The Association of Independent Financial Advisers (AIFA) has responded to the Financial Services Authority's (FSA) decision to pursue its Expenditure Based Requirement (EBR) Prudential proposals, which will require all IFAs to hold capital worth at least three months of their annual fixed expenditure, subject to a minimum of £20,000, by the end of 2013.
AIFA supports FSA's original objectives to provide a suitable and sustainable source of redress for consumers in the event that a firm is wound up without burdening remaining firms. AIFA has maintained throughout the discussion and consultation periods that the approach taken fails to meet these objectives and risks simply adding a heavier cost burden to good firms.
Andrew Strange, director of policy at AIFA said: "The current proposals will see the capital requirements for all firms increase. There is a clear risk that this may result in a less sustainable sector, running counter to FSA's original objectives. The increase in capital required is unrealistic within the timescale set.
"FSA's decision to extend the deadline for implementing changes to 2013 is a positive result and AIFA worked hard to win this reprieve. Despite this, we are still far from happy with FSA's conclusions. Proposed regulatory changes cannot benefit consumers if they only serve to reduce the number of financially stable and viable firms in the sector from today's level.
"FSA states that they wish to consult on the application ‘of a consistent approach to the Expenditure Based Requirements to all firms...irrespective of the firm's business model'. We expect this consultation in 2010, and we are concerned that the implications of FSA's possible policy direction have not yet been fully recognised by the profession.
"The Policy Statement does not elaborate further on this, but FSA must ensure there is fair and responsible treatment of Appointed Representatives or self-employed advisers. This is a significant issue raised by the profession. As an example, the levelling up of the EBR requirements for these fundamentally variable costs would be deeply inappropriate."
Amanda Davidson, AIFA Deputy Chairman, said: "This is an example of where AIFA has conducted significant work over the past months to deliver both an extension to the implementation date and demonstrate to FSA that further consultation on EBR is necessary to avoid clear detriment to firms and the clients they serve. Any firm not in AIFA membership and thus supporting our efforts should consider carefully the cost of additional capital the FSA will force them to hold. If they support AIFA's stance in seeking to remedy unnecessary costs entering the profession, they should join now."
Andrew Strange added: "Due to the severity of the possible proposals AIFA is forming a working group to consider proactive solutions in advance of next year's CP. FSA must realise the effects these proposals will have on the profession and reconsider them as a matter of urgency."
For those members interested in being part of the working group please contact Julia Cooper at [email protected].
