The FSA has withdrawn plans to include Initial Disclosure Documents and the ‘Menu' on top of the information requirements for the Market in Financial Instruments Directive.
In January the FSA submitted a notice to the European Commission stating its intention to retain the rules concerning IDDs and the Menu which meant its regulations would go beyond the provisions of MiFID.
Following this decision the FSA commissioned research by CRA International to investigate the benefits of the Menu, however the results found only limited evidence that the ‘Menu’ has reduced provider bias in advice sales.
In addition the 45-page research - published by the FSA today alongside a policy statement on Conduct of Business (COB) rule changes - reveals there is no consistent evidence the ‘Menu’ had achieved its objectives of reducing commission levels increasing the share of advice paid for by fees.
As a result, the FSA says “in light of this, and following its evidence-based approach to policy-making, the FSA will withdraw the IDD and Menu from the notifications to the Commission“.
However, the FSA says its post-depolarisation research is continuing which means it is considering possible measures – including the MiFID minimum requirements – that would achieve the objectives set out for the IDD and the Menu.
But it says as this work is not expected to conclude until after the implementation of MiFID on 1 November, the FSA says in the meantime it will implement the MiFID information requirements “temporarily supplemented by the Menu and IDD as guidance to these rules”.
In addition, the FSA has also published a policy statement which confirms the approach set out in two consultation papers at the end of 2006, for the Regulator to begin operating on the basis of principles and high level rules.
However, while the majority of the approach outlined in October’s documents has been confirmed by the 337-page statement the FSA says it has made a number of “improvements” in response to points raised during the consultation process.
In particular, it says it has changed the layout and presentation of the text in the handbook, and has merged the section dealing with communication to clients with the financial promotions section to leave just one single chapter: ‘COBS 4: Communicating with clients, including financial promotions’.
It says it has also decided to bring the basic application provisions to the front of the chapter for clarity and to make it clear in each section how the rule or rules in that section apply.
The FSA says these changes then avoid the need for a detailed annex containing application material, and in addition it has “revised or introduced a number of glossary definitions referred to in COBS 4 in order to improve the presentation of the material”.
It says it also consulted on a text which removed the glossary term for ‘direct offer financial promotion’, however as a number of respondents suggested they find this term useful and would like it retained, the FSA says it is re-introducing a glossary definition for ‘direct offer financial promotion’, changed to reflect the post-MiFID text on which it consulted.
Dan Waters, director of retail policy at the FSA, says the move toward principles-based regulation means focusing on the outcomes that really matter rather than on procedure or process.
He adds: “It gives firms the flexibility to achieve the needed outcomes in line with their particular business models. The approach also fits with the emphasis we place on senior management responsibility. COBS will be simpler and easier to understand and so easier to comply with, thereby helping firms to deliver better outcomes for their customers."
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