The FSA has still not set a timeframe for when its consultation paper on capital adequacy requirements will be published, despite promising a consultation this year.
In November 2009 the regulator announced that all IFAs will have to hold capital worth at least three months of their annual fixed expenditure, with a minimum of £20,000. The FSA was criticised at the time as the proposals appeared to penalise advisers who had invested significantly in back-office staff, such as administrators and paraplanners.
The prudential rules for personal investment firms are to be phased in so that firms will be required be to hold a minimum of one month’s fixed expenditure or £15,000 by December 31, 2011.
This will then go up to two months worth or £15,000 by December 31, 2012, and three months or £20,000 by the end of 2013.
At the time the FSA said that as part of this ‘expenditure-based requirement’ the regulator would “consider how to apply a consistent approach to all firms so that it will deliver a level outcome irrespective of the firms’s business model”, and said it to expected to consult on this in 2010.
But at an Institute of Financial Planning conference on the retail distribution review in London today, FSA manager of the retail distribution team Richard Taylor avoided the issue of when advisers should expect the consultation.
Page Russell chartered financial planner Tim Page raised the issue of capital adequacy, saying: “A consultation paper came out at the end of last year and the outcome is the expenditure-based requirement which penalises those firms that have paraplanners and administrators in place because they carry higher ongoing costs compared with the traditional self-employed model with a very low cost.”
He questioned whether the paper had come out and after Taylor confirmed that it had not Page asked whether its release was imminent.
In response Taylor said: “Imminent might be the wrong word.”
He did not go on to give any estimate of when further clarification about capital adequacy requirements for IFAs would be made.