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Capital adequacy minimum to double to £20,000

The retail distribution review will require a minimum capital adequacy requirement of £20,000 for all firms, doubling the current minimum of £10,000.

The FSA will also extend the Expenditure Based Requirement to all firms based on three months of relevant annual expenditure, subject to the new £20,000 minimum, which the regulator says will ensure a level playing field between large and small firms.

The FSA says it is revising the minimum capital for the first time in 14 years to reflect subsequent inflation and the minimum it considers a firm should be prepared to hold to support its business.

On professional indemnity insurance, the FSA will mandate a sliding scale of additional capital firms should hold as a provision against potential liabilities for any business or activity excluded by their PII policies. The additional capital will be subject to a minimum of £5,000.

It says this will reduce the potential for firms to underestimate the additional capital necessary to cover exclusions.


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