The greatest single operating cost of UK investment firms could more than double under the latest European proposals on regulatory capital according to the UK's Association of Private Client Investment Managers (Apcims).
Speaking at a City conference today, Apcims chief executive Angela Knight (pictured) said that although the European Commission's latest draft of its new Capital Adequacy Directive is an improvement for companies defined as "simple" investment firms, its complicated formula still leaves many non-banks caught in a regime designed for the banking industry.
The result will be completely disproportionate increases in costs for many investment firms, she told delegates to the Security Industry Software Association conference in London.
The Directive seeks to apply the Basel rules devised for large international banks on all of Europe's financial industry. Although its stated aim is to devise a system which is more closely related to risk, its basic assumption is that all firms are banks or bank look-alikes, says Knight.
"It's like putting a six-year-old girl in a size 18 party frock. It fits nowhere, it covers everything several times over and it keeps tripping her up every time she tries to move. Additional costs, not justified by additional risks, simply mean that the customer will pay more for no extra benefit."
A similar argument was made recently by the US Securities Industry Association, which called for national regulators to have discretion in the application of the rules to securities firms.
Says Knight: "Investment firms have to have their own tailored regime. It cannot be right to burden them with the same capital requirements as internationally active banks."