Exempt CAD Firm’s considering a VOP

November 3, 2021

Exempt CAD Firm’s should consider a Variation of Permission (“VOP”) to become Non-MiFID firms and position themselves outside of the Investment Firm Prudential Regulation (“IFPR”)

The forthcoming IFPR will present a challenge to those firms currently classified as “Exempt CAD firms” by the Financial Conduct Authority (“FCA”). Due to the less complex nature of these types of firms, some areas of the IFPR will be a new requirement that will take time to understand and incorporate and will therefore add to the firm’s compliance burden and cost. For example, Exempt CAD firms will have to think about variable capital requirements for the first time such as the Fixed Overhead Requirement calculation and possibly even K-factor calculations. At the very minimum an Exempt CAD firm’s base capital requirement will increase from the current requirement of €50,000 to the new permanent minimum requirement of £75,000 from January 2022.

As well as the increase in base capital, there are a number of other areas of consideration that will increase the workload and costs for an Exempt CAD firm’s Compliance Officer. For example:

  • The need to produce an Internal Capital and Risk Assessment (“ICARA”) document
  • Consideration whether the firm will become part of a consolidation group
  • Assess any changes to remuneration requirements
  • Updating compliance policies such as the Compliance Manual and monitoring programme
  • Increased regulatory reporting requirements to the FCA
  • Training needs for staff

However, Exempt CAD firms can also consider whether they need to remain MiFID investment firms or whether the business will operate just as effectively with a lower set of permissions, known as a “Non-MiFID” firm. Pre-Brexit, when an exempt CAD firm was getting its licence with the FCA, most firms requested exempt CAD status as it opened the option to “passport” services into the European Union (“EU”) via a straightforward passporting application to the FCA. However, as a result of the UK leaving the EU on the 31st December 2020, this passport is no longer available. 

If an exempt CAD firm does not undertake any MiFID business, then by submitting a VOP to the FCA to become non-MiFID they will not be required to meet the requirements of IFPR, including the additional compliance costs and increase in capital, whilst the day-to-day business operation would be unaffected. 

Firm’s considering this option need to submit their VOP as soon as possible to enable FCA approval prior to the implementation of IFPR on 1st January 2022.

How can Effecta Help?

Effecta is well placed to discuss this option further with your firm and if relevant to assist with a VOP application to become a non-MiFID firm.