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FAMR progress report published

Chris Hamblin, Editor, London, 12 April 2017

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HM Treasury and the Financial Conduct Authority have published a report on the progress that the UK has made in its efforts to comply with the 28 recommendations thrown up by the Financial Advice Market Review.

They are consulting interested parties about new rules for the advice market. The deadlines for comments are in late May or early June, depending on the topics. The paper, amusingly, refers to last year's budget as 'Budget 2016.'

Recommendation 1 was for the FAMR Expert Advisory Panel to form a Financial Advice Working Group; this happened in June last year with Nick Prettejohn in the chair. Recommendation 2 was for the Treasury to consult people about amending the definition of 'regulated advice' in the existing Regulated Activities Order (RAO) so that regulated advice is based upon a personal recommendation, in line with the EU definition set out in the Markets in Financial Instruments Directive (MiFID). It did so and reactions were mixed, so the Treasury is now planning to change the definition of regulated advice for most regulated firms, leaving the current advice boundary in place for unregulated firms.

In line with recommendation 3, the FCA is consulting people about new guidelines to support firms that offer services that help consumers make their own investment decisions without a personal recommendation. In line with recommendation 4, regarding "streamlined advice on simple consumer needs," the FCA is consulting firms and has published case studies and specific examples. In line with recommendation 5, the FCA is modifying the time limits for employees to attain appropriate qualifications that satisfy its existing Training and Competence sourcebook (TC). The idea is to help firms train a new generation of advisers by allowing employees to work for up to four years under the watchful eye of supervisors, the better to obtain qualifications and experience. The FCA has responded to a recent consultative exercise in which it proposed to extend the current 30-month time limit to 48 months (four years) and has responded to firms' remarks.

Recommendation 6 exhorts the FCA to propose guidelines to change its cross-subsidisation rules in relation to the interpretation of the phrase ‘long term’ and the flexibility it allows firms. A consultative process is underway, with the FCA proposing some changes to its Conduct of Business Sourcebook (COBS) on 'adviser charges' for vertically integrated firms (VIFs). The FCA is aiming to publish rules this month. Meanwhile, recommendation 7 states that the Treasury should ensure in transposing and implementing MiFID II that it does not hamper the FCA in its efforts "to follow through with the proposals which are designed to give firms the confidence to deliver streamlined advice." This is a work in progress, with the publication of "detailed implementing measures" timed for the summer. According to recommendation 8, the FCA and the firms it regulates should continue to work together with the aim of improving suitability reports, reducing their length and reducing the time that firms take to prepare them; this happened in December when the Association of Professional Financial Advisors (APFA) published guidelines to help its members meet the FCA’s expectations.

Last summer the FCA set up an 'advice unit' to help firms develop their automated advice models in a compliant way in line with recommendation 9. This is linked to 'Project Innovate.' Meanwhile, the regulator is consulting firms about the types of information to be collected in 'fact-finds' in line with recommendation 10.

'Accessibility recommendation' 11 states that the FCA and the Pensions Regulator should develop and promote a new factsheet to set out the variety of help that employers and trustees can provide on financial matters without being subject to regulation; a consultative exercise is underway. Recommendations 12 and 13 need not concern us here. Recommendation 14 is for the Treasury to explore options to allow each consumer to access a small part of his pension pot before the normal pensionable age, "to redeem against the cost of pre-retirement advice." A new Pensions Advice Allowance will come into effect this month, allowing each person to withdraw up to £500 tax free. The allowance will be available at any age and can be used up to three times in total.

In December 2016 the FCA published information explaining that its rules do not prevent firms from allowing clients to pay in instalments for advice on a lump sum investment, in response to recommendation 15. It also explained that an advisor may require its permission to sign a regulated credit agreement as lender, unless an exemption for payments by instalments applies. If the exemption is to apply, there must be no more than 12 instalments within 12 months and no charges or interest for the credit agreement (and therefore no administration fee).

Recommendation 16 exhorts the Treasury to "challenge the industry" to make a pensions dashboard available to consumers by 2019. It is working on this with 17 pension companies. The Financial Advice Working Group has not yet published a shortlist of new terms that might describe ‘guidance’ and ‘advice’ in line with recommendation 17. Recommendations 18 and 19 need not concern us here.

Liabilities and 'redress' for consumers are the topics of recommendation 20. The FCA is carrying out an almighty overhaul of the funding mechanism for the levy that the Financial Services Compensation Scheme imposes on the financial sector. It has already consulted interested parties (in CP16/42) about some of its proposals and expects to impose new rules this year and next. On a related matter, it has received evidence from somewhere or other about the effect that the professional indemnity insurance (PII) market has been having on FSCS funding. In December in CP16/42, in line with recommendation 21, it made a case for strengthening the PII cover of personal investment firms and asked interested parties some questions about the usefulness of PII cover. It will consider their responses to these questions in due course.

Meanwhile, the Financial Ombudsman Service has been holding ‘best practice’ round-table meetings with firms and trade bodies in Glasgow, Stockport and London, thereby satisfying recommendation 22. It has also started to publish more information that may be relevant to financial advisors, in line with recommendation 23. It published a breakdown of financial advisor 'uphold' rates by product in its annual review of 2015-16 and, last autumn, consulted more people than ever before about the data it publishes. From now on, its annual review will always contain the details of cases involving financial advisors in which the event in question happened more than 15 years before the actual complaint. It will also publish six-monthly data in subsequent issues of its regular newsletter, Ombudsman News. It has also tried to help advisors by creating "a more visible central area" for firms on its website, combining existing resources with details of upcoming events and round-table meetings that they might attend, thereby complying with recommendation 24. The report of its appointed independent assessor will be expanded this year to include a more in-depth analysis of cases, also identifying areas in which 'process improvement' might take place. This will satisfy recommendation 25. The independent assessor is Amerdeep Somal.

According to recommendation 26, the FCA should not introduce a longstop limitation period for referring complaints to the Financial Ombudsman Service. The regulator and the Treasury will review relevant Financial Ombudsman Service data and think about this in 2019. Also, according to 'implementation recommendation' 27, they ought to be developing a so-called 'baseline' and ways of monitoring the development of the advice market, with the FCA publishing 'indicators' on its website this quarter. Nothing has happened so far. Finally, according to recommendation 28, they should report jointly to the Economic Secretary to the Treasury and the FCA's board, 12 months after the publication of this document, about progress. In 2019, both organisations should conduct a review of the things that the review has achieved.

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