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PIMFA calls for clarification over ‘confusing’ FCA consultation paper


PIMFA, the trade association for investment managers and financial advisers, has described the recent FCA consultation paper (CP) ‘Our Framework: Assessing Adequate Financial Resources’ as ‘confusing’.

Ian Cornwall (pictured), Director of Regulation at PIMFA says: “The FCA needs to give further clarification regarding this CP – feedback from our member firms has indicated that there is confusion about the status of this document.

“In some cases, it refers to things that the firms should adopt and in other cases, it says that there are no changes to the requirements. In addition, we are not sure why it is a CP as it appears not to be proposing any handbook changes.”
PIMFA highlights a statement by FCA director of supervision Megan Butler where she declares that the intention is not to increase general levels of financial resources across financial services but to take a proportionate and risk-based approach to the supervision of firms. 
“We would agree with that [statement], but if you look at what is happening in practice to firms that fall under the Capital Requirements Directive, based on KPMG’s Benchmarking Survey 2018, you can see that every firm that has had a review in the last four years between 2015 to 2018 has been requested to hold more capital with a median increase of 39 per cent. In this year’s study, 24 out of 30 firms surveyed have been subject to a regulatory visit.
“There is a disconnect between the intention set out in Megan Butler’s statement, and what is happening in practice. It leads us to question what management information will be maintained and reviewed by senior management to ensure the intention is met in future.”
The trade association also notes that the CP fails to give any indication of the expectations regulated firms should have of the FCA in terms of assessing whether or not it is operating an effective supervisory regime. This could include the criteria by which the Board assesses the effectiveness of prudential supervision or whether the prudential supervisory framework considers, where available, firms’ audited accounts?
“At the moment the FCA does not look at audited accounts, which we think is a shortcoming. What steps are taken to ensure supervisory staff have the skills to understand and assess financial data and the content of audited accounts? Our understanding is that there are a low number of experienced qualified accountants in supervision,” adds Cornwall.
Cornwall also states that “normally communications tend to be separate between Personal Investment Firms and firms such as wealth managers that fall under the CRD. It is not clear in the Consultation Paper that they are referring to two different prudential regimes.
“For example, for Personal Investment Firms the FCA has never detailed their regulatory expectations, but for CRD firms such as wealth managers, it is already hard coded into the CRD regime – the issue for them is that the regulator always seems to increase the requirement when reviewing.”

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