We have received some queries from clients following the clarification by the FCA of the New Capital Adequacy requirement for PIFs coming into force on 30 June 2016. The FCA’s Policy Statement can be accessed here.
The following should help clarify what the changes mean to you. Since the majority of investment firms affected by the changes are classed as ‘B3’ that don’t hold client money under the MIPRU rules, the short example below is focussed on them.
Initially you need to calculate 5% of annual income* generated from your investment business.
(* Annual Income from investment business is income derived from designated investment business. See the definitions here).
For firms also subject to the MIPRU (Mortgage and Insurance Intermediary Prudential) rules, you then need to add 2.5% to your home finance and non-investment insurance income.
Remember however, that from 30/06/2016, the minimum requirement is £15,000 (rising to £20,000 from 30/06/2017). Therefore, if the total calculated is less than £15,000, then your base capital adequacy figure is £15,000 (£20,000 from 30/06/2017).
The FCA has provided a useful calculator to give you an idea what your base requirement is likely to be. However please remember to add any additional requirements you may need to hold because of a non-compliant PI policy excess, or for exclusions written into your PI policy. The calculator can be located here.
Suitability reports – silver bullet, or not?
Paul Jay Compliance, Suitability DB Pension, FCA, MiFID, Pension, Pension Transfer, PI, transfer, Xplan
If you ask most advice firms which part of the advice process consumes the most time, most will reply: “Suitability Reports”. Based on the mammoth documents that some firms still produce, we can understand why. We do have some sympathy with firms though. On the one hand they’re told by the FCA that reports are […]