The European Principal Traders Association has submitted a response to the Financial Conduct Authority regarding its Engagement Paper: Market risk capital requirements for FCA investment firms. EPTA supports the FCA’s objectives to foster wholesale trading, strengthen market liquidity and lower barriers to entry for specialised trading firms.
The current market risk regime under the Investment Firms Prudential Regime is not suited to the Principal Trading Firms in EPTA’s membership, which do not take deposits or provide bank-like services, and which operate solely with their own capital and with no public backstops. The application of a bank-type framework has unduly constrained liquidity provision during increased demand for liquidity due to heightened geopolitical risk, volatility and divergent monetary policies.
A revised prudential framework should reflect the actual risk of harm posed by specialised trading firms such as PTFs. It also should be guided by the principles of proportionality, alignment with economic capital, and scalability, to be fit for new entrants as well as the growth of established firms to support the UK capital market and ultimately growth in the wider economy.
Read the full response here.