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Under the rules, all personal investment firms will have to hold capital resources worth at least three months of their annual fixed expenditure in realisable assets such as cash.

The minimum capital resources threshold for any firm will be set at £20,000.

Michael Wainwright, partner of international law firm Eversheds said the FSA is looking to drive consolidation in the sector.

He said: "As FSA confirms its plans to ratchet up capital requirements for IFAs, it certainly seems that by loading the IFA sector with direct and indirect costs, and restricting its traditional sources of income, FSA intends to engineer a major change in the structure of the industry.

"As well as having to deal with banks that are too big to fail, FSA has struggled to engage with IFA firms that are too small to regulate. So it is looking to drive consolidation in the sector under the banner of improving professional standards."

According to a statement from the FSA, requiring personal investment firms to hold more capital resources will enable firms to provide redress for consumers and limit the compensation due from the Financial Services Compensation Scheme in the event that they are wound up.

The transition to the new regime has been extended by a year to 31 December 2013 and firms will be able to take into account any changes arising from the proposed retail distribution review.

The FSA will also consult in 2010 on an appropriate prudential regime for pension and third party administrators.