The FCA has published an Engagement Paper on the subject of Market risk capital requirements for FCA investment firms examining potential reforms to the market risk capital requirements under the UK’s Investment Firms Prudential Regime (IFPR). The purpose is to explore whether the current rules, which are largely derived from the UK Capital Requirements Regulation (originally designed for banks), remain appropriate for investment firms, particularly those that deal in investments as principal and maintain a trading book. This engagement is an early step in a review that may lead to a formal consultation in 2026. The FCA is seeking input on how regulatory changes could better reflect the risks and scale of investment firms, while also supporting market liquidity, trading activity, and competition.
Background
Market risk capital rules determine the minimum capital an investment firm must hold to cover potential losses from market exposures in its trading book. Under the current IFPR, these rules are heavily influenced by a framework designed for banks, which may not reflect the different risk profile and potential harm posed by investment firms.
Revising the rules could:
- Encourage wholesale trading by reducing overly conservative capital charges;
- Improve market liquidity, making it easier for firms to provide buy/sell quotes; and
- Reduce barriers to entry for specialised trading firms, fostering competition and innovation.
For firms, this is a chance to influence a regime that directly affects capital efficiency, trading strategies, and risk management practices.
Who This Engagement Is For
This paper is primarily aimed at solo-regulated investment firms that:
- Have permission to deal in investments as principal in MiFID financial instruments; and
- Maintain a trading book as part of their regulated activities.
The FCA is particularly interested in firms that have practical experience managing market risk and who can provide insight into how capital requirements impact trading activity, liquidity provision, and market entry.
Core Themes and Considerations
The FCA is exploring potential approaches to better align capital requirements with actual risk and firm impact, including:
- Risk-Sensitive Calibration: Considering alternative methods to calculate capital that more accurately reflect the firm’s trading book exposures and potential losses.
- Proportionality for Investment Firms: Evaluating whether capital requirements can be tailored to reflect the lower systemic risk of an investment firm compared to a bank.
- Market Function and Liquidity: Ensuring that capital frameworks do not inadvertently constrain firms’ ability to provide liquidity to markets or participate efficiently in wholesale trading.
- Barriers to Entry: Assessing whether current requirements unintentionally discourage new or specialised trading firms, and whether adjustments could enhance competition without increasing systemic risk.
The FCA is not yet proposing formal changes but is gathering feedback to shape the future consultation paper.
Next Steps
The FCA invites comments and feedback on this Engagement Paper by 10 February 2026. Responses can be submitted via:
- Email: MarketRiskReviewEP@fca.org.uk
- Post: Prudential Policy, Financial Conduct Authority, 12 Endeavour Square, London E20 1JN
The FCA also plans to host a roundtable in January 2026 to discuss issues raised in the paper. Firms interested in attending, or submitting questions for discussion, can contact the above email address.
A formal consultation paper is expected in 2026, which will set out proposed rule changes for market risk capital under IFPR.
How Complyport Can Help?
At Complyport, we support investment firms navigating early-stage regulatory engagement, prudential planning, and capital framework adaptation. For this FCA engagement, we can:
- Gap Analysis and Modelling: Assess how your current market risk capital framework aligns with FCA considerations and identify potential implications of alternative approaches.
- Strategic Advisory: Advise on potential adjustments to trading strategies, capital allocation, and risk frameworks to optimise efficiency under revised rules.
- Roundtable Preparation: Assist with briefing packs, discussion points, and scenario analysis for the January 2026 engagement session.
Contact Us
To understand how these changes may impact your business, or to discuss how Complyport can assist with a financial health check of your business, get in touch to arrange a meeting with one of our Subject Matter Experts.
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