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FCA: Personal investment firms that give bad advice to hold capital for redress

ended 29. November 2023

The FCA has this morning announced proposals to require personal investment firms to set aside capital so that they can cover compensation costs and ensuring the polluter pays when consumers are harmed. The proposals would require personal investment firms – often referred to as investment advisers - to calculate their potential redress liabilities at an early stage, set aside enough capital to meet them and report potential redress liabilities to the FCA. Any firm not holding enough capital will be subject to automatic asset retention rules to prevent them from disposing of their assets. Newspage asked experts for their views, below.

4 responses from the Newspage community

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Scott GallacherVerified
Director at Rowley Turton
As an IFA, I'm wary of the FCA's proposals. Penalising successful firms with substantial capital seems counterproductive. It also poses a risk to directors, as income through dividends could be suspended, despite existing company law covering such scenarios. This might steer businesses towards alternative remuneration, impacting advisers' tax positions and discouraging new entrants. Consequently, firms may operate with minimal capital, raising doubts about the regulations' overall effectiveness. There's a genuine concern that these proposals could inadvertently trigger a race to the bottom in capital reserves, contradicting the FCA's goal of ensuring stability and consumer protection.
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Daniel WiltshireVerified
Actuary & IFA at Wiltshire Wealth
In principle, the "polluter pays" framework sounds sensible. However, as always, the devil will be in the detail. A concern I have is that if extra capital has to be set aside, regardless of whether the claim is being contested, this could place a disproportionate burden on smaller firms. This would be anti-competitive and ultimately bad for the consumer.
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John Bull0
Managing Director at Jencap Partners
The FCA say new rules on setting aside extra capital to cover claims will not see a significant number of firms fail or ‘exit the market’’. However the rules may require capital to be put aside even when a complaint is being defended and no finding of fault has been determined.
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Matthew Gunn0
It will be interesting to understand how firms will calculate their redress liability figure and how their total capital is calculated. For the majority of firms I’m sure this will be transparent and unmistakable, not manipulated and fair. What steps will the FCA take to those firms operating unfaithfully? Will those firms be called out by the FCA? Will consumers be contacted by firms automatically? Interesting times.