Aifa urges FSA to consider regulatory dividends as rewards

The comments come after the regulator confirmed today that it is planning to increase the amount of capital intermediaries must hold. A consultation paper published today includes plans to base the amount on firms' three-month expenditure costs.

However, Aifa director of policy Andrew Strange said: "Aifa urges FSA to look at regulatory dividends to reward those businesses which are well run and well capitalised. Risk based regulation is entirely appropriate, and positive risk factors should be considered.

"We urge FSA to reconsider their stance on this and we shall be engaging with them over the proposals announced today and work closely with them to ensure that the correct outcomes are reached."

Strange argued that by increasing the minimum capital requirement to £20,000 the FSA was placing IFA businesses at serious risk. For example, he said a firm of 20 advisers with £1.6m costs will be forced to increase its regulatory capital from £10,000 to in excess of £300,000.

"We believe that ‘Expenditure Based Requirements’ could be counter-productive and penalise good firms with extensive compliance support. To reduce capital requirements firms will consider ways to reduce their fixed costs, which could encourage advisers to become self-employed.

"The impact of the requirements could ultimately lead to some firms reconsidering their authorisations with the FSA and actually result in less overall capital in the industry. This is not good for firms, or consumers."