Lucy HadrillThe FCA’s Smaller Business Practitioner Panel has responded to the consultation on proposals to require personal investment firms (PIFs) to set aside capital for potential redress liabilities. The Panel generally supports the principles behind the FCA’s proposals but has queried how some of the changes might be implemented in practice:
- the Panel is in favour of the proposed proportionate approach to reduce the burden on smaller firms but it is concerned that the costs for smaller firms may be above the estimated annual £1,000 per firm;
- the proposals are heavily reliant on firms’ self-governance which may lead to ‘bad actors’, who the rules are designed to target, being least likely to comply;
- the Panel is concerned about the lack of availability and affordability of PII cover for smaller businesses and has suggested allowing firms without such cover to meet the requirements through other means, eg holding materially higher levels of capital or a ‘ring-fenced’ amount of core liquid assets;
- there is a risk that firms that do not hold the capital needed to meet their liabilities could put themselves into default or sell off/move their client base, meaning redress would fall to the FSCS;
- it is not clear how the proposals would motivate or inspire firms to work harder to give good advice. The Panel encourages the FCA to explore this further to ensure firms pro-actively embrace the spirit of the Consumer Duty;
- the Panel is supportive of the proposal for a more comprehensive prudential regime for PIFs to include specific liquidity requirements and potentially increase minimum capital requirements.
