From the Ed: Whatever happened to our ‘fixed cost’ definition?

A promise is a promise is a promise. The FSA pledged a year ago to consult on how to apply a consistent method for calculating firms’ expenditure-based requirement (EBR) and, so far… nothing.

This is important. In November, the regulator extended the EBR to all firms based on three months of relevant annual expenditure and doubled the minimum capital resources floor to £20,000.

According to a number of stakeholders, this is a bigger deal than the RDR, because the rules appear to punish those businesses that invest in infrastructure and staff, and reward those that do not.

The FSA’s current definition of fixed expenditure – used to calculate the EBR – is likely to include, among other things, most salaries and staff costs, office rent and the lease of office equipment.

On publication of the FSA’s Policy Statement, the regulator appeared to listen to stakeholders’ concerns when it declared it was not its intention to create different capital resources requirements for different business models and promised to consult in 2010.

However, at a half-day conference hosted earlier this month by the Institute of Financial Planning, Richard Taylor, the manager of the FSA’s RDR team, said a consultation was “not imminent” following a question from a concerned adviser.

The regulator has since promised the issue will be dealt with in an upcoming quarterly consultation paper, but that could be next year.

The FSA should be applauded for one thing: it extended the period firms have to meet the new requirements by a year, to 1 January 2014. Clearly, it was aware the combination of RDR and recession meant a deadline of just three years may have been too much to bear for some businesses.

But that has not altered just how much of a burden the prudential rules have placed on some firms, particularly medium-sized entities.

From what I am told, a number of principals have delayed (and in some cases shelved entirely) plans to expand their companies, because they are unsure what impact it will have on their EBR and could render them economically unviable.

To say a consultation is simply “not imminent” is unacceptable and must be addressed immediately.

The clock may be counting down to 1 January 2013, but an awful lot of firms have their eye instead on the same day a year later.

Scott Sinclair, News editor, Professional Adviser