UK FCA engagement paper on market risk capital requirements for FCA investment firms

The UK Financial Conduct Authority (FCA) has published an engagement paper launching a review of market risk capital requirements for FCA investment firms. The IFPR sets specific prudential requirements for FCA investment firms, including rules on how much capital they must hold to cover potential losses from investments. These requirements are currently based on the UK Capital Requirements Regulation (UK CRR), which was originally designed for banks. The FCA notes that the harm caused by an investment firm failing may be less than that of a bank, suggesting scope for more proportionate capital rules.

The review will focus primarily on the current requirements in the FCA's prudential MIFIDPRU sourcebook specifically sections 4.11 (trading book and dealing on own account: general provisions), 4.12 (K-NPR requirement), and 4.13 (K-CMG requirement), as well as the corresponding sections of the UK CRR as it stood on 31 December 2021.

The FCA may also consider consequential changes to other parts of MIFIDPRU that support market risk, such as the definition of the trading book or the calculation of capital for concentration risk under MIFIDPRU 5. Specifically, it seeks feedback on design considerations and possible approaches to setting capital requirements for market risk including: (i) amending the existing standardised approach; (ii) a margin-based approach; (iii) an internally modelled approach; and (iv) a net capital rule approach. This review is most relevant to FCA solo regulated investment firms that have permission to deal in investments as principal in MiFID financial instruments, and that manage a trading book as part of their regulated activities. The deadline for responses is 10 February 2026, with a consultation paper expected next year, followed by a policy statement, expected in 2027.

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