 that, where a firm is using transitional relief, the firm may use the alternative requirement for its FOR when calculating its own funds wind-down trigger (such as permanent minimum requirement (PMR)).

The second clarification is where a firm who is relying on transitional provisions for PMR for example, this can be used as the own funds threshold unless it has identified a higher level of own funds requirement as part of its ICARA process.

The FCA set out that the clarifications are necessary as they have received notifications from firms that they are in breach of their requirements, when in fact they are applying the transitional provisions.

Article 3 Exempt MIFID firms

Firms subject to Article 3 of IPRU-INV chapter 3 can be subject to quite complex capital requirements and a number of liquidity adjustments to capital. The FCA says

“We propose to amend the table in IPRU-INV 3-61(2)R to clarify how firms should calculate their financial resources and their financial resources requirement. The way that it is currently written is potentially confusing for firms, as not all the relevant items that are listed in IPRU-INV 3-62 to IPRU-INV 3-182 are mentioned.”

If you are a firm subject to these rules, you should look at the detailed proposed changes to see how this could change any capital calculations you are currently making.

How we can help

If you would like us to review or help on your returns, or more information on any of these points raised, please get in touch with our team.

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