Over two years after publishing its first paper on prudential rule changes, there are still a number of important areas the FSA has yet to clear up.
The one-year delay on implementing the new capital adequacy requirements is welcome, acknowledging the huge burden already being put on firms over a short time period.
But there is still a lack of clarity over how different adviser business models will be affected by the prudential rule changes.
The FSA is concerned about the regulatory arbitrage that could occur due to its new expenditure-based requirements as the proposed rules potentially favour networks or other firms with non-salaried staff.
It is understood that up until a few weeks ago, the FSA was looking to include new draconian rules aimed at making networks and other such business models account for ARs or non-salaried staff as part of their capital adequacy calculations. This was withdrawn at the last minute after howls of industry protest.
This last-minute U-turn is again welcome but leaves many in the sector still unclear on how much capital their businesses will have to hold pending the new consultation.
Stricter rules for networks may still be on the cards as the FSA wants to ensure prudential risk issues are similar across different business models.
The FSA has also done nothing to allay the concerns of those worried that advisers who have spent considerable resources on compliance and back-office staff will be hit harder by expenditure-based requirements. Surely there should be some regulatory dividends for firms who have followed the FSA’s advice and spent money sensibly building up their businesses. At the moment, the reverse is true and these firms may be hit hardest.
These reforms must ensure firms have the resources to cope with future downturns, protect consumers against firms going bust and ensure as few claims as possible have to be dealt with by the Financial Services Compensation Scheme.
The FSA has delayed proposals on firms’ responsibilities once they have left the industry due to its FSCS review.
Debate about capital adequacy needs to go hand in hand with the issue of leaving resources behind and FSCS reform.
Top of the list should be ensuring IFAs no longer have to pay for the mistakes of failed stockbrokers and the regulators who let them get away with it for too long.