The Financial Conduct Authority (FCA) has published a discussion paper on a prudential regime for UK investment firms.

They major areas of change highlighted in the discussion paper relate to the following:

  • an update to the initial capital required for authorisation.
  • changes to the rules on the definition of capital.
  • new own funds requirements, including the introduction of the K factor methodology.
  • new rules on prudential consolidation, group risk and concentration risk.
  • applying liquidity requirements to all investment firms.
  • a new approach for investment firms’ internal risk and prudential assessments, and the supervision of those requirements.
  • new requirements relating to remuneration policies; and
  • changes to reporting and disclosure obligations.

The types of UK regulated firms that will be impacted by the proposed changes include solo-regulated investment firms currently authorised under MiFID, collective portfolio management investment firms; and investment firms authorised by the Prudential Regulation Authority (PRA).

This marks the first step in introducing a set of prudential rules for investment firms to better reflect their business models and the risk of harm they pose to consumers and markets.

Christopher Woolard, interim chief executive of the FCA, said in a statement: “We have long advocated for a bespoke prudential regime for investment firms.

“A new UK regime would represent a significant improvement in the prudential regulation of investment firms. For the first time, it would deliver a regime that has been designed with investment firms in mind.”

Investment firms and other interested stakeholders will have until September 25th to respond.

Further Reading

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FCA provides more clarity on capital buffers for struggling firms