An end to the ‘local firm’ requirement! Local firms soon to be treated no different to full scope principal dealers for capital purposes;
Local firms have so far benefitted from a significantly lower initial capital requirement (ICR) of €50K compared to their wider full scope principal dealing counterparts. This was due to such firms meeting the strict requirement laid out in CRDIV copied out below.
‘Local firm’ means a firm dealing for its own account on markets in financial futures or options or other derivatives and on cash markets for the sole purpose of hedging positions on derivatives markets, or dealing for the accounts of other members of those markets and being guaranteed by clearing members of the same markets, where responsibility for ensuring the performance of contracts entered into by such a firm is assumed by clearing members of the same markets’.
However, the local Firm requirement is soon to end under the new prudential rules for investment firms IFD/IFR that goes live 26th June 2021 onwards and the initial capital requirement will be significantly increased to €750K as the IFD/IFR removes exemptions to dealing on own account. Local firms will also soon be in scope of a plethora of prudential requirements and liquidity requirements that apply to all investment firms. Transitional provisions are available for local firms to meet the new requirements.
See our two-page summary on the salient points from the recent FCA discussions as applicable to local firms. Speak to us if you have any questions or need a pro bono initial assessment of your capital adequacy status.