The rules on capital adequacy requirements currently mean that small firms have to hold a minimum of £5,000 or £10,000 if the firm is holding customer’s cash.
However, proposals have been made to raise the required minimum level to £50,000, a move which has caused some surprise within the industry.
Bill Warren, director of associate members at the Regulatory Association of Mortgage Packagers (RAMP), described the rise to £50,000 as a ‘hell of a jump’ in what is required to be held in cash or asset reserves.
Warren explained: “This was part of the Retail Distribution Review (RDR) and the FSA has said that firms should be able to hold this amount of capital.
"Quite simply, small firms and IFAs won’t be able to hold this amount of money and I know that the Association of Mortgage Intermediaries is fighting this as it will put small firms out of business.
"Maybe this is what the financial services regulator wants though, as the more firms that are pushed into networks the less individual companies have to regulate.”
The FSA claimed that it will ‘take enforcement action against firms who are unable to comply with our capital adequacy requirements’.
It also said that ‘the capital adequacy calculations are designed to ensure that FSA-regulated firms are able to meet liabilities when they are due, especially liabilities for claims from customers’.
Richard Fox, chief executive of the Society of Mortgage Professionals, said he did not believe that the move would apply to mortgage firms.
He commented: “I believe that this amount only applies to investment firms as the RDR doesn’t stretch to mortgage firms. The RDR won’t happen overnight and would depend if firms are holding money, then they have to make sure that there is no risk.”
