LONDON (Reuters) - Britain set out plans on Tuesday to introduce the first set of capital and liquidity requirements specifically for investment firms based on European Union rules that come into force next year.
Most investment firms apply capital rules that are similar to those in force for banks. The new requirements will focus on liquidity and the harm firms could do to clients and the markets with their decisions, not just the potential impact on themselves.
“We have long advocated for a bespoke prudential regime for investment firms,” the Financial Conduct Authority’s interim CEO Christopher Woolard said in a statement.
Britain is home to 3,000 investment firms, the largest market in Europe.
The EU rules known as IFD/IFR will come into force in June 2021, after Britain is no longer required to apply the bloc’s rules under a post-Brexit transition period that ends in December.
Choosing to effectively align itself with the bloc avoids potential divergences between EU and British rules that could stop cross-border activity in the asset management sector.
The FCA said that whilst the Britain was a member of the EU, the relevant UK authorities were involved in the development of the EU’s regime.
“We propose to introduce a UK regime that will achieve similar intended outcomes as the IFD/IFR whilst taking into consideration the specifics of the UK market,” the FCA said.
“The new regime would also re-orient the focus of prudential requirements and expectations away from risks the firm faces, to also consider the potential for harm the firm can pose to clients and the market.”
Under the proposed new rules put out to public consultation until September, UK investment firms would be subject to liquidity requirements across the board for the first time. The levels of initial captital required for a firm to be authorised would also be updated.
Liquidity has become a major concern for regulators again after property funds were suspended and central bank intervention was needed to help money market funds during market turmoil in March when the pandemic lockdown began.
Reporting by Huw Jones; Editing by Alison Williams