UK IFPR: treatment of credit risk items falling outside of the K-Factors

The UK prudential regime for investment firms (the “IFPR”), which comes into force on 1 January 2022, attaches own fund charges by reference to specific categories of K-Factors which are, in broad terms, linked to specific activities, unlike the approach taken in CRR (as amended and “onshored” in the UK) where own fund charges for credit risk depend on the size and nature of individual exposures.

The main K-Factors in the IFPR which are driven by credit risk (such as K-TCD and K-CON) focus primarily on MiFID-type trading carried out by investment firms, which leaves an apparent lacuna with regards to activities involving credit risk which arise under non-trading activities. It is unclear how IFPR firms are meant to address this lacuna.