Product providers are not allowed to provide 'inducements' to intermediary firms in return for secure distribution deals, says the FSA.
Recent suggestions surfaced within the industry indicating firms were offering and seeking inducements for distribution deals.
However, Chapter 2 of Reforming Polarisation: Implementation - Feedback on CP04/3 (A menu for being open with consumers) and made text says the FSA has now written to firms pointing out they consider the practice "to be incompatible with our consumer protection standards" and do not fall within the list of accepted indirect benefits, as set out in COB Ch. 2.
Similarly, the FSA has clarified rules on investment in intermediary firms and the circumstances in which providers can assist with software development.
The FSA first says it has amended rules which previously prevented providers from investing in intermediary companies, unless it was 'at arm's length' or on commercial terms which would be open to any independent firm unconnected with a product provider.
The original intention was to prevent firms from offering cheap financing as a way of recommending their products, however, feedback from the industry has now persuaded the FSA to expand this requirement to all intermediary firms, as firm offering advice on a limited range are still expected to be impartial.
That said, it is unclear how this would affect intermediaries who are 100% owned by product providers as separate rules on this matter acknowledge "it is unreasonable to expect group member companies to do business with each other at arm's length.".
The FSA instead proposes such intermediaries would be subject to commission equivalent disclosure regime, which requires all benefits be included in calculations.
Firms prepared to invest in IT development have also been strengthened - see COB 2.27 G(8) - to state provision of investment in IT hardware is only allowed where it forms "part of a software project", cannot be given as a free-standing gift and can only be provided when it is necessary to operate the software provided.
Cautious, Balanced & Dynamic Growth
Cowardly, boring or sensible
Latest news and analysis
‘Most significant’ upgrade since launch
Changes happening over coming months