FCA Practitioner Panel responds to PIFs capital deduction for redress proposals

The FCA’s 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 proposals and the concept of the ‘polluter pays’ model but it highlighted the importance of further testing:

  • the Panel supports introducing additional data point requirements in Retail Mediation Activities Returns and is in favour of exploring whether asking for more than 6 data fields is achievable, without placing disproportionate burden on firms;
  • the Panel encourages a phased approach to the implementation to enable firms to build sufficient capital to meet the requirements;
  • the proposals will need to be aligned carefully with the development of the Advice Guidance Boundary Review framework. The Panel is concerned that, where firms re-evaluate the products they offer and assess potential liabilities, this could lead to unintended consequences such as product bias or increased cost;
  • the Panel supports the proposal for a comprehensive prudential regime for PIFs to increase minimum capital requirements but suggests that a proportionate approach is needed to avoid the risks involved in the accrual of too much capital, eg more insolvencies and consolidations.

Harry Wells