The UK's Financial Conduct Authority has published a discussion paper that proposes a prudential regime for investment firms in the United Kingdom. It wants to suit the rules to the firms' business models and the risk of harm that they pose to consumers - including HNWs - and markets.

Christopher Woolard, the interim Chief Executive of the FCA, has long advocated a prudential regime that caters exclusively for investment firms. The information in the discussion paper is of interest to all investment firms that are currently authorised under MiFID (the European Union's Markets in Financial Instruments Directive) and are regulated solely by the FCA. It is also of interest to Collective Portfolio Management Investment Firms. Comments must be in by 25 September.

Today, most investment firms follow prudential rules that resemble those designed by the Basel Committee for Banking Supervision for use by deposit-taking credit institutions. Last year, the European Union (of which the UK is no longer a member) published plans for a regime that it had designed specifically for investment firms. The Investment Firm Directive and Regulation is due to come into effect within its borders by this time next year.

HM Treasury is so enamoured of the European initiative that it wants to set up something similar in the UK, as the Chancellor stated in his Budget Speech in March.

DP 20/02, as the paper is called, says that around 3,000 investment firms operate in the UK, making it by far the largest market for them in Europe. The paper envisions the UK subjecting British investment firms to "liquidity requirements across the board" for the first time. It envisages a new method for calculating capital requirements, the "K-factor approach." New requirements relating to remuneration and disclosure are planned. The word 'capital' appears 268 times.