The FSA has told the Treasury Select Committee (TSC) any dilution of the RDR will lead to higher costs to consumers through continued unsuitable advice, in a warning to MPs not to meddle with the rule change.
In its submission to the influential committee, which is investigating the impact of the RDR on the adviser community, the FSA says the rule change is "absolutely vital" to build consumer trust and confidence in the advice sector.
It also tells MPs the RDR will result in an advice market which is a better place to do business in, and will leave advisers better equipped to give a good quality service.
"The RDR is absolutely vital if we are to build consumer trust and confidence in the advice sector.
"Any dilution of the proposals will result in an increase in the cost to consumers through continued unsuitable advice", the submission says.
The FSA told MPs it had considered grandfathering but that the majority of respondents to its consultation on the issue were not in favour, including AIFA.
It says its analysis shows longstanding problems in the market have been created by an asymmetry of power and information between product providers, advisers and consumers.
Remuneration structures, levels of professionalism and a lack of clarity on the part of consumers about the service they are getting have added to problems, the FSA told MPs.
On the issue of longstop, the FSA said it would need to identify benefits to firms or consumers beyond the savings for firms in compensation payments, to jusify its introduction.
These benefits would need to exceed the consumer detriment from time-barred complaints, it said.
The FSA said responses to its consultation focused on ‘fairness' arguments around the statute of limitations and concerns about handling ‘stale' claims, particularly into retirement.
But it told MPs: "We were unable to convert these arguments into a persuasive analysis that it would be reasonable to impose responsibility on consumers to identify any and all issues with advice within a given period."
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