Telephone 020 3813 2890 for a free no obligation chat about your regulatory requirements with one of our compliance consultants.

© Compound Growth Limited 2012 - 2018 | Terms of Use

Registered in England and Wales as limited company number 07626537 - Registered Office 120 Pall Mall, London, SW1Y 5EA

We use cookies, if you consent to this use, please continue to browse our site.

Here to help with Regulation and Compliance

Compound Growth

PIFs: Reminder of New Capital Adequacy Requirements this month

2nd June 2016

Capital Resources Requirements

Regulatory Reminder: New capital adequacy requirement rules come into effect for Personal Investment Firms (PIFs) from the end of the month.

In December 2015 the FCA issued Policy Statement PS15/28 on the Capital Resources Requirements for Personal Investment Firms – or PIFs. Included within this policy statement were the final rules and feedback on a capital resources consultation (CP15/17) from May 2015.

These rules replace and revoke the previous requirements put forth by the FSA in PS09/19 back in 2009.

PIF Capital Requirements Changes:

The majority of the handbook changes and new rules published in Appendix 1 of the FCA’s Policy Statement will come into effect at the end of the month on 30th June 2016. These will largely affect Chapter 13 of the Interim Prudential sourcebook for Investment Business (IPRU (INV)) and introduce new capital resource requirements for PIFs that will be based on annual investment business income earned in the previous year.

Additional changes to PIF requirements in relation to establishing, operating or winding up a personal pension scheme will come into effect later in the year on 1st September 2016 (to coincide with the new capital framework for self-invested personal pension (SIPP) operators).

Increase in Capital Resource Requirements:

The consultation focused upon firms offering investment advice and considered the average cost of redress for claims having risen above the current £10,000 capital requirement figure, thus this is no longer considered adequate.

Thus, the new rules confirmed by the FCA will see the minimum capital adequacy requirements for adviser firms increase from £10,000 up to £20,000 from 30th June 2016.

As the FCA informed: “An average redress claim for a pension or investment-related failure settled by the FSCS is £11,000. A personal investment firm, holding the current minimum capital resources and a professional indemnity policy with a £5,000 excess, which then experienced two legitimate claims, would have insufficient capital.”

For the majority of advisers, that are categorised as B3 firms (i.e. those whose activities are restricted to advising on or arranging retail investment products without holding client money and have 25 or less investment advisers and <5 appointed representatives), the new rules state they will need to retain 5% of their investment business annual income or £20,000 – whichever is higher.

Yet, for these smaller firms, the increase to minimum capital will be staggered, with the figure increasing to £15,000 from 30th June 2016 and further increasing to the full £20,000 requirement in another year’s time on 30th June 2017.

As the FCA state“a proportionate staged introduction for smaller firms... gives firms time to secure any necessary additional financial resources.”

However, PIFs that have permission to trade as principal, hold client money or manage portfolios (B1, B2 and certain B3 firms), the FCA has set the new income based requirement at 10% of their investment business annual income or £20,000, again whichever is higher and which becomes effective in full from 30th June 2016.

Queries on Capital Adequacy

If you have any queries about your Capital Adequacy requirements or are looking for support or assistance with your regulatory reporting requirements our consultants can help.

Please feel free to contact us or email enquiries@compoundgrowth.co.uk for a no obligation discussion.

Read our latest articles, news and views affecting compliance and regulation in the UK Financial Services Industry.

Comment from the FCA

“Implementation of the new rules will advance our objectives to secure an appropriate degree of consumer protection, enhance market integrity and promote effective competition”

FCA PS15/28