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 will publish feedback on responses and, if after reviewing your responses we decide to make rules, we will issue a Policy Statement.

We are taking time to further consider the consultation feedback alongside feedback we have received to other linked proposals including our call for input on modernising the redress framework [5]and our review of regulatory requirements following the introduction of the Consumer Duty[6]. We will update on our CDR proposals later this year.

We will continue to carry out increased monitoring of firms as part of our authorisation processes. We published an update[7] in January 2025 on what firms should and should not do to tackle polluting behaviour and meet their redress liabilities.

Background

We want to ensure that the firms that generate redress costs are better able to meet them without recourse to the FSCS and that should a firm fail there is more capital for FSCS recoveries. In short, we want the polluter to pay. This is in line with our commitments in the 2021 Consumer Investments Strategy[8] and in response to feedback to our 2020 Consumer Investments Call for Input[9] and our 2022 Compensation Framework Review Discussion Paper[10].