Financial Conduct Authority  

FCA criticised for 'not knowing' its own rules

FCA criticised for 'not knowing' its own rules

The Financial Conduct Authority has been criticised after it told an adviser to seek legal advice to establish what its own rules were.

Neil Liversidge, managing director of West Riding Personal Finance Solutions, spent several months attempting to find out whether he was authorised to advise on certain products.

But the FCA eventually told him he should seek independent legal and compliance guidance because of the "complexity" of his query.

Mr Liversidge told FTAdviser he was "just trying to do his job" and didn’t see why he should "chuck money at lawyers only for the FCA to come back at a later date and decide retrospectively that he had interpreted the rules incorrectly".

The issue began in February, when Mr Liversidge asked the City watchdog to confirm whether he was able to recommend certain real estate investment trusts that fall under chapter six of the regulator’s own listing rules.

Reits are investment trusts that invest in real estate instead of company shares and are split into two categories — chapter six and chapter 15, depending on where they fit in the listing rules.

Trusts that fall under chapter 15 are standard investment trusts that invest in property rather than companies, but chapter six Reits are long-standing property companies — such as British Land — which have morphed into REITs over the years.

Mr Liversidge asked the FCA if his permissions to recommend and advise on standard Reits — which fall under chapter 15 — meant he could do the same for chapter six trusts.

Chapter 15 Reits fall within the scope of the Packaged Retail and Insurance-based Investment Products Regulation that came into effect in January 2018 so require a Key Information Document — which explains what the product is, the risk rating and potential returns in laypersons terms — to be given to the client.

He described the process of recommending chapter 15 REITs as "easy" but wanted clarification from the regulator as to whether he was also authorised to recommend chapter six Reits — which don’t require a Kid.

Mr Liversidge wrote to the FCA: "Can I recommend chapter 6 Reits, which don’t have a Kid, to clients? If I can, is there anything special I need to do or tell the client in the absence of a Kid?"

He went on to tell the regulator that he "just wanted to be clean from a regulatory point of view".

The FCA told him that his query had been escalated to the relevant team then, after several months, told him over the phone that they would e-mail him their response — but no e-mail arrived for around a month until he chased the regulator last week.

The City watchdog responded: "The team have reviewed your query and have come back to state that due to the complexity of the query, they would recommend the firm seeks its own independent legal and compliance advice."

Mr Liversidge told FTAdviser: "Imagine if the Department of Transport produced a Highway Code of such complexity that even it could not tell drivers what amounted or did not amount to safe and legal driving.