Additional requirement was placed on Freetrade by FCA?

I don’t think anyone noticed, but Freetrade had a restriction/requirement placed on them last week around the minimum holding of liquid funds and type of cash it must be .

You can see the details here Freetrade Limited (fca.org.uk)

21 JUL 2022

Segregation of liquid capital in accordance with MIFIDPRU

  1. Freetrade will segregate £15,000,000 in cash in an account(s) at an authorised UK credit institution(s) that is held in the firm’s own name and is controlled solely by the firm (the “Segregated Amount”) to ensure accordance with the FCA’s prudential requirements under MIFIDPRU.
  2. The Segregated Amount referred to in requirement 1 must not be subject to the rights or interest of any other person (for example any form of security, lien, netting arrangement, right of set-off or preferred creditor arrangement), save where such rights arise due to the terms and conditions routinely applied to such accounts by the relevant credit institution.
    EFFECTIVE DATE
  3. These Requirements shall take immediate effect and remain in force unless and until varied or cancelled by the Authority.

I wondered if anyone smarter than me on the topic of FCA rules can shed some light on this and what rules it relates to?

My complete guess is the MIFIDPRU rule its addressing is 6.2 Basic liquid assets requirement MIFIDPRU 6.2 Basic liquid assets requirement - FCA Handbook and that they had some reason to apply restrictions to freetrade around it

A firm must hold an amount of core liquid assets equal to the sum of:

(1) one third of the amount of its fixed overhead requirement; and
(2) 1.6% of the total amount of any guarantees provided to clients.

Any experts out there?

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I’m going to take that as a no :sweat_smile:

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Probably less likely/busy on the forum over the weekend, see if anyone pops by during the week.

Though I’ll throw a thought/guess out there in regards to the second point;

Could the guarantees refer to Securities Lending?
I don’t think it’s a coincidence that we got notified of a delay to Sec Lending being implemented and this FCA requirement popping up last week.

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true, not sure if freetrade have any input well see during the week.

I wondered that. the requirement is there by default, they don’t seem to normally put on a notice on the FCA site. i expect its as plain as the wording suggest that there was some specific around the type of cash being held. but that’s all speculation. i am more curious than anything about the workings of the requirement and as you say with there being a few changes recently if its maybe related. I assume its nothing major

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I have hitherto not said much about this because I am not an expert on the topic and I have not attempted to delve into it.

However, what we can say clearly is that from 1 January 2022 the UK has a new prudential regime for some types of investment firms. If you want to understand this you need to refer to the Financial Services Act 2021, the FCA handbook on prudential standards or consult a lawyer. All I know is that many of the rules are more strenuous, than the previous ones, and have more detailed and tougher requirements on capital and liquidity amongst other things. I expect the burden on Freetrade has been increased by this. I have no comment to make about other companies because the exact requirements will be based on a company classification.

Personally, I don’t expect any detailed discussion from Freetrade management about this other than what you may find as required reporting in the next annual report.

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