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IFA capital requirement could rocket

Some IFA firms are to be hit with capital adequacy requirements of 30 times their current levels as part of the retail distribution review, according to Aifa.

Aifa director general Chris Cummings says the new requirements which will use an expenditure-based requirement using three months of relevant annual expenditure, subject to a minimum of £20,000, could lead to huge increases for some firms.

He says the potential impact on a firm of 20 advisers with around £1.6m costs could see its prudential requirements increase radically from around £10,000 to around £300,000.

The FSA says the changes will reflect subsequent inflation and the minimum it considers a firm should be prepared to hold to support its business. It would not comment on the example given by Aifa.

Aifa director general Chris Cummings says: “At a time when IFA firms, like other small businesses, are struggling to cope with the economic turbulence it is deeply distressing that the regulator is proposing to disproportionately increase firms’ capital requirements. And the move to expenditure based calculations will be detrimental.”

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