Amending the definition of financial advice consultation – Law Society response
On 20 September 2016 HM Treasury (HMT) launched a consultation on amending the definition of financial advice.
This consultation followed the 2015 joint HMT and Financial Conduct Authority (FCA) Financial Advice Market Review (FAMR), which looked at how consumers could get help with their finances more easily. The FAMR found that, for consumers with relatively straightforward financial needs or small amounts to invest, the cost of regulated advice may outweigh the benefits.
The FAMR recommended that these consumers should have access to high quality and detailed guidance services. However, it discovered that firms are hesitant to offer this guidance because of uncertainly about what constitutes regulated advice. This is because there are two definitions of financial advice: one in the Markets in Financial Instruments Directive (MiFID), and the other in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (RAO). (The RAO pre-dates the MiFID definition and is wider in scope.) Firms are limiting the amount of guidance they provide to customers for fear of inadvertently providing regulated advice, which comes with higher regulatory requirements.
The FAMR recommended the government consult on amending the RAO definition o bring it in line with the EU definition contained in the MiFID. It found that the latter is clearer for firms and customers, and easier for firms to build into their compliance processes, and that adopting it would help to remove uncertainty.
HMT believes that the clarity of the amended definition of financial advice will allow firms to confidently develop guidance services to meet a wide range of consumer needs.
Generally, the Law Society supports the policy objective of appropriate regulatory simplification. For a more detailed view, please see our full response.