Andrew Strange, Director of Policy, AIFA, said: “While we fully understand the need to review the requirements, in the current economic climate, we are at a loss as to why and how FSA has decided to increase the minimum capital requirement to £20,000. This requirement will be a real burden for IFA businesses and poses a serious risk to firms that are already facing difficulty in a tough financial climate. For example, the requirements could potentially see a firm of 20 advisers with £1.6million costs being forced to increase its regulatory capital from £10,000 to in excess of £300,000.
“Over the last ten years the IFA community has thrived, with increased levels of professionalism and higher standards of advice. AIFA strongly supports the development of our profession but during this difficult time additional capital requirements for the sector are simply inappropriate. It is not our members who have damaged the economy through under capitalisation.
“AIFA aims to work constructively with the regulator to achieve good outcomes for firms and consumers. However, FSA has not provided any justification for this phenomenal increase in capital and question what they are trying to achieve. We are also considering FSA’s proposed capital resources definition.
“We believe that ‘Expenditure Based Requirements’ could be counter-productive and penalise good firms with extensive compliance support. To reduce capital requirements firms will consider ways to reduce their fixed costs, which could encourage advisers to become self-employed. The impact of the requirements could ultimately lead to some firms reconsidering their authorisations with the FSA and actually result in less overall capital in the industry. This is not good for firms, or consumers.
“AIFA urges FSA to look at regulatory dividends to reward those businesses which are well run and well capitalised. Risk based regulation is entirely appropriate, and positive risk factors should be considered. We urge FSA to reconsider their stance on this and we shall be engaging with them over the proposals announced today and work closely with them to ensure that the correct outcomes are reached.”
