The current regime for initial disclosure documents (IDD) and the Menu of commission and other charges - introduced with depolarisation last year - is to remain unchanged until at least 2008, the Financial Services Authority (FSA) has stated.
The FSA further states even if changes are introduced they will be as a result of the regulator’s planned implementation review of the depolarisation regime which will not be completed until the middle of 2007.
This announcement forms part of the FSA’s response to the requirements set out in the Markets in Financial Instruments Directive (MiFID) which is due for implementation in November 2007.
Entitled CP06/19: Reforming Conduct of Business Regulation and CP06/20: Reforming Financial Promotions and Other Communications the two responses also set out the FSA's proposals for new regulations in light of the reforms being required by MiFID nicknamed NEWCOB.
On the issue of the IDD and menu, the FSA says retaining both means going beyond the scope of the requirements of MiFID and as such the FSA is obliged to provide a notification and justification for its decision under article 4 of the MiFID level 2 Implementing Directive.
These NEWCOB rules will also apply to all packaged products whether they fall under the scope of MiFID or not.
That said, the regulator says it is willing to make “substantial change” to the current regime if its own research suggests it is needed. But it adds the IDD and menu will only be replaced following its review and only if the regulator is able to find an equivalent or better alternative that meets its consumer protection objectives.
As such, firms will be required to continue to provide the IDD and menu to their clients with the FSA stating if it does propose any new rules they will become effective in the second quarter of 2008.
There are, however, some minor changes the regulator is considering.
The FSA is proposing to simplify its requirements on how the IDD and menu are given out. In doing so, the regulator says it plans to introduce language used in MiFID to the rule book on when disclosures should be made.
It also proposes reducing the six different variations of the menu template to a single template with supplementary explanatory notes.
It also proposes removing the requirement that firms ensure charges to private customers for designated investment business are not excessive,stating that as long as the rules have existed it has never had to use them or take enforcement action under them.
The FSA says it is concerned, however, the MiFID requirements on disclosing whether an adviser is tied, multi-tied or independent and how they are paid do not go far enough to ensure consumer protection. It says this is largely because the UK market differs substantially from other EU markets with consumers relying more heavily on advice than on the continent.
While much of the information firms already give consumers under the current regime would also be required under MiFID, the FSA argues consumers would lose the benefit of receiving the information together and in a consistent format.
Meanwhile, since the implementation of MiFID the regulator says it has rethought the structure of its depolarisation review and will now take the MiFID requirements as the starting point for its research.
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