Simplifying regulatory capital for investment firms

Investment firms looking to understand the definition of acceptable regulatory capital can currently find themselves navigating between MIFIDPRU 3, the UK Capital Requirements Regulation (UK CRR) and various technical standards. 

Against this backdrop, the FCA has published a Consultation Paper (CP 25/10) seeking feedback on proposals to simplify and consolidate the existing rules for what qualifies as regulatory capital.

The Consultation will be relevant to MIFIDPRU investment firms, UK parent entities that are required to comply with MIFIDPRU 3 on the basis of their consolidated situation, and parent undertakings subject to the Group Capital Test.

The FCA states that the proposals entail a reduction in the volume of text and changes designed to improve accessibility without altering the substance of the prudential standards, and the Consultation includes draft Handbook text. 

The proposed changes cover the three tiers of regulatory capital: Common Equity Tier 1 (CET1), Additional Tier 1 (AT1), and Tier 2. The changes are stated to apply the same approach across all three tiers by clarifying eligibility requirements, reducing unnecessary detail and improving consistency. The current approach is a legacy of the Investment Firms Prudential Regime (IFPR) cross-referring on implementation to the existing version of the UK CRR and many of those UK CRR rules originally being designed for banks. 

In overview, requirements would: 

• be consolidated into MIFIDPRU 3 (as opposed to relying on cross-references to the UK CRR);
• no longer feature provisions relevant only for banks; and
• in general, be intended to be clearer and more accessible. 

To take the example of CET1 requirements, the FCA proposes presenting in MIFIDPRU 3:

• clear criteria for each eligible item type, with emphasis on immediate availability for loss absorption;
• a simplified calculation approach for required deductions with clear rationale for each deduction; and 
• prudential filters focused upon maintaining prudent valuations while removing unnecessary complexity.

The Consultation also sets out certain minor policy changes to make the requirements simpler and easier to comply with, while maintaining standards.

The FCA has asked for comments by 12 June 2025 and will aim to publish final rules in a Policy Statement in H2 2025. The new framework is expected to come into force on 1 January 2026, subject to the Consultation outcome. 

We do not expect firms to change their capital arrangements because of these proposals. Instead, we hope that these changes will make it simpler for firms to follow what we require of them.

https://www.fca.org.uk/publication/consultation/cp25-10.pdf