The FCA has proposed a major simplification of the definition of capital rules for investment firms. With a reduction of the compliance burden and an improvement in regulatory clarity, this move should be welcome in the industry for existing and new entrants alike.

On 24 April 2025, the Financial Conduct Authority (FCA) launched a significant consultation aimed at simplifying the definition of the capital framework for MIFIDPRU investment firms (CP25/10).

Investment firms will recognise this as a significant milestone in the FCA’s broader strategy to further tailor prudential regulation to their needs. It also marks a step towards the FCA’s plan to move away from legacy rules inherited from the banking sector.

Shifting away from bank-centric rules

Currently, the capital requirements for investment firms under the MIFIDPRU regime draw heavily from the UK Capital Requirements Regulation (UK CRR) — a framework that was originally designed for banks. These rules, while robust, are often overly complex and misaligned with the simpler capital structures of investment firms.

The FCA’s proposal seeks to consolidate and clarify the definition of regulatory capital — also known as “own funds” — within the MIFIDPRU handbook. This streamlining will save firms significant time in tracing references across various regulations and the proposals are set to reduce the volume of legal text by 70%.

Key features of the proposal

Refined legal text: The proposed changes would significantly reduce the complexity of the capital rules, making them easier to interpret and apply.

No changes to current capital structures: The three existing tiers of regulatory capital — Common Equity Tier 1 (CET1), Additional Tier 1 (AT1), and Tier 2 — will remain in place. The types of instruments that qualify as regulatory own funds and the deductions required will also remain largely unchanged.

Implications for firms

The FCA has made it clear that the proposed changes are not intended to require firms to alter their existing capital arrangements. Instead, the reforms are designed to reduce compliance burdens and improve regulatory clarity which will be particularly beneficial for smaller firms and new entrants.

Next steps

The consultation phase closed on 12 June 2025. The FCA plans to publish a policy statement in the second half of the year, with the new framework expected to come into force on 1 January 2026.

The consultation forms part of the FCA’s broader strategy to modernise the UK’s prudential regime for investment firms, ensuring it remains proportionate, effective, and fit for purpose.