Over 90% of such companies, known as PIFs, are currently required to hold a minimum £10,000 of capital resources, regardless of their income.

But the FCA has ruled today that 5,000 directly authorised personal investment firms must hold at least £20,000 or 5% of their annual income from investment business – whichever is higher.

The regulator has set out changes to capital resources requirements which take effect from 30 June 2016.

Smaller businesses will be given extra time and have been they must have at least £15,000 from 30 June 2016 or 5% of their annual income before reaching the £20,000 level from 30 June 2017.

The FCA said the new rules will advance its objectives to secure an “appropriate degree of consumer protection, enhance market integrity and promote effective competition”.

Officials said: “We have to set the requirement at a level that will be proportionate for the population of 5,000 firms and will not be an unreasonable barrier to entry for new firms.

“We will therefore take forward the approach that we proposed and set the minimum requirement at £20,000.”

The paper, published today, stated: “Our proposals include a proportionate staged introduction for smaller firms by increasing the minimum capital resources requirement (from the current £10,000) to £15,000 from 30 June 2016, before reaching the required £20,000 from 30 June 2017.

“This gives firms time to secure any necessary additional financial resources, whilst taking into account the fact that the deferred rules created an expectation that the capital resources requirements are to increase.

“The current minimum capital resources requirement (£10,000) has almost halved in real terms since it was set in 1994. As a result, it would now be insufficient to meet just one average pension or investment claim following unsuitable advice.

“We do not want compliant PIFs to fail unexpectedly under normal operating conditions, resulting in claims on the Financial Services Compensation Scheme, which would then need to be funded by other firms in the sector.”