Regulation  

FCA opens new front in non-advised crackdown

Trading platforms which offer direct clients services that automate portfolio management based on ‘mirroring’ of more experienced investor trades or that suggest ‘copy’ trades could be forced to gain full advice permissions, as the regulator opens a new front in its non-advised clampdown.

In a letter to the Retail Derivatives Committee, a group of executives representing major firms in the sector, the Financial Conduct Authority suggested that such platforms may need to gain more than their current non-advised or ‘execution-only’ permissions.

Last autumn the regulator revealed it was conducting a review of execution-only services in the wake of a number of new market entrants post-RDR, with the findings expected to be published in the first half of this year.

The letter, first brought to light by FTAdviser sister title the Financial Times, proposed that providers of “mirror trading” or “copy trading” services could have to gain the authorisations associated with giving regulated advice.

Services which offer to alert investors when their favourite fund managers alter their portfolios to allow them to make similar shifts - so-called copy trading - could be classed as providing advice according to the FCA’s interpretation of rules.

The letter says: “A copy trading service provides information on the basis that it is a good idea for customers to copy the signals of their chosen signal provider. In the FCA’s opinion, this is likely to amount ot provision of information in circumstances which give it the force of a recommendation.”

Similarly, providers of mirror trading services whereby investors give permission for companies to make investment decisions copying those taken by more experienced investment houses could be classified as ‘discretionary management’ activities.

The difference is that the former amounts to making a personal recommendation while the latter companies are given permission to make trades at their own discretion.

Because these proposals constitute the FCA’s interpretation of existing rules rather than the introduction of new rules, no formal consultation is required.

The letter adds that a firm which is engaged in the activities of a copy trading service provider in the UK and undertaking these activities by way of business and which is not:

• authorised by the FCA;

• a registered appointed representative of a UK authorised firm;

• operating under a passport from an authorised firm in a EEA member state with the appropriate permissions; and

• might be “performing regulated activities in the UK in breach of the General Prohibition in section 19 of the Financial Services and Markets Act 2000.

The FCA letter adds in relation to the last point: “This is a criminal offence and firms are advised to cease these activities until they are appropriately authorised to do so.”

A spokesperson for the regulator declined any comment but to say the proposals were not final.