Aifa is warning that any changes to the new capital adequacy rules on expenditure-based requirements must not hit networks unfairly.
The FSA said last week that all personal investment firms must hold capital worth at least three months’ worth of their annual fixed expenditure, with a minimum of £20,000. It has extended the deadline from December 31, 2012 to the end of 2013. Firms must hold a minimum of one month’s fixed expenditure or £15,000 by December 31, 2011, two months’ worth or £15,000 by December 31, 2012 and three months or £20,000 by the end of 2013.
The FSA says it will consult further on how expenditure-based capital resources requirements can be applied consistently to all firms, particularly those with commission-based business models. It highlights concerns that firms may see regulatory arbitrage in moving to a network model and it will consult further on changes that may be needed to ensure different business models face the same regime.
Aifa director Robert Sinclair says: “We are pleased about the extension to the timeline and we welcome the opportunity to consult further on the expenditure-based requirement.
“This could have a significant impact on firms and could be particularly harmful to networks if they are penalised for having a commission-based model. We need to find a way of defining expenditure that allows firms to report costs accurately and allows the FSA to monitor firms. It is essential that the requirements do not adversely affect the network model simply because it pays commission to members.”
FSA head of accounting and auditing of the prudential policy division Richard Thorpe says: “We will be working with stakeholders to find a solution.”