EU cap ad rules could see advisers stripped of permissions

The FCA appears to be pushing through an EU directive on capital adequacy that could trip up small UK financial advisers who misinterpret the rules, Mark Spiers has warned.

The head of wealth management at regulatory consultancy Bovill said that although the FCA had consulted with certain investment firms over the new financial reporting requirements handed down by the EU as part of the Capital Requirements Directive, which comes into effect in January, he was concerned that many firms could misinterpret the more stringent rules.

He said the scope for uncertainty was wide, as the criteria had not been clearly set out by either the EU or the FCA, which earlier this year wrote to some investment advisory firms asking whether they believed they should be exempted from the incoming rules. Firms were required to respond by 30 November to say whether they believed they would be eligible to stay within Bipru (CRD III) rules.

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However, Mr Spiers said as no clarification had been provided by the FCA on what the EU’s directive will mean for small firms, the rules could be incorrectly interpreted, meaning smaller firms could be wrongly stripped of regulatory permissions under the regulator’s more ‘intrusive’ and strict agenda.

He said: “If a firm’s interpretation of the rules turns out to be wrong, there is a real risk that certain permissions that are taken away as a result will not be reinstated for some time.

“This is proving to be a great source of angst among firms I have spoken to because the FCA has appeared to walk away without giving any help or guidance as to how firms should interpret the rules.”

Mike Wainwright, partner of international law firm Eversheds, said: “This has been sprung on people at the last minute and it is not entirely the FCA’s fault. This whole development has happened very rapidly in Europe with little time to communicate the changes. This consultation is happening because the FCA is exercising its member state option here. The CRD IV directive is much more onerous and difficult to comply with – it is essentially a reporting regime designed for banks.”

Adviser view

Ashley Clarke, chartered financial planner for, said: “The level of red tape and the complications surrounding these directives is absolutely immense but ultimately, we pay the FCA’s wages, we are critical stakeholders and it is the FCA’s job to offer us guidance.

“Most financial advisers now require an MA in financial services law to open a shop front and give investment and pension advice. Whenever we are looking for guidance, the first port of call is the FCA call centre and yet we are referred to a six-inch tall rulebook.”

Right to reply

A FCA spokeswoman said: “We are engaging with firms to help them understand what will be expected under the new rules and how they will be applied.”