Regulation  

FCA may scrap adviser cap ad hike as rules deferred again

The Financial Conduct Authority is reviewing whether its proposed capital adequacy requirements for small investment firms including financial advisers should go ahead amid concerns they do not align with its competition objective.

In a handbook notice published today, the FCA revealed it was pushing back the staging date for the first stage of the new capital requirements, which would require firms to hold the greater of one month of fixed costs or £15,000 in reserve, by two years to 31 December 2015.

The second phase, which will require firms to hold the greater of three months of fixed costs or £20,000, will also be pushed back by two years to 31 December 2017.

This is the second time the new rules have been substantially delayed. The new thresholds were originally announced in 2009 and the two phases were scheduled for implementation by December 2011 and December of this year respectively.

Implementation was pushed back until December 2013 due to concerns about the rules’ impact on some types of firm. Now the FCA has said it is not sure that the approach in principle “remains the most appropriate” nor that it is “consistent” with its competition objective.

The FCA said: “Since the original deferral, a series of developments has led us to question whether this approach remains the most appropriate.

“In particular, many firms are still implementing changes to their business models as a result of the Retail Distribution Review... Also the FCA has a competition objective that was not present under the FSA.

“In their current format, we believe these rules would not necessarily be consistent with that objective. Therefore we have decided to defer implementation of these rules for a further two years to allow a more fundamental review of our proposed approach.”

Previously (9 August) Foster Denovo chief executive Roger Brosch said the capital requirements would spell the end of small advice firms, as they would be forced to merge or consolidate.