HM Treasury has decided to go ahead with its proposed change to the definition of advice after it won support.
But HM Treasury has said the definition will only apply to regulated firms in a bid to make life harder for scammers.
The new definition, which is narrower in scope and originates from European regulation, will effectively mean that regulated advisers will only be giving financial advice when they provide a personal recommendation.
But unregulated firms will still be giving advice without proper authorisation if they “advise on investments” as set out in the Regulated Activities Order.
In its announcement of the change, HM Treasury stated it had been convinced its original proposal of changing the definition for all firms posed a risk.
HM Treasury stated: “The government acknowledged that a risk existed that fraudsters may provide guidance encouraging consumers to invest in risky products.
“Whilst fraudsters can be prosecuted through the courts for running an illegal investment scheme, or for conspiracy to defraud, the FCA would be unable to take action against fraudsters for providing misleading but unregulated advice.
“It would also be more difficult to take early preventive steps to protect consumers from scams.”
HM Treasury reviewed the definition of advice after committing to do so in the Financial Advice Market Review.
It found some companies were less willing to offer less expensive guidance services because they were uncertain about what regulated advice - where the adviser accepts liability for a recommendation - consists of.
After launching a consultation on the issue in September HM Treasury stated its proposal won support from the majority of respondents but some raised concerns about potential risks.
Among the risks flagged up to HM Treasury was the fact fraudsters might disguise sales of risky investment products as “guidance” to escape regulation and that it might legitimise scammers in the eyes of consumers.
Under the current rules, set out in article 53 of the Regulated Activities Order, for advice to be regulated it must relate to a relevant investment, be given to a person in their capacity as an investor or potential investor and must relate to the merits of them buying, selling subscribing for or underwriting the investment.
Under the new definition advice must be a recommendation made to a person in their capacity as an investor or potential investor, the recommendation must be presented as suitable for the person to whom it is made and it must relate to taking certain steps in respect of a particular investment.
The new definition will come into effect on 3 January 2018 after the FCA has consulted on, and published, new guidance.
damian.fantato@ft.com
