Financial Conduct Authority publishes engagement paper on new approaches to market risk capital requirements for FCA investment firms

The Financial Conduct Authority (FCA) has launched a review of market risk capital requirements for FCA investment firms, seeking stakeholder views on alternative approaches for specialised trading firms. The engagement paper is positioned as a step towards more tailored requirements under the Investment Firms Prudential Regime (IFPR), while maintaining market integrity. The review is most relevant to solo-regulated investment firms with permission to deal in investments as principal in MiFID financial instruments and to manage a trading book as part of their regulated activities. It focuses primarily on MIFIDPRU trading book and market risk provisions, including the K-factor requirement on net position risk (K-NPR) and the clearing margin given requirement (K-CMG), and the related UK Capital Requirements Regulation (UK CRR) text as at 31 December 2021 that is currently cross-referenced. Options canvassed include targeted amendments to the current standardised approach (including potentially embedding requirements directly in the FCA Handbook and allowing a discount factor for certain firms), expanding margin-based approaches beyond centrally cleared portfolios, making internal model approaches more proportionate (and considering techniques beyond value at risk), and more structural alternatives such as a net capital rule, a sensitivities-based method based on Basel’s Fundamental Review of the Trading Book, repurposing elements of counterparty default calculations, or a weighted liquidity exposure methodology. The paper also flags potential consequential changes, including interactions with the fixed overheads requirement, the trading book definition and concentration risk calculations. Feedback is requested by 10 February 2026, and the FCA indicates it aims to publish a consultation paper in 2026.