Interim Profits in CET1: What MiFID Investment Firms Need to Know

Maintaining a strong capital position is fundamental for MiFID investment firms, not only to meet regulatory requirements, but to support long-term resilience and confidence.

One area that frequently prompts discussion is how interim profits are treated within Common Equity Tier 1 (CET1) capital. The good news is that the UK regulatory framework has recently evolved to make this process more efficient. From 1 April 2026, the FCA introduced a more streamlined approach under MIFIDPRU, reducing administrative burden while preserving key safeguards.

What has changed?

The most notable change is the move away from a formal approval process, and so there is no prior FCA permission required. This means firms now only need to notify the FCA when including interim profits, and the profits can be recognised in CET1 upon notification, provided all conditions are met.

This change has replaced what was previously a more time-consuming process and allows firms to reflect performance in their capital position sooner.

What remains the same?

Whilst the process has been simplified, the underlying principles remain the same, and firms must continue to ensure their capital calculations are appropriately supported and well-founded.

For example, independent verification is still required, and interim profits must be reviewed by external auditors. The foreseeable deductions must be applied, including dividends, tax, bonuses, and other expected charges. And lastly, full accountability sits with the firm, and responsibility for compliance remains unchanged.

Therefore, it may be easier to now recognise interim profits but the quality threshold for CET1 capital has not changed.

Why this change matters?

This update brings several practical benefits, including:

• Greater efficiency: Firms can void lengthy approval processes and streamline their regulatory reporting, creating a more business-friendly framework
• Faster capital recognition: Strong financial performance can now be reflected in CET1 more quickly, enabling firms to present a more up-to-date capital position
• Better alignment with internal reporting: Regulatory capital can more closely mirror internal management accounts, improving consistency between financial and regulatory reporting

Interim profits in practice

An example of how interim profits are treated in practice we have the below scenario.

• Interim profit: £10m
• Expected dividend: £2m
• Tax: £2m
• Bonuses: £1m
• Auditor verified

CET1 inclusion:

• £10m minus £5m of deductions = £5m included in CET1

If the profits are not externally verified, then £0 can be recognised, even under the new rules. This highlights that verification remains the critical gateway for inclusion.

Practical considerations

Although the process is now more flexible, regulators continue to expect high standards of governance and discipline. To operate effectively under the new regime, firms should focus on the below.

Governance and controls

Establishing clear policies for identifying ‘foreseeable deductions’, ensure there is strong co-ordination between finance, risk, and compliance teams, and maintain clear and auditable documentation.

Audit engagement

As shown above, external verification remains essential, so early engagement with auditors can help avoid delays in recognising profits.

ICARA integration

Interim profit recognition should be fully aligned with the firms, Internal Capital Adequacy and Risk Assessment (ICARA), and capital planning/ stress testing frameworks.

Conclusion

The inclusion of interim profits for CET1 remains a particularly sensitive area, requiring a careful balance between flexibility and reliability. The FCA’s move to notification-based approach from 1 April 2026 is a positive step as it reduces administration burden, greater flexibility for firms, and a continued confidence in the quality of regulatory capital.

Ultimately, interim profits can be a valuable component of CET1, but only when supported by independent verification, prudent adjustments, and strong governance.

How can Gravita help?

Although the process has been streamlined, independent verification remains a requirement and interim profits must still be reviewed by external auditors. Our audit team can support you in navigating these changes, working with you to plan the verification process and helping to ensure any inclusion of interim profits in CET1 is completed efficiently and without unnecessary delays.

To discuss your circumstances and how we can assist, please get in touch with the Gravita team.