04 Feb 2021


New FCA Base Capital Requirements for Investment Firms

The next issue on the horizon with the FCA is the new Prudential regime for investment firms likely to be implemented in June 2021. For most firms, the base capital requirement will increase.

Those with the largest capital requirements include those firms that dealing on own account and placing trades on a firm commitment basis. Firms that don’t hold client money and aren’t included in the top, are within the lowest category. All remaining firms are in the middle.


Whilst this should not be a problem for those firms where other risk criteria capital requirements have superseded the base requirement, it may be an issue for start ups and newly registered firms. The type of firm will determine what the requirements are. The capital requirement for your firm depends on both your authorisation and what class you fall into. If you hold Client money there is an extra calculation to be taken into account depending on risk to market and risk to the firm. This is referred to as the K-Formula. A key change is that matched principal firms will be required to transition to the €750k level.

Under the original proposals, all firms were going to have to prepare an ICAAP, but that has now been restricted to exclude small firms. Currently ICAAPs have to be completed on a group basis, but going forward, firms which have to do them will also have to prepare solo ICAAPs. The format of ICAAPs will change to reflect the K-factor groups (Risk to customer, risk to market and risk to firm). Firms currently preparing ICAAPs should commence revising these to the new requirements.

More importantly, approximately one third of MiFID investment forms that are currently exempt from the EU’s Internal Capital Adequacy Assessment Process will now fall under a renamed but largely similar process.

If you need assistance on the above and getting ready for the new reporting requirements please do let us know. We will ensure you are using the correct basis for the calculations and are aware of your new reporting requirements for 2021.

Get in touch with the CBW Regulated Business team for more information.

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