I imagine most IFAs are pretty confused at the moment about how the new conduct of business rules will actually affect their businesses.
The Financial Services Authority (FSA) really went for it last week by publishing all its proposals for NEWCOB at once in a 350-page report detailing everything the UK financial services industry will need to comply with from November next year.
It was bad enough trying to explain the report in simple language, but actually figuring out how it will change the way IFAs work is even harder.
Many aspects of the new regime appear different on the surface, but when you dig deeper it seems not much has changed in reality. For example:
- There is a less rigid approach to the content of suitability letters, but IFAs will still be required to go through the process of justifying products’ suitability for their clients;
- There will still be three categories of client, albeit with the slightly different names of retail, professional and eligible counterparty;
- The IDD and menu will remain; and
- The financial promotions rules have been greatly simplified, but IFAs will still need to ensure they are ‘fair, clear and not misleading’ – so they might need to look elsewhere to fill in the gaps.
In fact, there were no great surprises in the consultation paper at all and what is apparent is that instead of looking to the FSA’s handbook to work out how to comply with requirements, IFAs will need to look at case studies and guidance from trade bodies.
Which begs the question: is it all worth it?
In my opinion, it seems really odd the FSA is patting itself on the back for managing to halve the length of its handbook, but is not, in reality, reducing the regulatory burden on IFAs.
It is likely IFAs will need to spend even more time trying to comply with the FSA’s requirements by sifting through guidance from trade bodies and deciding which to follow when conflicts occur.
Indeed, questions and doubts have already arisen from the consultation paper, particularly around best execution and client classification.
The FSA says firms must get “express confirmation” from clients if they are moved from the retail category to the professional category, but it is not clear what this entails.
If firms need to write to all their clients they re-classify and wait for a response this would be a huge and no doubt costly exercise.
The regulator has stripped out a lot of its prescriptive rules but the industry will need to do a lot of hard work trying to understand what is now required and how firms can ensure they are still being compliant.
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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