The FCA is proposing streamlining the rules on the types of funds investment firms must hold to absorb losses and maintain financial resilience during periods of stress.
The proposals do not change the rules about how much capital firms must hold but focus on simplifying and consolidating the existing rules about what qualifies as regulatory capital.
The regulator says the current regulatory capital rules were designed for banks, "making them complex and not tailored to investment firms’ business models". It added that there are "large sections which are not relevant to the vast majority of firms, and others we have made simpler". These changes would reduce the volume of legal text by 70%.
The FCA proposes removing the EU-derived rules and to make them clearer and more accessible, reducing the time and resources firms spend interpreting and applying the requirements.
The measures do not propose a change to the level of capital firms are required to hold, and the FCA does not expect firms to change their capital arrangements as a result.
The latest announcement is part of the FCA’s work to remove unnecessary burdens on firms, bolstering growth and investment.
Earlier this month, it proposed reforming rules for investment managers, planning to create bespoke regimes for investment trusts and venture capital firms.
Simon Walls, interim executive director of markets at the FCA, said: “We are always trying to be a smarter regulator, and part of that agenda is reducing unnecessary burdens on firms. The aim here is to make the rules around how firms hold their capital simpler for the vast majority of firms.
“We want the revised framework to be proportionate, effective, and aligned with the needs of investment firms while maintaining high standards of financial resilience and consumer protection.
“Our proposals support the ambitions that we have set in our new strategy and in the commitments we made to the Prime Minister to streamline regulation and reduce regulatory burden while supporting the growth and competitiveness of the UK.”
