Personal Finance Society  

The industry should be more than 'prescriptive rules'

The industry should be more than 'prescriptive rules'

The Personal Finance Society has called for a culture in which advisers can "go ahead and do the right thing for clients" rather than solely following "prescriptive rules". 

Keith Richards, chief executive of the PFS, said lockdown had shown the world could "carry on without people physically peering over each other’s shoulder".

He said: "This principle can also apply to regulation.

"In collaboration with the FCA, we managed to relax some MiFID regulations without harming clients in any way, and maybe the future doesn’t need to be only about prescriptive rules, and instead can be about allowing proven professionals to go ahead and do the right thing for clients." 

The regulator paused the 10 per cent depreciation rule under the Markets in Financial Instruments Directive II last March in response to some of the biggest market falls seen in modern times as a result of the pandemic. 

In normal circumstances the rule dictates portfolio managers inform clients by the end of the business day if the value of their portfolio depreciates by 10 per cent or more from the beginning of the last reporting period, which is at least quarterly.

It also requires the manager or adviser to inform their client of each subsequent fall of 10 per cent or more.

But the flexible approach adopted by the FCA last year meant firms were only required to issue one notification within a reporting period providing they continued to give general market updates to their clients.

At the time, the PFS warned the 10 per cent reporting rule was adding to "workload pressure and anxiety" in the market. 

'Unfinished business'

But Mr Richards also said there was "more unfinished business" on the regulatory front, which he said would come to fruition as the FCA pursued its review of the investment market. 

He added: "The advice gap that was identified by FAMR still exists, as does the volatility of professional indemnity premiums and FSCS levies.

"Eventually, these will have to be replaced by a less volatile funding mechanism that is if the advice gap is to close."

In its recently published review of the advice market the regulator found it was "improving, albeit slowly" since the introduction of RDR and FAMR. 

Sheldon Mills, interim executive director of strategy and competition, said the industry was "moving in the right direction, but still had further to go". 

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