Important Update to Capital Resource Requirements

Only two days after ATEB’s gentle final reminder regarding the impending changes to capital adequacy requirements, the FCA has deferred the implementation for a further two years.

The new rules will now commence implementation on 31 December 2015.

The FCA has provided a statement to the Association of Professional Compliance Consultants (APCC) members which reads as follows:

The new capital requirements for personal investment firms (PIFs), which were published by the Financial Services Authority (FSA) in 2009 and were due to start a phased implementation on 31 December 2013, are being deferred for a period of two years and instead will now commence on 31 December 2015.

Recent developments lead the FCA to question whether the approach in the new rules remains the most appropriate. In particular, many firms are still implementing changes to their business models as a result of the Retail Distribution Review (RDR) and the European Banking Authority (EBA) is undertaking work (under the Capital Requirements Directive) for non-PIFs, but which could be relevant to PIFs. Also, the FCA has a competition objective that was not present under the FSA and in their current format the new rules would not necessarily be consistent with that objective. Therefore the FCA have decided to defer implementation of these rules for a further two years in order to allow a more fundamental review of the proposed approach.

The instrument has just been published on the handbook website here  

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Our View

We’re not sure what’s behind this. Martin Wheatley, FCA Chief Executive, recently raised concerns about the decreased advisory services available to consumers post RDR. It may be that the FCA had feared that more firms would withdraw from the market if these enhanced requirements had been implemented.

This may be a weight off some firm’s shoulders. In reality however, the current £10,000 minimum provides very little protection and good business practice would suggest that firms should have higher reserves, albeit perhaps not at the levels of the proposed rules.

Interestingly, it appears that inter-departmental communication at the FCA is somewhat lacking. Only recently, the FCA had confirmed the removal of section D2 from RMAR and the introduction of a new section D6 to deal with the new expenditure based resource calculation!

Action Required By You

At the moment very little but remember to continue using existing IPRU INV rules and plan for 2015.

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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.

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