The menu proposals published today will not come into effect until the first half of 2005, according to the FSA's explanation of how the industry will transition to working under the new rules.
Before any changes can be implemented, the regulator needs to ensure rules are changed to reflect answers received during the coming consultation period on the consultation paper published today.
And it needs to ensure it publishes the data on market averages, i.e., commissions, required for firms to be able to publish their own menus.
The consultation period lasts until 1 June this year. Questionnaires for calculating average commission rates on products will be sent out in March, with a return deadline of late July. Draft rules should be published sometime in the second half of 2004.
However, it is envisaged that a six-month transitional period will be implemented from the date the rules are published. During that time, firms can either adopt the new rules wholesale, or make continue operating under the current rules.
One immediate problem is the transitional period bridges the deadline for implementing the Insurance Mediation Directive – 14 January 2005.
The FSA says it will get round this problem by requiring firms to provide initial disclosure documents in line with the IMD after 14 January either in the form of an IDD or in any other form convenient as long as it complies with the rules of the transitional period.
Although the FSA has already stated companies using IDDs will be assumed to be a commitment to all the new rules during the transitional period, it will allow an exception to this principle in the case of using IDDs to meet IMD requirements. This means companies can use IDDs for this purpose during the six-month transitional period without running the risk of being clobbered by the FSA for not following all the new rules.
The FSA says there are six areas of particular attention with regards to the transitional period.
The complaints rules are the only ones all firms must adopt as soon as the new rules are published, regardless of the transitional period. This is because there may be cases whereby firms must refer complaints to other firms, the FSA says.
However, complaints received before the new rules come into force will be dealt with under the old rules during another, unspecified, transitional period. Complaints received after the new rules come into force will be dealt with under the new rules.
Firms must provide a menu and IDDs after the six-month transitional period is over. But, where firms have already made disclosure under the old rules, and no product has yet been recommended, provided the scope of advice does not change, firms will be able to provide additional disclosure.
Firms can continue using old stationary during the six-month transitional period, and for another six months after that, making a total of 12 months. Using old stationary will not be a problem, unless something in it could be considered potentially misleading. Firms that give up their independent status will not be allowed to refer their previous status in any literature.
Firms will need to amend existing contracts with appointed representatives, because the term “marketing group” will no longer exist in the de-polarised world, the FSA says. A 12-month transitional period starting on 30 June 2004 has been suggested for this purpose.
Indirect benefits are an issue because of the implications under the Pensions Review. The FSA says it would be “counter-productive” to stop firms getting assistance on this issue. Therefore, it proposes a 12-month transitional period from the date the new rules come into effect, allowing firms to continue giving or receiving assistance in relation to reviews of past pensions business.
Finally, on record keeping, the proposal is to continue enforcing the six-year rule with regard to records on stakeholder pensions.IFAonline
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