The FCA has scrapped plans to compel investment advisers to set aside funds in advance to compensate investors if bad advice is given.

It published proposals that would require about 5,000 'personal investment firms' - investment advisers - to set aside capital so that they can cover compensation costs in the event of claims in November 2023.

Yesterday it said: “Because of the various wider regulatory changes impacting the advice market, we have realigned our regulatory priorities and have decided not to take CDR [Capital deduction for redress] forward.”

The FCA added: “We expect firms to consider consumer outcomes and address redress liabilities in line with our rules, including the Consumer Duty. 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.”

When the FCA launched a 16-week consultation on the issue two years ago, it said: “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.”

It said it was concerned that some personal investment firms were causing consumers harm. It said: “We are seeing significant redress liabilities falling to the FSCS. We therefore want to strengthen our prudential requirements so that PIFs have to hold more capital for redress.”

The introduction of Consumer Duty and other regulatory changes has met the FCA’s concerns, according to its latest statement, which is why it has decided not to take the matter forward.