Simon Thomas

Senior Business Standards Technical Consultant

15 April 2020

With the news agenda very much dictated by Covid-19 it is easy to forget about the other things on the horizon which may shift the landscape of financial advice. 

While it is not the immediate concern there are some changes to be aware of. 

Making platform transfers easier

On 31 July the FCA’s Policy statement PS19/29 changes aimed at making it easier for consumers to transfer fund investments between platforms takes effect.  

The new rules set out in Cobs 6.1H (platform switching) are unchanged from the consultation paper and will apply to all firms falling within the platform service provider definition.

This is any firm offering a combined execution only dealing and custody service in relation to retail investment products. 

It will require platforms to:

  • Offer consumers the choice to transfer units in investment funds that are common to both platforms via an in-specie transfer.
  • Request a conversion of unit classes, where this is necessary to enable an in-specie transfer to take place.
  • Ensure that consumers moving onto a new platform are given an option to convert to discounted units, where these are available for them to invest in.

CP19/12 also contained high level proposals for a possible ban or cap on exit fees which would extend beyond platforms to capture a broad range of firms undertaking dealing and arranging. 

These proposals will be covered in the further consultation paper we expect to be published later on in Q2 2020, with feedback from the FCA in Q4 2020. 

These changes should be beneficial for advisers in ensuring that, subject to individual suitability assessments, clients are on the most appropriate platform for their needs.

EU Withdrawal (Brexit)

While Brexit has now happened, or at least the “divorce agreement” part of it, we are however still subject to EU rules and will be implementing those that come in before the end of the transition period at the end of December 2020. 

While it is likely that the FCA will maintain close working relationships with the EU and other regulatory bodies, the scope for divergence will depend to a large extent on the deal eventually struck with the EU. 

In the meantime, firms will need to ensure they are prepared for a range of scenarios. 

This may include the prospect that particular activities firms currently conduct, may not fall within the final agreements, between the UK and the EU.

However, before we finally leave, ESMA (the European Securities and Markets Authority) is due to publish a further consultation paper relating to Mifid II in the Spring. 

The paper is likely to have a requirement, which the FCA will then have to implement, to collect information on a client’s ESG (environmental, social, and governance) preferences.  

The regulatory obligation that will arise may not be prescriptive, but rather based on “good practice” principles but this will be something that will cause both advisers and providers to have to think quite deeply about.  

For example, how are the inevitable trade-offs within ESG going to be managed? 

How will advisers have meaningful conversations with clients about their preferences? 

What information are advisers going to need from providers to inform their recommendations? 

The list goes on.  

We don’t know if there will be tools developed, similar to those for ATR (Attitude To Risk), to enable firms to assess ESG preferences in a consistent repeatable manner but there will be change in this area and it will be quite wide ranging in its impact.  

EU 5th Money Laundering Directive

When thinking about regulatory change there is also the ongoing franchise that is the Fifth Money Laundering Directive. 

The FCA updated their “Guide to financial crime for firms” in January and the FCA made it clear that they expect firms to comply, even if not immediately fully so. 

The new regulations brought in tougher rules around beneficial ownership (i.e. more customer due diligence). 

Closely linking to this will be the results of a technical consultation carried out by HMRC in relation to the Trust Registration Service. 

HMRC will consult on changes to the regulations which will come into UK law during 2020.  

We expect the Joint Money Laundering Steering Group (JMLSG) to publish revised guidance in April 2020.

Defined Benefits Pension Transfers

We cannot ignore the forthcoming attraction that will be the policy statement to CP19/25 which is likely to include a ban on contingent charging for pension transfer advice. 

The publication of the rules has now been pushed back to Q2 and Q3 however at this point minimal changes are anticipated.

Firms will need to revisit their terms of business following the policy statement and this may also mean updating their website and any associated marketing material.  

Professional Indemnity Insurance (PII)

The challenges around PII and particularly in ensuring it is adequate for the activities a firm undertakes have been exacerbated by the concerns in the DB advice market. 

This is making firms consider the potential benefits of operating within a network and this will be a solution for some, especially as the FCA are alert to the possibility of firms “phoenixing”, but networks will not accept liabilities for advice given outside of the network. 

Therefore, firms looking to join should ensure that they have adequate run off cover.

Changes announced in the Budget

The budget seems like a lifetime ago, particularly given the Chancellor has stood up several times since then to announce packages of reforms. 

So it’d be easy to forget that in the Budget there were changes that will impact your clients.