The inexorable expansion of the SMCR regime marches on with the likely recategorisation of a number of firms from Core to “Enhanced”. The change forms part of a wide-ranging set of rules to introduce the new Investment Firms Prudential Regime (IFPR). Applicable to MiFID firms from January 2022, the IFPR is broadly intended to replace Prudential rules designed for large banks with a regime more appropriate for the asset management industry. In the last of three consultation papers, the FCA proposed the introduction of a new defined term- “significant SYSC firm”, replacing the previous “significant IFPRU firm”. So far, so impenetrable, as always the devil is in the details.
Significant SYSC firm
A firm will be included in this category if it meets one or more of the following 4 conditions:
(1) its total assets exceed £530 million;
(2) its total liabilities exceed £380 million;
(3) the annual fees and commission income it receives in relation to the regulated activities carried on by the firm exceeds £160 million in the 12-month period immediately preceding the date the firm carries out the assessment under this rule;
4) the client money that it receives or holds exceeds £425 million; and
(5) the assets belonging to its clients that it holds in the course of, or in connection with, its regulated activities exceeds £7.8 billion.
At least on paper, the above criteria are a simple restatement of the definition of the older “significant IFPRU firm”. However IFPRU (significant or otherwise) was understood to exclude BIPRU firms. BIPRU firms are essentially firms that may advise on investments or execute orders on behalf of clients, but are not authorised to hold client money or deal as principal. There is no presumption that BIPRU firms are excluded from the new defined term; it is therefore thought that criterion 3 above (annual fees/commission income > £160m) will apply to a number of BIPRU firms who will be reclassified as Significant SYSC.
Inclusion in the new category has consequences under the SM&CR- Significant SYSC firms are Enhanced SM&CR Firms under the regime. Regular readers will be aware of the vastly increased range of responsibilities as a firm’s status transits from Core to Enhanced. Purely for illustration, under the Core criterion, the SM&CR prescribes 6 roles, under the Enhanced ruleset this number is expanded to 14; as always more detail may be found here on the Corterum site.
The IFPR is already in force, however certain implementation elements are phased in. Recategorisation as an Enhanced SM&CR Firm will take effect one year and three months following entry into force i.e. 31 March 2023.
Affected firms may make the point that their reclassification amounts to a significant increase in the Enhanced category without due notice or consultation. They should not however rely on a change of mind at the FCA. The Regulator has indicated that it is currently not considering to amend the new criteria to exclude BIPRU firms. In the absence of an unlikely volte-face, firms should begin self-assessment procedures immediately. Those who will be newly caught in the Enhanced net should begin their plans for compliance as soon as possible.
With SM&CR becoming increasingly instrumental to the ways in which so many firms operate, there’s never been a better time to manage your SM&CR compliance using Corterum. Why not get in touch to see how we can help?