PS15/28: Capital resources requirements for personal
investment firms (PIFs) is essential reading for the owners of Directly
Authorised IFA practices. New capital
requirements will apply from June 2016 and will result in all Firms having to
review and potentially increase the amount of assets set aside to meet the new minimum
capital requirements.
For PIFs (Personal Investment Firms) the new requirement will
be the greater of £20,000 or 5% of the Firms Investment Business annual income.
Where the Firm has permission to manage portfolios of, deal
as principal in, or hold client money for life policies the capital requirement
increases to 10% of the Firms Investment Business annual income.
The Financial Conduct Authority have confirmed that Small
Firms will have an interim minimum capital requirement of £15,000 or 5% from
June 2016 rising to £20,000 in June 2017.
Subordinated Loans:
Personal Investment Firms
The repayment of a subordinated loan remains the same as
previously, meaning that the loan may only be repaid where the firm holds 120%
of its capital requirement once the loan has been repaid.
By way of example:
Turnover £200,000
Subordinated Loan £20,000
Minimum Capital requirement: £24,000 (£20,000 x 120%)
Capital and Reserves: £40,000
Here, as the 120% threshold has been reached the Firm could
consider seeking permission to reduce the subordinated loan by up to
£16,000 (£40,000 - £24,000).
From June 2017 Personal Investment Firms will be restricted
as to the maximum amount of a subordinated loan may be included in the capital adequacy
calculations:
([Amount of a firm's capital and reserves] – [Intangible
assets and preference share capital]) x 400%
For any amount of the subordinated loan exceeds this
calculation, the excess must be treated as a liability against the calculation
of own funds.
The revised rules do not provide a list of how this capital
requirement must be held or detail how certain assets have to be revalued
(depreciated).
For more help contact us at www.compliantsolutions.co.uk
