Is your organisation registered with the Financial Conduct Authority (FCA)? And does it fall within the definition of a MiFID investment firm? If so, you should be aware of the MIFIDPRU regulations and the potential impact on your organisation.
To cut to the chase, under MIFIDPRU, there may be a requirement for your firm to submit audited accounts to the FCA on at least an annual basis. If you fall within the regulations and have yet to submit an audit, this is an oversight that should be corrected as soon as possible.
In this article, we'll explain:
What exactly is MIFIDPRU?
The UK legislation and rules that regulate the markets in financial instruments are known as the UK MiFID framework. Firms that fall within this framework are known as MiFID investment firms and are defined by the FCA as ‘a firm to which MiFID would apply if it had its head office or registered office in the EEA including, for some purposes only, a credit institution and collective portfolio management investment firm.’
If you qualify as a MiFID firm, you must publish certain annual disclosures in line with the Prudential Sourcebook for MiFID Investment Firms (MIFIDPRU), as laid out by the Investment Firms Prudential Regime (IFPR).
What kinds of firms could be hit by MIFIDPRU? If your firm is a litigation funder, insurance broker, moneylender, fund adviser or investment adviser, there’s the possibility that you fall within the MIFIDPRU framework and will need to submit certain disclosures to the FCA.
What accounts must a MiFID investment firm submit to the FCA?
If you’re a MiFID investment firm, you’ll be required to provide audited accounts to the FCA through the FCA RegData return FIN-A, 80 business days after the end of the financial year.
The FIN-A accounts submitted to the FCA by a MiFID investment firm will typically include a:
- Balance sheet
- Profit and loss account
- Notes to the accounts
- Auditor’s report
After becoming a MIFID entity, you’ll need to file audited accounts after your first year end. However, you’ll need to start regular reporting to the FCA immediately.
What MIFIDPRU disclosures could be required as a MiFID investment firm?
MiFID investment firms in the UK are required to make certain mandatory disclosures to the FCA under the scope of MIFIDPRU. These disclosures are essential for regulatory oversight and are designed to protect investors, ensure market integrity and maintain financial stability. Under Chapter 8 of MIFIDPRU these disclosures include (but are not limited to):
- Financial statements – financial statements must be submitted, providing a comprehensive view of the firm’s financial position and performance
- Capital adequacy – regular reporting on capital adequacy, ensuring the firm has sufficient financial resources to cover its risks
- Client assets – reporting on how client assets are held and safeguarded, ensuring compliance with client asset protection rules
- Risk management – disclosure of risk management policies and procedures implemented to identify, monitor and manage risks
- Complaints handling – reporting on complaints received and their resolution, demonstrating adherence to customer protection standards
- Remuneration policies – disclosure of remuneration policies for employees and management, ensuring alignment with regulatory guidelines
- Corporate governance – reporting on corporate governance structures and practices, ensuring effective oversight and accountability
- Transaction reporting – submission of transaction reports, ensuring accurate and timely reporting of transactions executed on behalf of clients
Why your firm needs a limited assurance report
As outlined above, MIFIDPRU regulations may require MiFID investment firms to submit audited financial statements annually. These audited financial statements may include either a full audit report or a limited assurance report, depending on the requirements and size of the firm.
A ‘limited assurance report’ is a type of audit report issued by auditors to provide a certain level of assurance on your financial statements. The level of assurance is lower than a reasonable assurance report, or a full audit. The purpose of a limited assurance report is to increase confidence in the data, but with less evidence and procedures than a reasonable assurance report or full audit.
Does your organisation fall within the MIFIDPRU regulations?
Some entities don’t realise that they fall within the scope of MIFIDPRU. As such, it’s important that you check whether your organisation meets the MIFIDPRU rules and adheres to the requirements to provide audited accounts and other mandatory disclosures.
Under MIFIDPRU, the entities that typically fall within the scope of providing audited accounts to the FCA include:
- MiFID investment firms – these can be firms that provide investment services and activities as defined under MiFID, but that don’t actually hold client funds in the business. They can range from small boutique firms to large investment banks
- Branches of Non-EEA investment firms – non-EEA (European Economic Area) investment firms that have established branches in the UK to provide investment services fall under the scope, if they meet certain criteria
- Collective Portfolio Management Investment Firms (CPMI) – firms that provide collective portfolio management services and are subject to MIFIDPRU requirements
- Third-country firms operating through a branch – non-EEA firms operating through a branch in the UK that provide investment services and activities are also subject to MIFIDPRU rules, including the requirement to provide audited accounts
Knowing whether you fall within the scope of MIFIDPRU, and what your responsibilities are as a firm, is an essential part of your compliance and governance as an FCA firm.
Partnering with the right auditors and advisers is fundamental to meeting your requirements, and can take a lot of the compliance workload off your shoulders.
What to do if you have failed to submit an audit to the FCA
If you believe your firm falls within the scope of MIFIDPRU, but you’ve not been submitting audited accounts to the FCA, don’t worry. As long as you’re transparent with the FCA and begin submitting the required accounts and disclosures, you should be on solid ground.
The key is to start making these submissions as soon as possible, and to partner with an accountancy firm that has the right expertise in MIFIDPRU and FCA compliance.
Gravita: Your full-service adviser for MIFIDPRU
At Gravita, we have a dedicated team who deliver audit, accounting and tax services to FCA-regulated businesses and MiFID investment firms.
The breadth of our client base and years’ of experience in this space means we have a deep and up-to-date understanding of the complexities and ever-changing FCA regulatory requirements and reporting standards.
Even if your business doesn’t hold client money, it may still have investment permissions and you will still need to report to the FCA. We can look after all the complexities, from auditing your MIFIDPRU accounts and correctly submitting the data to the FCA’s RegData portal, to looking after all the requirements of limited assurance reports.
Find out more about our services for Financial Services firms.
