Capital adequacy

This document has been prepared to show how Pioneer has addressed the obligation upon it as an FCA regulated firm to complete, on an annual basis, an Internal Capital Adequacy Assessment Process (ICAAP) for the purposes of determining its capital requirement under the Capital Requirements Directive (CRD).

In December 2015 the FCA issued a policy statement on changes to capital resource requirements for personal investment firms (PIFs): PS15/28: Capital resources requirements for personal investment firms.

The changes will come into effect in two stages: from 30th June 2016, with the full rules being introduced on 30th June 2017.

The policy statement represents the final outcome of the FCA review of the current and previously deferred rules that were due to come into effect in December 2015 and confirmation of the abandonment of an expenditure based requirement for most PIFs in favour of an income based requirement. The FCA has reiterated its aim in relation to firms’ capital resources as:

“To require a proportionate level of capital resources for PIFs to absorb routine losses and legitimate redress claims against them, as well as to provide time to make appropriate arrangements in the case of market exit.”


Relevant firms

The changes being proposed apply to current rules for PIFs under Chapter 13 of IPRU (INV) in the FCA handbook.

The capital resource requirements for discretionary management firms are covered under the GENPRU and BIPRU sourcebooks and for mortgage and insurance intermediaries under MIPRU. The changes confirmed in this policy statement do not apply to these other sourcebooks i.e. the capital resource requirements for discretionary management firms or mortgage and insurance intermediaries remains unchanged. However, note below the requirements for any PIFs undertaking mortgage and/or insurance business in addition to investment business.


The new rules

Under the new rules the FCA is introducing a capital resources requirement which is the higher of: A minimum capital resource requirement of £15,000 from 30th June 2016 and rising to £20,000 from 30th June 2017. This replaces the current £10,000 requirement. Income based requirement of at least 5% of relevant annual income. Please note that for firms undertaking insurance (including protection) and/or mortgage business an additional 2.5% of income from these sources is added to the 5% of gross income from investments. This replaces the expenditure based requirement (EBR) that currently applies to PIFs with over 25 advisers and networks. For exempt CAD firms (assumed to be undertaking insurance mediation and therefore subject to the Insurance Mediation Directive (IMD)) the current €25,000 requirement will remain (as this is set by EU law).

Team Pioneer

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