CP23/24: Capital deduction for redress: personal investment firms

We have published a Dear CEO letter alongside this consultation, reminding firms they must not seek to avoid potential redress liabilities.  

Read CP23/24 (PDF)[1]

See our infographic[2]

Read our Dear CEO letter (PDF)[3]

Why we are consulting

We are concerned that some PIFs (personal investment firms) are causing consumers harm. We are seeing significant redress liabilities falling to the Financial Services Compensation Scheme[4] (FSCS). We therefore want to strengthen our prudential requirements so that PIFs have to hold more capital for redress. 

Our proposals would require PIFs: 

• to quantify an amount for their potential redress liabilities 
• to set aside capital resources for potential redress liabilities through a new capital deduction, and 
• where they are not holding enough capital to meet potential redress liabilities, to comply with an asset retention requirement  

Who this is for

• Personal investment firms, including new market entrants. See the CP for an explanation of what PIFs are.

It will also be of interest to: 

• consumers who receive pensions or investments advice  
• professional and trade bodies representing PIFs  
• consumer organisations 
• providers of professional indemnity insurance (PII) to PIFs 
• providers of investment platform, professional and other services to PIFs
• compliance consultancies, auditors and other professional services that support PIFs 
• all firms that pay into the Life Distribution and Investment Intermediation (LDII) funding class of the FSCS

Next steps

This consultation has now closed. We are grateful for the engagement and responses we received. Because of the various wider regulatory changes impacting the advice market, we have realigned our regulatory priorities and have decided not to take CDR forward. 

We expect firms to consider consumer outcomes and address redress liabilities in line with our rules, including the Consumer Duty[5]. We may intervene where we identify firms not meeting these expectations and where we see risk of harm. We will look closely at provisions for redress liabilities in client book transfers and at the gateway we will continue to challenge firms on the treatment of actual or potential liabilities. We expect firms to have carefully considered and followed our communication - Redress Liabilities: the polluter pays[6].