The UK’s wealth management association, Pimfa, has raised “serious concerns” over proposals that require personal investment firms (PIFs) to allocate capital for potential redress liabilities.
While Pimfa welcomes the Financial Conduct Authority’s efforts to make firms more accountable by adopting a ‘polluter pays’ principle, the lobby group believes the measures are too vague and subjective.
Furthermore, they will unfairly punish prudent firms while having little impact on bad actors, according to Pimfa.
PIMFA calls for regulatory clarity on advisory market reform
The punishment includes higher professional indemnity premiums and holding additional capital for redress that may never be required.
Pimfa also criticised the capital requirements calculation as “finger in the air guesswork”. And it has raised concerns over how the regulations will be enforced given that the FCA does not directly regulate the majority of smaller investment and financial advisory firms.
Instead, the association has called on the FCA to further align the requirements with those faced by MiFID investment firms.
Link Fund Solutions sale to generate redress for Neil Woodford investors
“While the intent of the FCA’s proposals is welcomed, the requirements and process are overly subjective and complex and do not provide sufficient confidence in the effectiveness of how they will be supervised and enforced to achieve their aims,” said Alexandra Roberts, head of regulatory policy and compliance at Pimfa.
“It will, therefore, result in a considerable burden, in terms of time and resources, for the diligent and prudent firms while having little to no impact on the bad actors who are knowingly responsible for high redress claims.”
According to Roberts, the proposals would “impose sweeping and extensive obligations on all 5,000 PIFs to address the actions of 75, which appears unnecessary and disproportionate”.
FCA to improve pace and transparency around enforcement cases
Instead, Roberts suggested that it would be better to align the requirements on PIFs with those faced by MiFID investment firms.
“This action would resolve some of the issues in relation to redress claims falling onto the FSCS and be a more straightforward and logical solution,” said Roberts.
