For many investment firms, liquidity under MIFIDPRU is not constrained by availability, but by eligibility.

Many firms hold significant balances in foreign currencies for commercial and operational reasons. However, under MIFIDPRU, foreign currency holdings can only be recognised as core liquid assets to the extent they align with expenditure incurred in that currency.

This creates a practical challenge for firms with international operations, centralised treasury models or multi-currency revenue streams.

Why can foreign currency become ineligible under MIFIDPRU?

A critical, and often underappreciated, feature of the UK framework sits within MIFIDPRU 6.3.4R, which states that the proportion of core liquid assets denominated in non-sterling currencies that a firm can rely upon must not exceed the proportion of relevant expenditure incurred in that currency (and, where applicable, guarantees provided in that currency).

In practice, this creates a currency-linked constraint on liquidity recognition within a firm’s Core Liquidity calculations.

FX is not disallowed but is only recognised to the extent it is operationally justified.

Where can firms get caught out?

A firm may:

  • receive significant revenue in USD;
  • hold USD balances for treasury purposes; but
  • incur the majority of its expenditure in GBP.

In this scenario, a proportion of the firm’s USD holdings may not qualify as core liquid assets under MIFIDPRU, despite being readily accessible and economically valuable.

 

Why this matters for firms

For many firms, this is where regulatory expectation diverges from commercial reality.

Modern investment firms often:

  • operate multi-currency revenue streams;
  • maintain centralised treasury functions;
  • incur costs across multiple jurisdictions; and
  • hold FX for risk management, hedging, or strategic flexibility.

 

However, under MIFIDPRU:

  • excess FX may become partially ineligible for liquidity purposes;
  • firms must demonstrate a clear link between FX holdings and expenditure profiles; and  
  • liquidity positions may need to be restructured towards GBP alignment.

In some cases, firms may appear well-capitalised on a group basis yet constrained at the UK entity level due to currency eligibility rules.

The result can be:

  • increased FX conversion costs;
  • reduced treasury flexibility; and
  • misalignment with group-level liquidity strategies.

A different approach globally

The UK’s approach is not universal

Other major regulators adopt different models:

  • Hong Kong Securities and Futures Commission: applies haircuts based on currency risk and liquidity.
  • Securities and Exchange Commission: uses risk-adjusted capital frameworks.
  • Monetary Authority of Singapore: focuses on risk management and governance.
  • European Securities and Markets Authority: adopts a hybrid approach combining usability and risk controls.

 

While these frameworks differ, rather than directly linking recognition to expenditure proportions. They typically assess foreign currency through:

  • Risk-adjusted value, or
  • Risk management capability.

The real challenge is evidencing the rationale

In our experience, firms rarely encounter issues because they hold insufficient liquidity. More often, the challenge is evidencing why liquidity is held in a particular currency and demonstrating how that aligns with expenditure profiles, liquidity needs and wind-down planning.

For firms with international operations or centralised treasury functions, this can create a disconnect between commercial liquidity management and regulatory liquidity recognition.

What should firms do now?

  • Review whether foreign currency balances are supported by expenditure profiles.
  • Assess how FX holdings are treated within core liquidity calculations.
  • Revisit ICARA and wind-down assumptions.
  • Consider whether treasury strategies remain aligned with MIFIDPRU requirements.

Identify any disconnect between group liquidity management and UK entity expectations.

Final thought

Under MIFIDPRU, liquidity is not simply about whether assets can be accessed quickly. It is about whether firms can demonstrate that those assets are usable, appropriate and aligned to their expenditure profile.

For firms holding significant foreign currency balances, that distinction can have a material impact on liquidity planning, ICARA assessments and regulatory capital management.

How fscom can help

fscom supports investment firms with ICARA reviews, liquidity assessments, wind-down planning and broader MIFIDPRU compliance. We help firms assess whether their liquidity resources remain fully eligible under the rules, identify potential constraints arising from foreign currency holdings, and ensure treasury arrangements can be clearly evidenced to the FCA.

If you would like to discuss your liquidity framework or understand how MIFIDPRU’s foreign currency requirements apply to your business, please get in touch.

This post contains a general summary of advice and is not a complete or definitive statement of the law. Specific advice should be obtained where appropriate.