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FCA delays adviser capital adequacy rules by two years; plans ‘fundamental review’

The FCA has pushed back the introduction of new capital adequacy requirements for advisers until December 2017 and plans to undertake a “fundamental review” of its proposed approach.

The 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.

However, the FCA has now published an amendment to its rules which delays implementation until between December 2015 and December 2017.

In a note to trade bodies sent this morning, the FCA said: “The new capital requirements for personal investment firms, which were published by the Financial Services Authority in 2009 and due to start a phased implementation on 31 December 2013, are being deferred for a period of two years and instead will now commence on 31 December 2015.

“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 retail distribution review and the European Banking Authority is undertaking work (under the Capital Requirements Directive) for non-PIFs, but which could be relevant to PIFs. 

“Also, the FCA has a competition objective that was not present under the FSA and in their current format we believe the new rules would not necessarily be consistent with that objective. 

“Therefore, we have decided to defer implementation of these rules for a further two years in order to allow a more fundamental review of our proposed approach.”

It is the third time the regulator has delayed the introduction of the new capital regime.



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There are 4 comments at the moment, we would love to hear your opinion too.

  1. Can someone please translate from the Bureaucratic Jargon?

    Does it mean:

    A) We are worried that too many firms are pot less as a result of having to comply with RDR and if they also drop out we’ll not have enough firms to fund our gravy train.
    B) We coked up again and jumped the gun. We are subordinate to Europe and they haven’t finalised their requirements which may be more or less than those which we proposed.

    At all events we are now the FCS – so it weren’t us. We can blame or predecessors for getting it wrong.

    I can imagine that there will be a good few firms who will be cheering. Pathetic that they run a business on such a shoestring.

  2. Harry,

    I don’t think answer A can be right as they don’t need to worry about us being able to afford to pay for them as they have us over a barrel. If you want to give advice, you have to be authorised. To be authorised you have to pay whatever fee we tell you to pay.

    I think answer B is the more accurate. Bowing to the powers in Europe that run a very poor financial advice service (from what I’ve seen of it at least).

    As for your final comment, I don’t think £20,000 is a shoestring.

    Consider a sole trader IFA or a small partnership. They may only be one or two people who may work from home or rent a small office. For that type of firm £20,000 is a lot to have sitting in a bank account earning nothing just to keep the FCA happy.

    My monthly running costs are less than £1,000 and my PI excess is only £5,000, so for me £20,000 represents 4 upheld complaints (I haven’t had even one in 18 years as an adviser) or almost 2 years worth of my running costs. I personally think that £20,000 seems a little excessive for a business like mine. Personally I welcome the deferral although I am well on the way to achieving the £20,000 needed anyway and will be there or thereabouts by the end of the year.

    I appreciate that for a company with a £5m turnover, £20,000 is a drop in the ocean, but most firms are not that big. There’s a lot of us smaller guys out there doing a bloody good job for our clients, often better than the big boys and I think it would be a shame if firms had to close because of the capital adequacy requirements.

  3. CA was intended to ensure a smooth run down of a business should it get into difficulty and the FSCS have to close it down. It was never anything to do with PII excess or claims, merely the cost of winding a firm up. Once you get your mind around this it makes sense as most firms have fixed on-going costs which have to be paid regardless of what happens to the firm – employment contracts, rent, compliance, advisers etc. without which the business could not be closed down
    The problem was that it would not work in practice. CA was not about holding money in cash, segregated from all other funds etc. Therefore, in the chaos resulting from a wind down you can bet that the true balance sheet is a fraction of that shown on the last set of accounts submitted via GABRIEL with liquid assets about nil!
    However you put spin on it, this is still a disaster. We have lost opportunities to grow the business while we strive to achieve CA and the future now remains uncertain while the FCA prevaricate. CA will be required but in what form is to be determined and I doubt whether we will get three years plus a three year phase in to prepare as we did before. So do we invest the £250,000 we have sitting on the balance sheet or wait until the inevitable happens at a time to be determined.

  4. Geoff
    Ah you have hit the nail on the head. You no doubt have assumed (ref: the point of sitting in a bank account doing nothing) that everyone is incorporated.
    IF you are not then you can have this money invested and working for you. And let’s not have screams of horror. You haven’t had any complaints; many others (including me) are in the same situation (I have been trading as such for 23 years). The present situation is that the Regulator can go for individuals – as we have seen.
    Being unincorporated is nothing more than the old Lloyds member situation. Manage your exposures and hopefully minimise the risk. Furthermore you get 40% tax relief on your expenses – not the paltry 20% for small firms Corporation Tax. Your NI is less and you don’t have to bother with AE. You only have one tax return. And in general accountancy fees are less. So you really do have less bureaucratic hoops and time wasting.
    Anyway there are still loads of places that don’t have extradition treaties with the UK – if push came to shove!

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