New Capital Adequacy Requirements

In our newsletter published on 13th June 2015 here we outlined the FCA’s proposed Capital Adequacy changes for Personal Investment Firms (PIFs). 

In its Policy Statement PS15/28 ‘Capital resources requirements for Personal Investment Firms (PIFs): Feedback on CP15/17 and final rules’ the FCA has confirmed the proposed changes. The Policy Statement can be accessed here.

The new rules below come into force on 30 June 2016 with additional requirements for PIFs with permission to establish, operate or wind up a personal pension scheme being made on 01 September 2016.

To summarise:

  • 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, however they are seeking 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 PIF’s annual income.

The FCA will 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 policy statement explains the variations clearly – please make sure you understand how they affect your firm.

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.

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Our View

The proposals have not changed. They are sensible and proportionate for all firms.

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.
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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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