UK: Retail product distribution payments under the FCA spotlight – finalised guidance on inducements and conflicts of interest

The FCA has set an uncompromising compliance standard for what it sees as unacceptable payments from product providers to advisors in the retail investments sector; and laid down a marker for similar payments in the mortgages, protection and other ICOBS sectors. Firms affected must review their distribution/services agreements and other payment arrangements by 16 April 2014.  Continue reading

FCA confirms bans on payments to platforms and cash rebates

The FCA has published its policy statement and final rules which confirm that it will ban (i) payments from product providers to platforms, and (ii) cash rebates of product charges by product providers to consumers, in respect of sales of retail investment products.  The policy is broadly in line with the proposals in CP12/12 and comes just over three years since reforms to the regulation of platforms were first proposed.  The FCA has made some important adjustments to the new rules, notably by bringing execution-only sales within the scope of both bans (not just the ban on payments from product providers to platforms as previously proposed).  It seems that the RDR was only the beginning of reform in the retail distribution market.  Our briefing is available here.

UK: Financial Conduct Authority (FCA)’s Risk Outlook and Business Plan for 2013 published

The FCA’s Risk Outlook (FCA RO) has been published today, setting out the regulator’s current thinking on conduct in financial markets by analysing the root causes and emergence of conduct risk, and identifying the forward-looking risks that the FCA deems pose the greatest risk to its objectives.  Whilst the document inevitably focuses on consumer detriment arising from the wrong products ending up in the wrong hands, there is welcome recognition that this needs to be balanced against the detriment to society of people not being able to get access to the right products.  The FCA stresses its collective responsibility with industry to co-operate in acting to address these challenges.

The FCA’s Business Plan, also published today, confirms that the FCA’s strategic priorities are driven by the key forward-looking risks in the FCA RO, as well as the FCA’s operational objectives, and the need to address crystallised risks such as LIBOR, PPI and Interest Rate Swaps.  The key priority risks identified in the FCA RO are set out below together with the work planned to address them.  We also summarise the ongoing work the FCA plans to meet its operational objectives, including enforcement and financial crime priorities.   Martin Wheatley commented that “achieving the FCA vision is in all of our interests, not only socially, but also financially”.  The FCA’s budget – which will be wholly separate from that of the PRA – comes in at £445.7m, just over 80% of the FSA’s budget as single regulator for 2012/2013.

Continue reading

PRIPs: Proposed Regulation on pre-sale disclosures for Packaged Retail Investment Products – interaction with RDR and MiFID II

The European Commission has now published its final proposal for a Regulation on mandatory pre-sale disclosures for Packaged Retail Investment Products (PRIPs).  The Regulation aims to close gaps and inconsistencies in current rules across Europe by introducing uniform rules on product disclosures.  The Commission last consulted on these reforms in January 2010, so the draft Regulation has been a long time coming.

Our briefing summarises the new PRIPs Regulation and considers the interplay with disclosures required by the RDR and revised MiFID.  This Regulation is likely to considerably increase the costs and resource already being expended in implementing related rules under the FSA’s RDR and the Commission’s review of MiFID (MiFID II).  Estimated industry compliance costs are €171 million initially and €14 million per year thereafter.

MiFID II: a greater step away from the RDR?

Key recommendations by the Rapporteur on the investor protection elements of the proposed MiFID II Directive, contain some potentially significant concessions for firms.  However, the recommendations are at odds with the UK’s Retail Distribution Review (RDR) rules.  If the Rapporteur’s position prevails, this is likely to fashion an even greater unlevel playing field across the EU.  It remains to be seen whether the recommendations will follow through into the final report, or indeed how influential the report will ultimately be.  However, it is unlikely to allay existing concerns about the competitiveness of UK firms operating in Europe.  Continue reading

Treasury Select Committee and FSA disagree over timing of RDR implementation

The Treasury Select Committee (“the Committee”) published a report on its inquiry into the Retail Distribution Review (“RDR”) on Saturday, and recommends that in order to allow advisers to satisfy the requirements of the RDR, the FSA should defer its implementation for 12 months.

The Committee agrees that reform of the financial advice market is needed, but believes the FSA’s current timetable risks putting a large number of experienced advisers out of business, potentially reducing competition and choice for consumers, at a time when the savings rate is too low.

In its response, the FSA has said it remains committed to the January 2013 date, and noted that “many of the report’s recommendations relate to the importance of monitoring the market place to ensure that the RDR’s goals are being achieved. The FSA is committed to ongoing monitoring and recognises that it is important that its proposed successor organisation, the Financial Conduct Authority, continues this work.”

Continue reading

Consultation on the review of the Markets in Financial Instruments Directive: Investment advice and the FSA’s Retail Distribution Review

The European Commission published its consultation (the “Consultation”) on the review of the Markets in Financial Instruments Directive (“MiFID”) in December 2010. The Consultation, which closed on 2 February 2011, sought views of market participants, regulators and other stakeholders on possible changes to MiFID’s regulatory framework. The Commission Services envisage that the responses will provide “important guidance” in preparing a formal Commission proposal, currently scheduled for adoption in the second quarter of 2011. Continue reading

European reforms to regulation of packaged retail investment products

The European Commission has recently published its long-awaited proposals on the regulation of Packaged Retail Investment Products (PRIPs).  The aim of the initiative is to close gaps and inconsistencies in current rules across Europe, by introducing a horizontal approach to the regulation of mandatory pre-contractual product disclosures and sales practices for PRIPs.  Continue reading

FSA confirms professionalism aspects of RDR

The FSA has published its final rules on professionalism in the context of delivering the Retail Distribution Review (RDR) in policy statement PS11/1.  This completes the policy requirements of the RDR, and now that “all the building blocks are in place”, the FSA expects advisers to consider what they still need to do to ensure they meet the new standards that will apply from 2013.

This e-bulletin summarises the key points in relation to the governance of professional standards and data collection. Continue reading