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Cap ad requirement “completely inadequate”, says 2plan’s Smallwood

National IFA 2plan Wealth Management chief executive Chris Smallwood says the FSA’s proposed capital adequacy level is “completely inadequate”.

Smallwood says the proposed £20,000 cap ad level is inadequate because many IFAs do not have any additional protection to cover excesses which may arise from professional Indemnity insurance claims.

He says: “If a firm has £20,000 excess on the PI policy for example then it would take very little to wipe this amount out and render the firm insolvent. Given the additional pressures caused by the credit crunch and the pressure on business levels, this proposed level of capital adequacy is completely inadequate.”

Referring to his own firm’s position, Smallwood says: “For our firm, we will see increased capital adequacy requirements but our business plan caters for this and continues to guard us against this as we move into profit.”

However, Smallwood says the firm is disappointed over the regulator’s failure to address a regulatory dividend. He says: “Earlier reports discussed a regulatory dividend, a reward for well run, low risk firms. This does not appear to have been addressed in this paper in terms of matching risk with capital requirements.”

PYV managing director Neil Pointon says the FSA does specify that firms with excesses over £5,000 have to hold additional capital.

He says: “Chapter 13 of the FSA’s Prudential Sourcebook already has a provision stating that firms with excesses of more than £5,000 have to hold additional capital calculated on how big the excess is and the size of the firm involved.”

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