On 24 April 2025, the Financial Conduct Authority (FCA) published a consultation paper, CP25/10, on the definition of capital for FCA investment firms.
Background
The UK Capital Requirements Regulation (UK CRR) currently forms part of assimilated UK law. However, the FCA considers many of these requirements to be unnecessarily complex for FCA investment firms as they were designed for banks’ more complex capital structures. The Investment Firms Prudential Regime (IFPR), which was implemented on 1 January 2022, cross-refers to the version of the UK CRR that existed on that date, and the FCA flags that as a result investment firms must navigate between MiFIDPRU and a frozen-in-time version of banking regulations that do not reflect their business models.
Proposals
The FCA is proposing to amend the definition of regulatory capital (also known as own funds) that applies to FCA investment firms within MiFIDPRU 3, including:
- Consolidating requirements into MiFIDPRU 3.
- Removing all references to the UK CRR from the definition, so that provisions that are only relevant for banks are no longer part of the definition.
- Making requirements clearer and more accessible for investment firms.
No changes are proposed to the levels of regulatory capital that firms are required to hold and the FCA emphasises that firms will not be expected to adjust their capital arrangements as a result of the proposals.
Commenting on the proposals, the FCA’s interim executive director of markets Simon Walls said: “We are always trying to be a smarter regulator, and part of that agenda is reducing unnecessary burdens on firms. The aim here is to make the rules around how firms hold their capital simpler for the vast majority of firms.”
Next steps
The consultation closes on 12 June 2025 and the FCA aims to publish its final rules in a policy statement in H2 2025. Subject to the outcome of CP25/10, the FCA expects the new framework to come into force on 1 January 2026.