The FSA has announced new expenditure based requirements for firms, which will require all IFAs to hold capital worth at least three months of their annual fixed expenditure, with a minimum of £20,000, by the end of 2013.
Aifa says it supports the FSA’s original objectives to provide a sustainable source of redress for consumers in the event that a firm is wound up without burdening remaining firms, but Aifa says this approach fails to meet these objectives.
Aifa director of policy Andrew Strange says: “The current proposals will see the capital requirements for all firms increase. There is a clear risk that this may result in a less sustainable sector, running counter to the FSA’s original objectives. The increase in capital required is unrealistic within the timescale set.
“The FSA’s decision to extend the deadline for implementing changes to 2013 is a positive result and Aifa worked hard to win this reprieve. Despite this, we are still far from happy with the FSA’s conclusions. Proposed regulatory changes cannot benefit consumers if they only serve to reduce the number of financially stable and viable firms in the sector from today’s level.”
Aifa is creating a working group to form a response to the FSA during its consultation on the expenditure based requirement in 2010.
Strange says: “The FSA states that they wish to consult on the application ‘of a consistent approach to the expenditure based requirements to all firms…irrespective of the firm’s business model’. We expect this consultation in 2010, and we are concerned that the implications of FSA’s possible policy direction have not yet been fully recognised by the profession.
“Due to the severity of the possible proposals Aifa is forming a working group to consider proactive solutions in advance of next year’s CP. FSA must realise the effects these proposals will have on the profession and reconsider them as a matter of urgency.”