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The FCA has published a consultation paper on the definition of capital for investment firms, otherwise known as CP25/10. The paper aims to simplify the existing UK Capital Requirements Regulation (UK CRR), which the regulator deems to be unnecessarily complex having initially been designed for banks with more complex capital structures.
The Investment firms Prudential Regime (IFPR) (2022), refers to a version of the UK CRR which existed at that time, meaning investment firms must navigate between MIFIDPRU and dated regulations which do not reflect their current business models.
As such, the FCA has proposed amending the definition of regulatory capital which applies to investment firms within MIFIDPRU 3, including:
- Consolidating requirements into MIFIDPRU 3
- Removing references to UK CRR from the definition, so references only relevant to banks are no longer part of the definition
- Making requirements clearer and more accessible for investment firms
- Providing guidance for the more complex aspects of capital and own funds calculations.
These updates will reduce the volume of legal text by 70% and allow for a far clearer definition for investment firms. There is no indication this will affect the levels of regulatory capital firms are required to hold and there is consensus firms will not have to adjust capital arrangements as a result of these proposals. Consultation on these changes closes on 12th June 2025, with a policy statement due in H2 2025. The new framework will come into force some time in Q1 2026.
CP25/10: Definition of capital for FCA investment firms
We have found that many firms have had difficulty in navigating their way through the more complex and less transparent requirements under CRR. This has sometimes resulted in misstatement of available capital, particularly CET1. The rules in CRR do not refer to limited liability partnership capital and we often see LLPs incorrectly classifying partner loans as capital.
How can Bovill Newgate help?
We can advise you on how to apply the proposed changes to capital related issues and calculations, and to sense-check your interpretation of these regulations.
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