Capital Resource Requirements for Personal Investment Firms

The existing capital adequacy rules for Personal Investment Firms (PIFs) have been in place 20 years and the FCA regard the current requirements to be insufficient. In November 2009, Policy Statement PS09/19 proposed changes to the current rules but these were deferred by both the FSA and the FCA. The FCA now believe that the proposed PS09/19 requirements may restrict competition and encourage some firms to adopt a low cost expenditure strategy and dis-incentive those firms which are actively employing extra compliance staff and para-planners.

However, unless the PS09/19 proposals are revoked now, PIF’s will need minimum amounts by December 2015 and apply an expenditure based requirement (EBR). As such, the FCA has published Consultation Paper CP15/17 here with the aim of publishing the final rules in the Autumn of this year.

The consultation proposes the following:

  • Capital resource requirements to be income-based rather than expenditure-based, but with minimum requirements (this is deemed by the FCA to be a fairer method  but is looking for feedback from firms);
  • Under  the new income based requirement PIFs must hold capital resources that are at least equal to a percentage of the relevant annual income earned in the previous year (this will be set at 5% for most PIFs);
  • The minimum capital resource requirement will be £20k (from current £10k);
  • The new requirements will not commence until 30 June 2016, with a 12 month transitional period during which the minimum requirement will be the higher of £15k as at June 2016, then £20k as at June 2017 OR 5% of the the PIF’s annual income.

The FCA propose to apply the same broad requirements to all categories of PIF. However, there will be some variations; for example, those PIFs which have permission to trade as principal, hold client money or manage portfolios, PIFs subject to MiFID and PIFs that are also an insurance intermediary. The consultation paper explains the variations clearly – please make sure you understand how they affect your firm.

Other points to note:

  • The FCA will review how the proposed changes could impact on the operations of the FSCS;
  • The PII impact will also be investigated, although the FCA feel it is too soon to conduct a meaningful review as yet;
  • The FCA is currently reviewing the case for a time limit on complaints to FOS (Longstop Review);
  • The RMAR will be changed to support the proposed changes.

Important Note: ATEB news is intended to provide general information ONLY. The content, including any views expressed or guidance provided, does not replace the need to comply fully with FCA Rules and Guidance. Unless you have discussed news article content with ATEB, and specifically how it relates to your circumstances, then ATEB disclaims all liability and responsibility and actions arising from any reliance placed upon it. For the avoidance of doubt therefore, any reliance you place on such information without our consultation is at your own risk.

ATEB Compliance offers compliance and regulatory advice.

ATEB Suitability provides report writing software for the financial services market.

Our View

The proposals in PS09/19 were pretty nonsensical – why penalise firms with an expenditure based requirement that would restrict spending in areas which supported FCA objectives?

The regulator now seen to have recovered from a severe lack of lateral thinking and these proposals look sensible and proportionate.

Action Required By You

  • It is absolutely vital that you understand the requirements, particularly if you are a non-standard PIF;
  • Ensure you meet, or have plans to meet the new requirements;
  • Remember, you must maintain sufficient resource at all time, so we recommend that you build in a contingency surplus;
  • ATEB clients should speak with their account manager as necessary; otherwise contact ATEB here to find out how we can help.

About the Author

Steve is an ATEB Director and has a deep understanding of all matter regulatory, built up over his 30 years + in the industry. With a training background and a technical brain, he overseas numerous complex projects and client implementation work.

Contact Us

Explore more articles in this category

Other articles that you might be interested in