Simplifying regulatory capital for MIFIDPRU firms

In a welcome move, the FCA has released  “CP25/10 Definition of capital for FCA investment firms” which looks to simplify the capital adequacy rules for MIFIDPRU investment firms.

While the capital required by regulated firms won’t change, if the proposals go through, the requirements of prudential capital should be easier to understand and therefore easier to apply. In the first instance this will be done by removing all references to the UK CRR (UK Capital Requirements Regulation).

This means all definitions of capital will now be included within MIFIPDRU itself, rather than requiring firms to look up and follow complexly worded articles in legislation designed for banks.  Helpfully, the language has also been simplified, and better explanations have been given for deductions from capital.  Clearer guidance has been given on what constitutes additional tier 1 capital.

Another welcome change will be the ability to include interim profits within the firm’s common equity tier 1 capital value without pre-approval from the FCA. The requirements for inclusion will remain – the profits must have been verified by the firm’s auditor and any expected dividends or charges must be deducted – but the firm would be able to notify the FCA of the inclusion after the event, rather than obtaining pre-approval.

The closing date for responses to the consultation paper is the 12th June. If you have any questions about the prudential requirements, including any of the changes suggested, please do get in touch with our prudential experts who you can reach on contact@adempi.co.uk.