Advisers have backed the FCA’s decision to delay to new capital adequacy rules but say the regulator should scrap plans to increase capital limits given its “fundamental review” of the proposals.
The new rules, which will require all advisers to hold capital worth at least three months of their annual fixed expenditure, with a minimum of £20,000, were due to be implemented between December 2013 and December 2015.
Last week the FCA confirmed it will delay introducing the reforms until between December 2015 and December 2017 and plans to re-evaluate the proposed approach.
In a note to trade bodies, the FCA said: “Recent developments have led us to question whether the approach in the new rules remains the most appropriate.
“In particular, many firms are still implementing changes to their business models as a result of the RDR and the European Banking Authority is undertaking work under the Capital Requirements Directive for non-personal investment firms, but which could be relevant to PIFs.
“Also, we believe the new rules would not necessarily be consistent with our new competition objective.”
Informed Choice managing director Martin Bamford says his firm’s capital requirements will increase from £10,000 to £120,000 under the regulator’s existing proposals.
He says: “The FCA should scrap the proposed new capital regime and focus on reviewing professional indemnity insurance to make sure it is providing the necessary level of cover.”
Personal Finance Society chief executive Keith Richards says: “The advice sector needs a period of stability post-RDR. Whilst the new limits were less likely to impact sole traders, they would have impacted more significantly on the medium to large advice firms who carry more fixed costs and could see requirements raise tenfold. It is possible that tiering or an upper limit cap could be introduced following the review to mitigate the impact.”