Regulatory intervention is needed to provide clarity on the increasingly blurred line between information and regulatory advice, the chief executive of the Personal Finance Society has said.
Keith Richards was commenting in light of remarks made by Financial Conduct Authority's chief executive Andrew Bailey to the Treasury select committee yesterday (June 25) that the London Capital and Finance scandal meant the regulator was "seriously considering" expanding its remit to look at instances where it may be unclear to consumers whether they are receiving "information" or advice.
The committee also raised the issue in light of the suspension of the £3.7bn Woodford Equity Income fund earlier this month.
Mr Richards said: "We agree that firms that appear to give advice, but claim to give only information, should be regulated according to the spirit rather than the letter of the rules, and if firms are giving the impression that they are giving advice, they should not be allowed to avoid responsibility for that advice because of loopholes in the regulatory parameter.
"It cannot be right that regulated professionals who do perform to high professional standards should be tainted by the activities of firms that do not behave in an ethical way, and who, in addition, do not contribute to the cost of compensation and regulatory supervision."
London Capital & Finance was a regulated entity, which it highlighted on its website, which contained information about mini-bonds, which are unregulated investments.
London Capital & Finance subsequently went into administration, potentially leaving investors out of pocket.
Mr Bailey said he hoped to move the FCA in a direction where it operated a "principles based", rather than a "rules based" system, because the latter often turns into a "tick box culture".
He added that he regarded problems that have emerged as a result of the suspension of the Woodford Equity Income fund as being "rules based" problems, rather than a failure of his organisation, and said that the rules that apply were EU wide, so cannot be changed while Britain remains a member of the EU.
Mr Bailey specifically cited the rule requiring firms to have a maximum of 10 per cent of an open-ended fund's assets in illiquid stocks, which affected the Woodford Equity Income fund, as being something he might consider changing.