UK FCA to Require Investment Advisers to Set Aside Capital

The United Kingdom Financial Conduct Authority (FCA) announced today (November 29, 2023) proposals to require personal investment firms – often referred to as investment advisers - to  set aside capital so that they can cover compensation costs and ensuring the "polluter" pays when consumers are harmed. 

The watchdog notes that, between 2016 and 2022, the Financial Services Compensation Scheme (FSCS) paid out nearly £760m for poor advice provided by failed personal investment firms. Whereas, 95% of this was generated by just 75 firms. 

The proposals seek to ensure that the polluter pays for the redress costs they generate. Besides, investment advisers would be required to report potential redress liabilities to the FCA.

Today's announcement supports the FCA's consumer investments strategy which aims to help consumers invest with confidence, with access to the support they need from financially resilient advice firms.

"We want to see a thriving financial advice market to make sure consumers can access the support they need from financially resilient advice firms that want to do the right thing. Diligent advisers are having to compensate through the levy for the bad advice of their failed competitors. That needs to change. It is important that the polluter pays," stated Sarah Pritchard, Executive Director of Markets and International, at the FCA.

In addition, around 500 sole traders and unlimited partnerships, and Firms that are part of prudentially supervised groups would be excluded from the automatic asset retention requirements.

The consultation period will last until 20 March 2024.  

Last week, the FCA urged​ unregulated Buy Now Pay Later (BNPL) firms to apply for authorization from the regulator.