IFAs will face significantly higher capital adequacy and professional indemnity insurance requirements if the UK fails to maintain an exclusion for advisers from Mifid, according to Zurich.
Currently the FSA requires personal investment firms to hold minimum capital adequacy of £10,000. New capital rules will increase this to three months of annual fixed expenditure, with a minimum of £20,000, from the end of 2015.
The Government secured an opt-out from Mifid for UK financial advisers in 2007 when the directive was introduced. The opt-out does not include UK firms that passport into other European countries for investment business, or that hold client money, which operate under Mifid.
Mifid firms not covered by the insurance mediation directive can choose to hold either £44,000 in capital resources or hold PI cover worth £1.3m. Firms covered by the IMD and Mifid must hold a further £22,000 or £655,000 in professional indemnity cover.
Zurich UK Life principal of government and industry affairs Matthew Connell has warned that if the regulator cannot convince Europe to maintain the opt-out, UK advisers will be subject to much tougher rules.
He says: “If there is any area where the FSA’s rules might be trumped by European rules it is capital adequacy. The FSA will have to fight its corner to make sure the European rules do not extend again the capital requirements for IFAs.”