Not content with finalising its retirement income market study and publishing its fees consultation, the regulator refused our silent pleas for clemency and on the same day has put out a hefty consultation on transposing a new swath of European rules into UK regulation.
1. Commission ban.
No, this is not to do with the commission ban for retail advice.
Actually the revised Mifid does not require a ban for adviser commissions, merely that independent advisers disclose and agree any payments with clients - and it is much more lax on restricted advisers. But it also allows member states to go beyond this minimum, so RDR remuneration rules are here to stay.
The FCA adds that it will copy across the most restrictive set of rules on the ‘minor non-monetary benefits’ from third parties which can be accepted by both restricted and independent firms, as to do otherwise would “cause confusion and... undermine the RDR adviser charging rules.”
Commission in the context of today’s paper is to do with discretionary managers. While the rules passed in Europe do not allow retaining third party commissions and other benefits, they do allows firms to accept payments provided they rebate these back to the client.
However, the UK regulator wants to replicate its RDR model and ban acceptance of these fees and benefits, and by extension client rebating. It says there is potential for consumer confusion and regulatory arbitrage, especially if firms seek out commission-paying products only to rebate a portion and claim a fee reduction.
2. Proper labelling.
And having mentioned independence and restricted, it would be remiss not to highlight the discord between the European and UK rules here. In short: the Mifid rules are fairly close to both the dictionary and the old definitions pre-RDR.
There’s some good news here, though. The FCA has already acknowledged consumer understanding of adviser labels is low and said it has plans to further explore the topic further - and today it says it will review the EU definition and compare it with its more stringent version.
Mifid II’s standard just asks independent advisers to look at a “sufficient range” of products from a “sufficiently diverse group of providers”.
Don’t jump for joy just yet: the FCA also says it continues to believe independent advisers should consider all types of product which may be suitable, rather than merely be independent of providers.
3. Product complexity.
As reported earlier, the rules on ‘complex’ products may change as a result of the transposition, with a likely reduction in the types of products that can be considered ‘non-complex’.
This could mean few instruments other than plain vanilla shares and bonds, (non-structured) Ucits funds and structured deposits being able to be sold in the retail market without an appropriateness test, or without advice. Potentially another boost for the importance of advice, then.
The European Securities and Markets Authority has been asked to develop guidelines to help firms determine when a product is deemed complex, which are due to be published next January.
The FCA noted that firms may want to consider the impact on their online distribution models, possibly developing a way of collecting relevant information from consumers to allow assessment of their knowledge and experience to understand the risks of a particular product.
4. Recording conversations.
This is one of the requirements which has raised hackles over the onerous burden being placed on firms. You’ll need to do a lot more paperwork and record everything, including telephone calls.
If the FCA applies the amended Mifid framework to advisers, you’ll need to take all reasonable steps to record relevant telephone conversations, face-to-face meetings and electronic communications relating to actual or proposed client transactions.
During stakeholder engagement, the regulator said it widely heard that advisers vary in terms of their commercial practices concerning record-keeping and for some smaller firms this requirement will represent a significant change, with concerns raised in respect to the likely costs involved.
5. Cost presentation
Mifid does not prescribe how information on fees should be presented to consumers and the FCA outlines that if it were to standardise any part of the costs and charges disclosure, this would be subject to appropriate consumer testing.
“However, at this stage, we would welcome views on whether we should investigate standardising some, or all, of the Mifid II costs and charges disclosure.”
While it recognised the varied legislative approach at a European level, the FCA believes that consistent high level provisions could be important to ensure that remuneration practices for advisers prevent conflicts of interests.
peter.walker@ft.com
