FCA publishes capital resource rules for advisers

FCA publishes capital resource rules for advisers

Adviser firms will have to hold minimum capital resources of either £20,000 or 5 per cent of their investment business income, according to FCA proposals.

Which of these limits applies to a firm will depend on whichever is greater, according to the 39-page consultation paper.

Personal investment firms which also provide Sipps will have to comply with these rules as well as those which come into force in September 2016 regarding capital adequacy - but will have a longer period of time to comply.

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The FCA’s paper said: “Where Pifs provide an ongoing chargeable service, consumers have a reasonable expectation that the businesses they deal with have the capacity to make right any mistakes or errors they make.

“Holding adequate capital resources ensures that otherwise well-run Pifs do not immediately go out of business should they face a normal number of redress claims relative to the scale of their business.

“Where a Pif does exit the market, our proposed capital requirements will provide increased certainty to help ensure that consumers can more readily access their investment holdings and untangle their portfolios as the Pif winds down its operation.”

According to FCA the Pif industry holds eight times more capital resources than the current regulatory minimum.

There are currently only 100 Pifs reporting that they hold only the minimum capital resources requirement of £10,000.

The FCA said it would not provide a breakdown of whether these firms were Sipp providers or not.

The consultation paper also addresses the long-stop, which trade body Apfa has been lobbying for.

It said the FCA will continue its review into a 15-year time limit on complaints but said a paper will be published later this year in light of the new capital requirements.

Since the consultation runs until 7 September this raises the prospect of the FCA not clarifying its position on the long-stop until the end of the year - something the regulator declined to comment on.

Chris Hannant, director deneral of Apfa, said: “We would urge the FCA to commit to sensible and proportionate funding requirements.

“We would also like to see greater flexibility for firms about how the funds are held as well as around their use; we will continue to lobby on behalf of our members for the final FCA policy statement on capital resource requirements to include guidance to this effect.”

The new rules are expected to come into force on 31 July 2016 and there will be a 12 month transition period during which the minimum requirement will be £15,000.

Pifs which operate Sipps will have to comply with the requirements from 1 September 2016.

Adviser view

Simon Torry, a chartered financial planner with Essex-based SRC Wealth Management, said: “In principle I am not averse to the change, although I would question the relevance for small firms considering we have PI insurance anyway.

“If firms cannot meet this requirement I would question whether they are viable anyway.”