Ban on referral payments

The regulator had brought into force rules from December 31 2012 banning adviser from receiving referral payments from DFMs, but had left a potential loophole in that payments were only banned if the adviser made a “personal recommendation” about an investment product.

The new consultation, CP13/4, has proposed to remove that loophole and will ban referral payments if the adviser provides any service to the client.

However, under the new proposed rules, the “introducer”, as the regulator terms it, can continue to receive referral payments if they simply introduce a client to a DFM and then have no further contact with them.

The consultation paper has also been set up to deal with the issue of ‘legacy’ referral payments, which was not covered by the original rules.

The FCA has proposed new rules that allow referral payments for pre-RDR referrals to continue, but will ban payments given for post-RDR top-ups which result from a recommendation from the adviser to a client.

The new rules are scheduled to come into force on December 31 2014.

Under the RDR the regulator also required firms to alert it about competence or behaviour issues among their advisers and to inform it about complaints received in relation to their advisers.

The FCA now plans to adjust these rules requiring firms to inform the FCA about complaints at the level of their individual retail investment advisers.

The FCA will adjust the rules to ask for information to be provided to us on the basis of the wording ‘complaints about matters relating to activities carried out by any one employee when acting as a retail investment adviser’. If the adjustments to the rules are made following this consultation, we propose that they should come into force in early 2014.