The Treasury aims to cut back "disproportionate" requirements to report information to the Financial Services Authority (FSA) in its proposed amendments to the Financial Services and Markets Act 2000 (FSMA).
Its consultation proposals form part of a 10 point action plan of reforms to wholesale and retail financial markets set out in the 2005 Pre-Budget Report, which reflects a number of concerns raised by industry and consumers about financial services regulation.
In particular, the consultation seeks views on proposed changes to sections 178-192 and 422 of FSMA, which relate to when persons are required to notify the FSA about controlling relationships which they hold, or propose to hold, over a person authorised by the FSA – known as the “FSMA controllers regime”.
At present some business sectors, including mortgage intermediaries, occupational pension scheme providers and some investment advisers, are currently subject to the full-blown FSMA controllers regime even though they are not required to be so under any EC Directives.
The Treasury considers this is “somewhat disproportionate”, especially when viewed alongside the simplified regime which applies to general insurance intermediaries.
But it says removing all disclosure requirements in these sectors might expose investors, consumers and other third parties to risks of potential damage stemming from an objectionable change or increase in control.
The industry has suggested applying a simplified regime with a single 20% threshold to all businesses not covered by the underlying EC Directives, and the Treasury states this would appear to be a more proportionate way forward.
In addition, the Treasury lays out proposals for altering section 191 of the FSMA, under which a person commits an offence if he carries out a proposal to acquire or increase control without first having secured approval from the FSA.
While the pre-approval requirement is consistent with EC Directives, the Treasury points out those Directives do not explicitly require potential acquirers of control, or those increasing control, to secure pre-approval; instead they require pre-notification and provide for regulatory authorities to prevent control from being exercised when the authorities hold objections.
It has been proposed the requirement to secure explicit pre-approval should no longer apply at the 10% and 20% thresholds, and the Treasury considers this would be more consistent with the underlying EC Directives.
In this situation the acquirers of control would need to assess for themselves whether the FSA is likely to hold objections and likely to prevent them from exercising control, which would provide greater flexibility and help reduce some of the compliance costs associated with the existing arrangements.
The Treasury says the approach would minimise the risks of potential damage to investors, consumers and other third parties stemming from an objectionable increase in control and would therefore involve establishing a more proportionate and risk-based regime.
The consultation paper also contains proposals for brining the definition of “controller” closer into line with EC Directives.
The current definition extends to cases where significant influence is held over the management of the parent undertaking of the underlying authorised person in question even in cases where the significant influence does not relate to a parent undertaking being able to control or influence the underlying authorised person.
The Treasury proposes removing this provision and replacing it with one specifying the significant influence must relate to the underlying authorised person.
The consultation paper will remain open until 14 June.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Emily Perryman on 020 7968 4554 or email [email protected].IFAonline
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