BoE resists FCA algo capital cuts

The fight is about market-making firms — the ultra-fast trading shops that stand ready to buy and sell all day. They make markets feel liquid, but they also run complex algorithms at hug(msn.com) the rulebook lighter and more tailored. The Bank of England, through its prudential arm, is worried that going too far could leave the system more fragile. (msn.c([bankofengland.co.uk)### What actually happened? The immediate news is that the Bank of England has raised concerns about FCA plans to cut capital requirements for specialis(fca.org.uk)dom agencies sniping at each other — they are two pillars of the UK regulatory system, and they are supposed to be coordinating a broader rewrite of inherited EU market rules. (msn.com) ### Why are these firms in the frame? These firms are principal trading firms — basically electronic market-makers using algorithms to quote prices and manage inventory across (msn.com)ndustry argues heavy capital rules can be blunt and expensive. But that same footprint is exactly why supervisors care when something breaks. (fca.org.uk) ### What is the FCA trying to change? This sits inside the UK’s “Smarter Regulatory Framework” clean-up after Brexit. The old MiFID organisational rules were written as EU law. The FCA b(msn.com)lent consultation in 2025 so the two regimes could be finalised together. The PRA then published CP9/25 on April 23, 2025. (bankofengland.co.uk) ### So is this just about capital? Not really. Capital is the headline because it is the easiest thing to measure and the hardest thing for firms to ignore. But the deeper issue is supervisory philoso(fca.org.uk)ship of controls. In other words, one regulator is trying to make the framework more proportionate, while the other keeps asking whether softer prudential treatment only works if the control environment is genuinely strong. (fca.org.uk) ### Why is the Bank worried? Because algorithmic trading failures do not fail politely. A bad model, a broken feed(bankofengland.co.uk)ernance and risk controls are not side paperwork, they are the thing that stops a fast trading business from turning into a balance-sheet problem. If capital buffers come down, the Bank wants to know what still absorbs the shock. (bankofengland.co.uk) ### Why would the FCA want lighter rules? Because there is a real trade-off. If specialist market-makers face capital rules that do not fit their business model, they may commit less balance sheet, quo(fca.org.uk)uidity providers. So the case for reform is not crazy — it is that better-calibrated rules could make UK markets deeper without obviously making them less safe. (fca.org.uk) ### What happens next? The practical answer is more negotiation. The FCA and PRA already signalled they wanted to publish final policy on the same day in 2025 H2. This latest dispute suggests that alignment (bankofengland.co.uk)tougher guardrails, or some compromise that swaps one for the other. (bankofengland.co.uk) ### Bottom line? This is a niche rules fight with very non-niche consequences. If the FCA wins, high-speed market-makers get a friendlier balance-sheet regime. If the Bank forces changes, the message is that liquidity is welcome — but only if the firms providing it can survive their own algorithms. (msn.com)