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In this edition, we discuss latest developments in the UK and EU banking and investment regulation. This issue focuses on key papers relating to capital and prudential developments which were published in December 2025. Specifically, these are the Bank of England's Financial Stability Report and assessment of bank capital requirements, and the FCA's paper on market risk capital requirements for investment firms. In these papers, we summarise the regulatory changes, and set out practical points for consideration for your firm.
Bank of England's Financial Stability Report and assessment of bank capital requirements
On 2 December 2025, the Bank of England's Financial Policy Committee (the FPC) published its December Financial Stability Report, as well as a report entitled 'Financial Stability in Focus: The FPC's assessment of bank capital requirements' (the 'Reports'). The FPC has lowered its recommended system-wide Tier 1 capital benchmark for UK banks from around 14% to 13% of risk-weighted assets, translating to a Common Equity Tier 1 (CET1) ratio of about 11%. This move reflects stronger bank balance sheets, improved risk measurement, and the reduced systemic importance of some institutions, as well as the upcoming Basel 3.1 reforms. The FPC's updated benchmark aims to strike a better balance between financial stability and supporting economic growth, while still ensuring banks remain resilient to shocks.
Click here to read further on the framework and why this matters for banks >
FCA paper on market risk capital requirements for investment firms
On 16 December 2025, the Financial Conduct Authority (FCA) published an engagement paper on 'Market risk capital requirements for FCA investment firms'. The paper initiates a review of the current prudential regime, which is based on rules originally designed for banks, to assess its suitability for investment firms. It invites industry feedback on alternative approaches to calculating market risk capital for proprietary trading, and whether more proportionate or tailored requirements should be adopted. The paper outlines the existing framework, including the Investment Firms Prudential Regime (IFPR) and its dependence on the UK Capital Requirements Regulation (UK CRR) as it applied on 31 December 2021. It discusses the rationale for reform, noting that investment firms generally pose less risk in failure than banks. Comments are invited by 10 February 2026.
Read here to know more on the relevant changes and implications for FCA investment firms >
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
