Featured: PIMFA raises concerns over the FCA’s capital deduction for redress plans and calls for
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further discussion 2 April 2024
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PIMFA raises concerns over the Financial Conduct Authority’s capital deduction for redress plans and calls for further discussion PIMFA recently raised serious concerns about the Financial Conduct Authority’s (FCA) proposals for personal investment firms (PIFs) to calculate their potential redress liabilities and has called for further engagement with the Regulator. The proposals put forward by the FCA to increase the accountability of firms that have exposure to redress liabilities do move towards a ‘polluter pays’ model, which PIMFA has been advocating for, for several years. But they could see well-run firms holding additional capital for redress that may never be required and paying higher Professional Indemnity (PI) premiums that include additional exemptions. In the worst cases they may also lead to firm failures as a result of additional capital allocation requirements that would still leave clients falling on the FSCS. PIMFA has no confidence in the effectiveness of how these proposals will be supervised and enforced and are concerned that bad actors, who are the target of the proposals, will continue to behave in a manner resulting in well-run firms having to pay for their failures. The FCA has also indicated it is considering moving towards a more comprehensive prudential regime for PIFs, drawing on the experience of introducing the Investment Firms Prudential Regime (IFPR) in January 2022. PIMFA is strongly in favour of a review of the PIFs’ prudential regime and moving towards an alignment with MiFID investment firms in a reasonable and proportionate manner and is therefore calling for further discussion between the Regulator and industry about the implementation of these proposals. You can read the PIMFA response here.