Adviser trade body criticises "confusing" FCA paper

Adviser trade body criticises "confusing" FCA paper

Adviser trade body Pimfa has criticised the regulator for its "confusing" stance on the rules advice firms must follow when maintaining capital and financial resources. 

In June the Financial Conduct Authority published a consultation paper on its approach to assessing adequate financial resources at regulated firms, including sufficient wind-down planning if a business were to close and funds to compensate clients in the event of misconduct or failure. 

The regulator said it expects firms to have an amount of capital which, at all times, is equal to or higher than its assessment of what is necessary, including the type and quality of capital and its ability to be used in a wind-down situation.

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But the City watchdog said the consultation paper itself would not impose specific obligations on companies and would "merely explains the purpose of, and our approach to the assessment of adequate financial resources for all firms authorised and regulated by the FCA".

Pimfa, the trade association for investment managers and financial advisers, criticised this move by the FCA, claiming the regulator's decision to not impose specific obligations on firms, but still set out practices they should be following, was "confusing". 

Ian Cornwall, director of regulation at Pimfa, said firms should not have to spend time and money "seeking to guess" the FCA’s supervisory expectations.

He said: "The FCA needs to give further clarification regarding this consultation paper – feedback from our member firms has indicated that there is confusion about the status of this document.

"We are questioning whether or not FCA are placing new obligations on personal investment firms which have not been subject to a proper consultation process. It is very difficult to get a ‘sense’ of FCA’s expectations from the consultation paper in respect of a small personal investment firm."

Mr Cornwall said he was not aware of any supporting material on the FCA's website which could help small personal investment firms prepare documentation which would help them address points covered in a review by the regulator. 

He added: "The FCA needs to consider what further material it can provide to assist firms, particularly small personal investment firms, in meeting their expectations." 

In its consultation paper the FCA said it expects firms to assess the potential depletion of financial resources or inability to convert assets into ‘cash’ in a timely manner, under "adverse circumstances".

The regulator said: "Firms should consider additional risks that may deplete the level of their available financial resources and cause harm.

"These risks may put the firm in financial pressure and/or impair a firm’s ability to put things right when they go wrong, even where the harm has been appropriately assessed." 


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