The FCA has published plans to “streamline” rules on the types of funds investment firms must hold in a step it claims could cut red tape by up to 70%.

The regulatory capital proposals relate to how investment firms absorb losses and maintain financial resilience during periods of financial stress. 

The regulator said the proposals in 'CP25/10: Definition of capital for FCA investment firms' will apply to MIFIDPRU investment firms, UK parent entities required to comply with MIFIDPRU 3 on the basis of their consolidated situation and parent undertakings subject to the Group Capital Test.

The proposals do not apply to banks or other PRA-regulated entities.

The regulator said the proposals would not change the rules about how much capital firms must hold but focus on “simplifying and consolidating” existing rules about what qualifies as regulatory capital.

The current regulatory capital rules were designed for banks, the FCA said. The FCA says this makes them complex and “not tailored to” investment firms’ business models.

The watchdog, which is on a mission to cut red tape and unnecessary admin, says there are large sections which are not relevant to the vast majority of firms, and others that need to be made simpler.

It said in a statement today: “These changes would reduce the volume of legal text by 70%.”

The proposals are part of the FCA’s aim to make sure its rulebook “works better” for the UK market and to remove unnecessary burdens on firms, bolstering growth and investment. It is part of the actions the FCA set out to support growth in its letter to the Prime Minister.

Overall the FCA aims to support growth in the UK’s “world-leading” financial services, it says. 

The changes, if confirmed, will mean the FCA removing EU-derived rules to make any rules that apply “clearer and more accessible”, reducing the time and resources firms spend interpreting and applying the requirements.

The proposals 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, it said.

Simon Walls, interim executive director of markets, 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."

• Relevant documents: • Definition of capital for FCA investment firms consultation paper. • FCA’s strategy. • FCA’s letter to the Prime Minster on growth.