FSA publishes proposed changes to Personal Investment Firms' prudential requirements
27th November 2008The Financial Services Authority (FSA) has today published a consultation paper (CP) setting out proposed improvements to prudential requirements for Personal investment firms (PIFs) designed to help reduce the impact of market failures in the sector.
Richard Thorpe, Head of FSA Capital Adequacy Policy, said:
"Feedback from the industry supports our view that the current prudential regime for PIFs needs to be improved. Our reforms, which will mean PIFs holding more capital resources where necessary, are designed to mitigate the impact of such firms on the Financial Services Compensation Scheme (FSCS) and to reduce the complexity of the capital resources rules."
The proposed new regime, which builds on Discussion Paper 07/4 published in July last year and Feedback Statement 08/2 published in April 2008, includes:
- simplifying the calculation of capital resources and making it consistent for all firms;
- extending the Expenditure Based Requirement to all firms based on three months of annual fixed expenditure and raising the minimum capital resources level from GBP10,000 to GBP20,000 for all firms;
- mandating a sliding scale of additional capital resources that firms should hold as a provision against potential liabilities for any business or activity excluded from their professional indemnity insurance policies.
The prudential proposals are closely linked to the wider issues covered in the Feedback statement to the Retail Distribution Review (RDR) published earlier this week and, subject to consultation, will be fully implemented by December 2012 in line with the RDR timetable.
