New Policy Statement PS25/14 simplifies the definition of regulatory capital under MiFIDPRU
The FCA has published Policy Statement PS25/14: Definition of Capital for FCA Investment Firms, confirming its final rules on what counts as regulatory capital (“own funds”) for firms regulated under MiFIDPRU.
Taking effect from 1 April 2026, the reforms replace outdated, banking-style rules with a simpler and clearer capital framework designed specifically for investment firms.
What’s Changing
1. Simpler, self-contained rules
All capital definitions will move into MIFIDPRU 3, removing complex cross-references to the UK Capital Requirements Regulation (UK CRR). This will cut regulatory rules related to capital resources by c.70%.
2. CET1 Instruments — Permanence, ranking, and co-existence with non-CET1 shares
The FCA has clarified the permanence and ranking criteria for Common Equity Tier 1 (CET1) instruments.
- CET1 instruments must be permanent and fully loss-absorbing on a going-concern basis.
- The existence of non-CET1 shares (e.g. preference shares) does not automatically disqualify CET1 instruments, provided CET1 retains the most subordinated ranking and absorbs losses first.
- Enhanced disclosure will be required for firms with complex capital structures, explaining ranking and loss-absorption features.
3. Faster recognition of profits
Firms will no longer need FCA approval to count interim profits toward CET1 capital — a simple notification will suffice once profits are independently verified. However, even under the new rules, firms must still satisfy the existing constraints:
- Profits must be independently verified (e.g. by auditors)
- The firm must deduct foreseeable charges and dividends on a prudent basis
- Other usual safeguards (e.g. no material uncertainty, consistency with accounting policies) must hold.
4. Clarity for LLPs
There has been an historic lack of clarity on the eligibility of LLPs to utilise their profits as CET1 capital. The FCA’s September 2025 Newsletter raised this issue, which has now also been reflected in the Policy Statement.
- Where an LLPs profits have been allocated to members they are likely to be available for immediate withdrawal.
- Further, from an accounting perspective they are likely to be treated as liabilities as opposed to equity.
- Under Article 26 of the UK CRR this would preclude them from inclusion as CET1
Under the proposed capital definition, similar logic is expected: profits allocated and withdrawable on demand would not count as CET1. The LLP must ensure that allocations are sufficiently restricted (in terms of timing, discretion, and retention) to preserve their ability to absorb losses.
5. Minority Interests (Non-Controlling Interests)
Currently, Non-Controlling Interests can only be included within a group’s consolidated CET1 capital where it is effectively ‘locked up’ by being used to meet the subsidiaries own capital requirements. This means that the Non-Controlling Interest in unregulated subsidiaries cannot be used to meet consolidated requirements.
- PS25/14 proposes to amend this condition to link the amount of Non-Controlling Interest that is eligible as CET1 capital to the extent it is needed to meet the subsidiaries proportionate share of the consolidated requirements.
- The new rules will also include examples in the Handbook to help clarify how minority interests will be treated under the simplified regime.
6. Qualifying Holdings and Deductions
- Treatment of holdings in financial sector entities (FSEs)
Under the existing regime, firms must deduct from own funds direct or indirect holdings of capital instruments in other financial sector entities, with different regimes for “significant” and “non-significant” holdings. The FCA proposes to combine these deduction rules, thereby extending exceptions (e.g. for trading book positions) more broadly to include significant holdings in the trading book. - Indirect/synthetic holdings
Rather than rigid formulae derived from UK CRR, the proposal shifts to more principles-based, outcome-oriented tests to identify and value indirect or synthetic exposures. The FCA indicates that firms generally will not need to look through funds unless those funds are specifically mandated to invest in capital instruments of financial sector entities. - Deduction of qualifying holdings outside the financial sector
Deductions for significant holdings outside financial sector will be fine-tuned to improve consistency and ease of application. In particular, shares held in the trading book (rather than only non-fixed financial assets) may benefit from exception treatment. - Cross-holdings
Cross-holdings of CET1 between entities (which might artificially inflate own funds) currently require an FCA “opinion” to deduct. The new regime introduces an objective test based on indicators such as absence of genuine business purpose, coordination in capital management, or structured circular holdings.
How Cosegic Can Help
Cosegic’s Financial Resilience team can help you prepare for the new MiFIDPRU capital rules. We review capital instruments, LLP agreements, and group structures to identify any areas needing adjustment ahead of the 1 April 2026 deadline.
Get in touch with our Financial Resilience team to discuss how these reforms may affect your firm.
