Adviser questions FSA motive for cap ad delay

A decision by the FSA to delay a requirement for advisory firms to hold more capital has been broadly welcomed by the industry, but one IFA has questioned the motive behind the move.

Simon Webster, managing director at Kent-based Facts & Figures, suggested the two-year deferral had been offered as a “sacrificial lamb” to the industry while the FSA presses ahead with other changes he said were more important.

This week, the FSA said the introduction of rules requiring firms to hold more capital would be phased in from December 2013, rather than December 2011 as originally planned.

Under the new regime, firms must hold capital resources equal to at least three months of annual fixed expenditure. The minimum threshold will be £20,000, double the previous £10,000.

Stakeholders welcomed the delay, but Webster questioned its timing, which came shortly after a public spat between the FSA and Treasury Select Committee (TSC) over the RDR.

“Of all the [FSA’s] requirements, capital adequacy is the least important and least effective,” he said.

“But now the FSA can offer this sacrificial lamb to the politicos who have at last started to make some headway. Snubbing a parliamentary committee was extremely unwise, so some backpedaling was inevitable.”

Last month, the TSC, which had been examining the impact of the RDR, accused the FSA of putting together a “peremptory” response to its recommendations.

Meanwhile, other advisers welcomed the FSA’s decision to delay its prudential rules.

David Brunning, director of Brunning Newman Houghton IFA, said: “I am delighted to see the FSA realise that, while increasing capital adequacy makes good commercial and regulatory sense, the timeframe was unachievable against a background of a poor economic climate and increasing costs.”

Meanwhile, the trade body for independent advisers has called on the FSA to use the extra two years it has permitted for firms to meet the capital rules to reconsider their impact on small businesses.

AIFA said the levels of capital proposed are “disproportionate for small firms with no systemic risk”.

Director of policy Andrew Strange said: “AIFA has long argued that the regulator’s approach to prudential regulation is fundamentally flawed. We call on the FSA to use this additional time to carefully reconsider the rules.”