The FCA’s Policy Statement PS25/14 marks a decisive evolution in the prudential landscape for FCA regulated MIFIDPRU investment firms. The reforms introduce a rebuilt capital definition section that sits entirely inside MIFIDPRU 3, replacing the historically fragmented and cross-referenced system that tied investment firms to an outdated version of the UK Capital Requirements Regulation (UK CRR).

Crucially, while the structure and clarity of the rules are fundamentally improved, the type and level of capital firms require remains unchanged. The FCA emphasises that these changes are prudentially neutral but operationally transformative. The new rules come into force from 01 April 2026.

Why the overhaul was needed

The pre-existing framework required firms to navigate multiple layers of regulatory material–MIFIDPRU, the UK CRR, and several technical standards. These CRR provisions were originally designed for banks, not investment firms with simpler capital structures. This misalignment created unnecessary compliance burdens and regularly forced firms to interpret obsolete, bank specific text. The new rules alleviate these concerns by creating an entirely self-contained capital regime within MIFIDPRU 3.

Consolidation into a single, coherent rulebook

The FCA is updating MIFIDPRU 3 in its entirety and replacing it with a revised version that removes all reliance on the UK CRR. Firms will now access capital definitions, including CET1, AT1 and Tier 2, within one comprehensive chapter, eliminating the labyrinth of cross‑referencing. This consolidation will mean quicker navigation, fewer interpretation disputes, and a more accessible prudential handbook.

Strengthened and clarified capital definitions

The new rules provide detailed clarification of key CET1 concepts:

• Qualifying holdings deductions - The FCA avoided inadvertently narrowing deductions by retaining both the “trading book” and “not financial fixed assets” exceptions, ensuring liquidity instruments and seed investments are not penalised.

• Fully paid-up instruments - CET1 must be irrevocably received and fully under the firm's control; undertakings to pay (permitted under company law) cannot be treated as paid-up capital.

• Partnership profits - Only profits that remain unconditionally within the partnership qualify as CET1; once partners acquire enforceable withdrawal rights, the profits must be treated as liabilities rather than capital.

These clarifications directly address areas where firms expressed persistent uncertainty.

Additional tier 1 (AT1) and tier 2 instruments

The FCA has streamlined the requirements for AT1 and Tier 2 instruments by:

• The rules focus on regulatory outcomes, rather than importing complex bank‑style drafting.

• AT1 instruments must contain a trigger for conversion/write‑down that is aligned with the firm’s own funds requirement (the FCA has now standardised the trigger expectation).

• Requirements around maturity, subordinated status and amortisation for Tier 2 instruments have been made clearer and easier to apply.

These refinements remove banking artefacts while preserving resilience.

Group implications - consolidated reporting

The new rules also bring clarity to group level own funds calculations:

• Minority interests can only be recognised to the extent they support a subsidiary's contribution to the consolidated own funds requirement, with new worked examples explaining the method.

• Capital in participations (e.g., joint ventures) that is attributable to external investors cannot be included in group own funds. This prevents multiple firms from counting the same capital and overstating market wide resilience.

These updates resolve longstanding ambiguities, ensuring a proportionate and economically accurate approach to consolidation.

Implementation timeline and practical next steps

As highlighted in the FCA’s press announcement, these reforms represent a 70% cut in red tape, reinforcing the regulator’s wider strategy to support growth, streamline compliance, and maintain robust financial resilience.

Responding to feedback on operational readiness, the FCA moved implementation to 1 April 2026, balancing industry concerns with the need to deliver simplification promptly.

While no firm is expected to restructure its capital instruments, Firms must still:

• Conduct a granular gap analysis to confirm continued eligibility of all capital items held

• Update prudential policies and internal capital documentation

• Rewrite ICARA references linked to UK CRR articles

• Refresh training, reporting frameworks and board materials

The risk is not capital insufficiency but operational misalignment if firms continue to rely on outdated CRR concepts. The months ahead should focus on implementation discipline, not capital restructuring. Early policy rewriting, gap analysis, and governance preparation will ensure firms are fully aligned with the new regime well before April 2026.