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Webinar overview: IFR requirements and reporting

Do you know whether your firm has a Class 2 or 3 classification under the Investment Firm Regulation (IFR)? Do you completely understand all of the reporting obligations that fall under IFR for investment firms? If you've answered no, this webinar overview will be of use. ARKK and Wheelhouse joined forces on Wednesday 14th July to host a webinar clarifying many of the questions that companies have around the forthcoming regulation.

If you'd like to watch the informative 60-minute session, you can view it on-demand here. Or continue reading for a full rundown of the event.

Speakers from both ARKK and Wheelhouse attended the event:

  • Danielle Cyrus (ARKK) - Chief Customer Officer
  • Laura Kissick (ARKK) - Product Support Manager
  • Michael Chambers (Wheelhouse) - Head of Prudential

 

ARKK decided to partner with Wheelhouse on this webinar for their exceptional track record of providing expert prudential and regulatory reporting advice. Wheelhouse has a dedicated team and extensive knowledge base which make them the ideal company to collaborate with to provide information on the IFR regime. If you'd like to find out more about Wheelhouse's offering, head over to their website.

 

How clear are organisations on their IFR obligations?

We started by covering some results from a pre-webinar survey, these were specifically designed to uncover where people sat in regard to their understanding of the IFR regulation and which aspects are causing the most concern.

It was interesting to see that only 20% of respondents completely understand how IFR will affect their organisation. Newly introduced regulations always carry a sense of ambiguity so it's unsurprising, and also the reason why we felt the joint webinar between ARKK and Wheelhouse was so important.

During the webinar, we also conducted a poll to gauge the audience's response and gain insight into their current situation. A question we asked was which aspects of the IFR regime gives you the most cause for concern? 70% of the respondents said the interpretation of the underlying IFR rules with a following 56% stating the population of regulatory reports. What we can take from both answers is that education around IFR requirements for all business classifications is needed.

 

What are the categories that IFR reporting requirements fall into?

There are essentially 5 categories that cover the IFR requirements. It's important that firms understand each of these categories as this will affect if or what IFR reporting needs to be submitted to the EBA.

 

Threshold Review and K-Factor Summaries

For the majority of investment firms, the initial step will be to understand their classification. There appears to be some uncertainty amongst firms, as we previously mentioned that more than two-thirds have concerns regarding the underlying IFR rules. The best way to get a definitive answer is with a threshold review which predominately looks at a business’s size and benchmarks it against set criteria.

If a firm falls under every one of the thresholds below, they are classified as Class 3 and subject to less scrutiny. If any of the thresholds are breached, a firm will automatically fall into Class 2 which will require quarterly rather than annual reporting.

 

Thresholds:

  • Assets Under Management (AUM) of less than €1.2bn
  • Client Orders Handled (COH) of less than €100m per day cash trades, or €1bn per day derivatives
  • Assets Safeguarded and Administered, zero
  • Client Money Held, zero
  • Daily Trading Flow, zero
  • Net Position Risk or Clearing Margin Given, zero
  • Trading Counterparty Default, zero
  • On and Off Balance Sheet Total, less than €100m
  • Total Annual Gross Revenue from Investment Services and Activities, less than €30m

 

Capital requirements

Capital requirements can be broken down into 3 main areas which are:

 

  • Permanent minimum requirement (PMR)
  • Fixed Overheads Requirement (FOR)
  • Sum of K-Factor Requirements (KFR)

 

Permanent minimum requirement (PMR)

The requirement for Class 2 or 3 firms is as follows:

  • Class 3 - PMR has a flat rate of €75,000. 
  • Class 2 - PMR is based on activities and ranges from €75,000 to more than €750,000.

 

Fixed Overheads Requirement (FOR)

FOR is a much simpler calculation and is a quarter of overheads, minus:

  • Discretionary bonuses
  • Expenses directly linked to income
  • Non-recurring, non-ordinary items

 

Sum of K-Factor Requirements (KFR)

There are no K-factor calculations for Class 3 firms, a sigh of relief for Class 3 firms. For Class 2 firms K-Factor calculations will need to be done based on:

  • Risk to Customer
  • Risk to Market
  • Risk to Firm

 

Capital resources

There's good news, if firms have been subject to the Capital Requirements Regulation (CRR) previously, there are very few changes for IFR. The fundamental element that needs to be understood is if firms have the resources to meet their capital requirements.

Remember that things such as investments in financial and non-financial sector entities and intangible assets must be deducted from your capital resources.

 

Liquidity

Liquidity is a simple calculation. Investment firms need to assess the assets on their balance sheet and see if they qualify as liquid assets. After which an itemised breakdown of those assets should be reported along with any haircuts applied.

 

Consolidation

For groups of entities that include investment firms, the scope of prudential consolidation under IFR will need to be assessed. If and when a consolidated group is identified, the parent entity will be responsible for maintaining sufficient capital resources and group-wide risk assessment processes to meet the new rules. 

It's also important to point out that this will also include completing the Internal Capital Adequacy and Risk Assessment (ICARA) on a group basis.

 

IFR XBRL reporting shouldn’t be daunting

XBRL reporting will be familiar to firms that have to file under COREP. ARKK already has built a portal which businesses have been using to file their COREP reports for several years. Our Product Support Manager, Laura Kissick, gave a walkthrough of how to populate ARKK’s IFR templates, which fully comply with EBA standards ensuring the correct taxonomies are always available, and upload and convert in our portal.

The second section of the demo showcased how to upload and convert the mandated template report into XBRL format utilising ARKK's easy to use end-point solution. A feature that's been built into the reg portal is a validation check which highlights errors and warnings that should be rectified before submitting your report in XBRL format.

We know that your first XBRL conversion and submission can seem a little overwhelming, so support is always on hand. The knowledge base, which is accessible through the portal, contains helpful guides for users and ARKK's support team are also available.

 

Are you set for your first IFR submission?

A key point to take away from the webinar was that although IFR is a new regulation, it's simply building upon previous mandates to provide improved financial governance for investment firms.

Time is quickly approaching for Class 2 firms to begin filing in November 2021, with Class 3 shortly following at the beginning of 2022. There's never been a better time to start your IFR journey. If you'd like to speak to a member of our team, please get in touch.