UK: Definition Of Investment Advice: FCA Consults On FAMR Implementation Part II And Insistent Clients (Investment Management Brief: 10 August 2017)

Last Updated: 10 August 2017
Article by David Heffron, Elizabeth Budd, Michael Lewis and Ian Warner

UK regulatory

Definition of Investment Advice: FCA consults on FAMR implementation Part II and insistent clients

The FCA has opened a consultation [01.08.17] covering some of the recommendations the Financial Advice Market Review (FAMR) made in its Final Report; and containing guidance proposals stemming from the work of the FCA's Advice Unit and on insistent clients. 

The FAMR Final Report (March 2016) made 28 recommendations seeking to address impediments preventing consumers accessing advice in markets for retail investments, protection and income planning in retirement. To address concerns firms had about inadvertently giving regulated advice the FAMR recommended the Treasury consulted on amending the definition of regulated advice on retail investments so its basis would be the provision of a personal recommendation. The Treasury will amend the RAO with effect from 3 January 2018 so that most authorised firms would be exempt from the regulated activity of 'advising on investments'. In this CP17/28** the FCA makes a number of proposals:

  • Chapter 3 contains the FCA's proposed handbook amendments for firms impacted by this change to the RAO; and
  • Chapter 4 contains the FCA's proposed amendments to PERG to clarify personal recommendations.

FAMR recommended the FCA set up a team to help firms "developing mass-market automated advice models bring them to market more quickly". This led to the FCA setting up the Advice Unit (May 2016). A result of the feedback the FCA gave such firms was that they found some common areas of uncertainty where further Guidance would be useful: chapter 5 contains the FCA's proposals to address these areas.

The FCA is also proposing new Handbook Guidance on the way to treat insistent clients to give firms more assurance as to their responsibilities towards such clients who receive a personal recommendation and wish to take a different course (chapter 6). The FCA factsheet on insistent clients (2016) comprised Handbook Guidance and used pension transfers in the context of insistent clients. The FCA's proposal is that its Handbook Guidance should apply in any case where a personal recommendation is given so it would apply more widely than only to the transfer and conversion of safeguarded benefits.

The FCA asks for responses by 2 October 2017. CP17/28 also sets out the FCA's proposed chronology of next steps in light of its earlier FAMR work.

FCA consults on changes to client money and unbreakable deposits

The FCA is consulting [01.08.17] on changing CASS in relation to depositing client money in unbreakable deposits with banks (CP17/29*). The proposals will be relevant to regulated firms holding client money in connection with clients' investment business. Under the current 30-Day Rule in CASS 7 firms are not permitted to place client money in bank accounts with unbreakable terms of longer than 30 days. However banks can be less keen to hold such 30-day money because of the cost of the prudential liquidity requirements that apply. This has resulted in difficulties for firms in finding banks at which to deposit client money and the FCA is concerned about potential harm to consumers arising from this. The FCA is asking for feedback by 1 November 2017 on its proposed CASS rule changes:

  • to enable a firm to deposit an "appropriate proportion" of client money in an unbreakable deposit of at most 90 days;
  • for conditions a firm must comply with to deposit client money in an unbreakable deposit of 31 to 90 days; and
  • for CASS medium and large firms to report client money in unbreakable deposits of 31 to 90 days in their client money and asset return (CMAR).  

EU regulatory 

ESMA publishes responses to consultation paper on MMFs

ESMA has published the responses it received to its Consultation Paper on the Draft technical advice, implementing technical standards and guidelines under the MMF regulation (24 May 2017). Read more in the IMB on the MMF consultation here.

ESMA's opinion on asset segregation and applying depositary delegation rules to CSDs

ESMA has published [20.07.17] an opinion providing suggestions to the EU institutions (the Commission, Council and Parliament) on possible clarifications to both the AIFMD and UCITS requirements on:

  • asset segregation on delegation of safe-keeping by the appointed depositary of a UCITS fund or an AIF; and
  • the application of depositary delegation rules to Central Securities Depositaries (CSDs). 

The opinion concludes ESMA's work on these areas that started with their consultation (ESMA/2014/1326) published on 1 December 2014 and Call for Evidence (ESMA/2016/1137) published on 15 July 2016. ESMA's goal is strong client asset protection, especially in the event of insolvency, for the safe-keeping of assets required to be held in custody under either the AIFMD or UCITS directives. It seeks to ensure that (i) assets are clearly identifiable as belonging to the AIF or UCITS in question, consistent with any reuse where the applicable legislation permits; and (ii) investors receive sufficient protection without ownership of assets being questionable if any entity in the custody chain is insolvent. ESMA's approach in the opinion is to prescribe only the minimum EU-wide segregation requirements so enabling Member States to make tougher rules or require different account structures if necessary.

ESAs issue Joint Technical Advice on EOS PRIIPs

The ESAs issued [28.07.17] Joint Technical Advice to the European Commission on packaged retail and insurance-based investment products (PRIIPs) with environmental or social objectives (EOS). EOS PRIIP manufacturers are to have particular governance measures in place ensuring the PRIIP's EOS objectives are met on an on-going basis and the product demonstrates the relevance of these objectives to retail investors throughout the investment process. The ESAs' Advice contains an overview of their mandate from the Commission, background and the steps already taken in this project and addresses four areas of regulatory focus for EOS PRIIPs: 

  • specific environmental or social objectives;
  • disclosure of specific investment policy;
  • governance procedures and controls; and
  • progress review.

For each of these four areas the ESAs set out the regulatory outcome they seek, assess existing rules, give their conclusion and provide specific, Technical Advice. The ESAs recommend EOS PRIIP Manufacturers: specify clearly the EOS objectives they pursue and their strategy for achieving them; disclose their objectives and how they will be achieved to retail investors; install and document governance and monitoring measures; review regularly their progress towards achieving the specified objectives. The ESAs recommend the technical Advice is read in conjunction with the Consultation paper (JC 2017 05) published on 10 February 2017, on which to read more click here. The ESAs also published a summary (31.03.17) of the comments they received on that CP. 


Lords Select Committee launches new inquiry into financial regulation and supervision after Brexit

The Lords EU Financial Affairs Sub-Committee is enquiring [24.07.17] into the future development of financial regulation and supervision in the UK after Brexit "to ensure financial stability and potentially to maintain equivalence or some other form of close relationship between the UK and EU regulatory regimes in order to preserve market access." Key focus areas will include:

  •  scope for the UK's regime to adapt after Brexit and foster innovation but maintain market access;
  • if continued co-operation is best achieved by equivalence and whether other "forms of alignment" may exist;
  • the differences between the UK, the EU and international financial regulatory regimes and any gaps;
  • if it may benefit the UK to move away from the current EU framework in any areas; and
  • how to manage regulatory divergence and shared supervisory concerns and the nature of the dispute resolution process.

The Sub-Committee seeks written evidence by 29 September 2017. It expects to begin public hearings also in September. This section contains Parliamentary information licensed under the Open Parliament Licence v3.0.

First meeting held by the Informal Brexit Liaison Group set up by the House of Lords Liaison Committee

The first meeting of the Informal Brexit Liaison Group that was set up by the House of Lords Liaison Committee has taken place [21.07.17]. The Group discussed the transfer of European Union law (known as the acquis) and ensuring good financial services regulation in the UK with the Deputy Governor of the Bank of England, Sir Jon Cunliffe. The next meeting will be in October 2017. This section contains Parliamentary information licensed under the Open Parliament Licence v3.0.

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