Earlier today (8 December) the regulator announced that the minimum capital resources requirement would increase from the current £10,000 to £15,000 from 30 June next year, before reaching the mandatory £20,000 from 30 June 2017.
Keith Richards, chief executive of the PFS, responded that the revised rules are far less aggressive for medium and larger sized firms than the previous proposal, which added would disincentivise firms to expand.
“Generally when the revised rules came out last year, they were welcomed by the sector and demonstrated that the FCA was willing to take on board much of the input from the industry and make amendments accordingly.
“The FCA’s acknowledgment of the unintended consequences of their previous proposal and the decision to consult further with personal investment firms was a welcome change from their predecessor, the FSA.
“The additional provision is unlikely to over challenge the majority of smaller professional advice firms,” he added, pointing out that capital adequacy has been an issue debated for years, so for most firms the new rules will not come as a surprise, with many already having made provision.
“There will always be instances where some firms will not welcome what otherwise will be seen as an increased cost to operate, but these proposals are less aggressive than otherwise could have been under the original proposals.”
Mr Richards said that advisers were generally pleased to see the regulator defer the implementation of the previous expenditure-based rules, which he argued would have had a more profound impact on firms with a higher number of employed staff.
“The re-introduction of the law of limitation should now be the next logical step of good governance and recognising the evidence of reform and evolution,” he added.
Danny Cox, chartered financial planner at Hargreaves Lansdown, commented that the challenge is to get the right balance between protecting the consumer and creating barriers to entry thereby limiting competition.
“Additional capital is a greater cost to businesses at a time when many firms are already seeing the cost of regulation climb.
“Greater capital adequacy should lead to lower FSCS levies,” he noted. “However, this system needs to be revamped to a more risk based approach to avoid the reputable firms over-subsidising other, less diligent advisers.”
Dan Farrow, director at SNB Wealth Management, added: “I think that the increase in capital is sensible, as it has been £10,000 for a number of years.