FCA Proposes 70% Reduction in Capital Rules Red Tape as Part of Growth-Driven Strategy

The UK Financial Conduct Authority (FCA) has proposed a sweeping simplification of regulatory capital rules for investment firms, cutting the volume of legal text by 70% in an effort to streamline compliance while preserving financial resilience. The move is part of the FCA’s broader 2025–2030 strategy, which aims to reduce unnecessary burdens on firms, support growth, and enhance the UK’s global competitiveness in financial services.

The proposed changes would not alter the amount of capital firms are required to hold. Instead, they target the complexity of the current rules, which were originally designed for banks and are considered ill-suited for the business models of investment firms. Many of these provisions are either irrelevant to the majority of firms or unnecessarily complex, creating inefficiencies in interpretation and implementation.

“Removing excessive regulatory friction, while still upholding safeguards”

Simon Walls, interim executive director of markets at the FCA, commented, “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.”

This initiative directly reflects the FCA’s long-term strategy detailed in its 2025–2030 strategic document, which centers on four priorities: becoming a smarter regulator, supporting growth, fighting financial crime, and helping consumers navigate financial decisions.

A core tenet of this approach is “rebalancing risk”: encouraging financial innovation and market entry by removing excessive regulatory friction, while still upholding safeguards that protect market integrity and consumer confidence​.

The FCA’s new capital rule framework is aligned with its vision of regulatory proportionality and predictability. According to the strategy, this shift is essential to enable investment and innovation, particularly as the UK transitions away from legacy EU frameworks like those governing capital adequacy. The proposed reforms aim to remove EU-derived legal text and replace it with clearer, domestically tailored guidelines.

The move comes amid heightened emphasis from the FCA on supporting national economic performance. “Regulation plays an important part in the UK maintaining its position as a preeminent financial centre and in supporting economic growth,” the FCA stated in its strategic plan. The simplification of capital rules is one example of how the FCA plans to “strip out redundant requirements” and make regulation more outcome-focused rather than prescriptive​.

The FCA also intends to digitize and streamline its broader regulatory infrastructure. This includes accelerating authorization processes and eliminating outdated data requirements, freeing up firm resources to focus on innovation and client service. The new digital interface “My FCA” will centralize interactions between firms and the regulator, including data submissions, compliance checks, and fee payments​.

The FCA has already begun withdrawing three legacy regulatory data returns, a change set to benefit 16,000 firms. The strategy also includes expanding the regulator’s footprint in Leeds and Edinburgh, bringing its staff closer to the communities it serves and reinforcing its presence outside London.

In the context of the FCA’s broader reform agenda, the capital rules revision serves as both a symbolic and practical step towards rebalancing the role of regulation in fostering growth. By simplifying rules without compromising safeguards, the FCA aims to help investment firms focus on delivering services, allocating capital efficiently, and driving economic productivity.

Stakeholders are now invited to respond to the consultation before the FCA finalizes the rule changes. The proposals are seen as part of a continuing shift towards a more dynamic, efficient regulatory environment in post-Brexit Britain.