FCA announces plans to 'transform' advice/guidance rules

The Financial Conduct Authority (FCA) has announced plans to look at “transforming” the advice and guidance rules, with plans to carry out a holistic review of the boundary between guidance and advice in preperation for this.

In a speech at City and Financial Global's The Future of UK Financial Services Regulation Summit, FCA executive director of markets, Sarah Pritchard, explained that current legislation had a “clear distinction between advice and guidance”.

However, Pritchard acknowledged that offering advice on what to invest in carries with it a heavy regulatory burden, with the costs involved in this meaning that only the relatively well-off can access advice on what to invest in.

“Mass market consumers are often left to navigate a bewilderingly large choice with little support,” she stated.

The FCA previously confirmed that it wants to establish a simplified advice regime for mainstream stocks and shares ISAs where the risks to consumers are relatively low, as part of its Consumer Investment Strategy.

While this will remove some of the burden of regulation currently applied across the board to all advisers, Pritchard clarified that the FCA "will be able to do more" once it has greater rule making powers under the future regulatory framework legislation next year.

In preparation for this, Pritchard confirmed plans to carry out a holistic review of the boundary between advice and guidance, to help the regulator understand how to reduce the regulatory burden while continuing to provide the right level of consumer protection.

“The weight of regulation should be commensurate with the level of risk but moving away from the one-size-fits-all approach mandated by MiFID will be complex and it will need assistance and input from industry," Pritchard stated.

“We are getting ready now for the greater opportunities that will exist in future to set rules that are appropriate for the UK.”

Industry experts have previously called on the government and regulators to amend the advice/guidance boundary, with providers unable to better support savers amid concerns that they may stray into advice territory.

These concerns may also be heightened in the current environment, as AJ Bell head of retirement policy, Tom Selby, noted that some savers are being "bombarded" with information and complex financial choices amid the cost-of-living crisis.

“Those who are willing and able to pay for regulated advice are well served by the market and should be able to navigate through the current storm with a clear-minded focus on the long-term," he stated.

“However, those who do not take advice need better, more personal guidance so they can make financial decisions which are more likely to lead to ‘good outcomes’, in line with the FCA’s Consumer Duty.”

Selby therefore welcomed the FCA's acknowledgment of this issue, urging the regulator to push forward its review "at pace".

He continued: "A culture of fear has built around providing guidance that risks going anywhere near the blurred advice/guidance boundary, with firms and employers keeping a safe distance from the boundary and ordinary people receiving less help making decisions as a result.

“Although there will always need to be a boundary between advice and guidance, firms need a clearer understanding of where that boundary sits and what they can and can’t do.

“The Financial Ombudsman Service (FOS) needs to be included within this review process, as its interpretation of FCA rules will go a long way to determining how far firms are willing to go when providing guidance to customers.

“Ultimately it may require legislation from government to address the current advice/guidance impasse, but the announcement of this review is at least a step in a positive direction.”

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