FCA September 2025 newsletter: IFPR newsletter

On 1 September 2025, the Financial Conduct Authority (FCA) published its newsletter relating to the Investment Firms Prudential Regime (IFPR), providing clarifications and reminders for investment firms. Effective from 1 January 2022, IFPR was aimed at ensuring MiFID investment firms maintain sufficient capital and liquidity to manage risk and protect consumers.

We examine three pertinent issues covered in the newsletter, as follows:

1. Investment firm group

Firms are reminded to promptly notify the FCA upon forming a new investment firm group (IFG) or making any changes to an existing IFG structure.

Similarly, firms seeking to acquire or increase control over a UK-authorised entity that qualify as a change in control must notify the FCA. More information on the FCA’s guidance on acquisitions and increases in control can be found here: FG24/5: Prudential assessment of acquisitions and increases in control.

2. Incorrect treatment of allocated profits

The FCA observes that limited liability partnerships (LLPs) may be incorrectly classifying allocated profits as Common Equity Tier 1 (CET1) capital. The FCA clarifies that profits automatically allocated to LLP members or those with immediate, unconditional withdrawal rights do not qualify as CET1 capital as they are treated as liabilities.

LLPs should examine the implications of the terms of their partnership agreements to determine the regulatory capital treatment of profits, focusing on whether the LLP has an unconditional right to withhold profits from members, rather than relying on broad labels of allocated and unallocated profits. For instance, LLPs may have hybrid arrangements where profits may be allocated according to a predetermined formulae subject to withdrawal restrictions. The FCA recommends that LLPs evaluate whether the specific restrictions are sufficient to ensure that the profits are retained for loss absorption purposes (i.e. available to the institution for unrestricted and immediate use to cover risks or losses as soon as these occur, as per Article 26(1) of the UK Capital Requirements Regulation).

3. Small companies exemption  

The FCA estimates that up to 10% of MiFID firms may have incorrectly claimed the small companies exemption under the Companies Act 2006.

Small companies (i.e. defined as meeting at least two of the criteria in terms of turnover, balance sheet and number of employees) should check if they qualify as a MiFID investment firm as this would exclude them from the small companies regime.

Enforcement actions

While specific enforcement actions relating to IFPR are not widely publicised given that IFPR is still considered a relatively new regime, firms are reminded that breaches of prudential rules may lead to fines ranging from tens of thousands to millions of pounds, depending on the firm’s revenue and the scale of the breach. Senior managers, including partners of an LLP, should review their firm’s regulatory permissions as they potentially face additional remedial actions if deemed responsible under the Senior Managers and Certification Regime (SMCR).