FCA Urged to Remove Bank-Style Capital Rules for Buy Side

MFA urged the Financial Conduct Authority (FCA) to revise its approach to capital requirements for investment firms in a consultation response. The FCA’s current approach of applying bank-style capital rules to all investment firms—regardless of business model or risk profile—is inappropriate for alternative investment fund managers (AIFMs) and runs counter to the UK’s growth and competitiveness agenda.

MFA supports the FCA’s goal of simplifying and consolidating the UK’s prudential framework. The response warns, however, that one-size-fits-all capital requirements fail to distinguish between firms that present systemic risk and asset managers, whose activities do not.

“Alternative asset managers function differently from banks. Imposing the same capital requirements ignores that reality and discourages firms from doing business in the UK,” said Jillien Flores, MFA Chief Advocacy Officer. “Tailored rules that reflect actual risk will strengthen UK capital markets, reduce barriers to entry, and help London remain a leading global financial centre.”

AIFMs do not accept deposits, are not backstopped by governments, and invest on behalf of professional clients using long-term capital. Their business model poses no risk to consumers or market stability and does not justify bank-style capital requirements.

The response notes that solo-regulated AIFMs are already subject to effective wind-down obligations and fiduciary duties. Requiring them to hold disproportionately high levels of capital imposes unnecessary costs, deters market entry, and creates a competitive mismatch with other global financial centres, including the U.S.

Read the full letter here.

Source: MFA