2 minute read
RDR and investment-related matters
GERRY GRISPOS Senior Compliance Officer, Compli-Serve SA
No one in financial services is a stranger to the Retail Distribution Review (RDR), but the answers to some questions remain unclear, with the eventual result of how RDR will affect the investment world, equally opaque.
A concern among these is clarity on demarcating roles and customer value propositions, particularly when a financial services provider (FSP) offers both financial advice and discretionary investment management services to the same clients.
The Financial Services Conduct Authority (FSCA) recognises the potential risks and conflicts of interest, with the following proposals set out in a discussion document, distributed for comment:
1. Category II FSPs will be assessed against a list of four activities to ascertain whether the FSP is involved in Cat II activities or not (e.g. Portfolio construction, management of CIS/Wrap Funds/ Internal Portfolios).
2. Cat IIs will have to adhere to the new ‘Fit & Proper’ Standards, depending on their classification – and will perhaps have to earn more CPD points.
3. Authorised Representatives within these FSPs will either be classified as Product Supplier Agents (PSAs) or Registered Financial Advisers (RFAs).
The above appears simple enough but let me illustrate, by way of an example, the potential problem with these proposals. An FSP that has a co-branded Collective Investment Scheme with a local Manco will, under the proposals, have its authorised representatives classified as PSAs, as it has its own funds. This means that the representatives will only be allowed to advise on the FSP’s funds and not on any other outside funds. These representatives cannot be both PSAs and RFAs, and so the scope of the advice given is severely restricted. The question that begs to be asked is whether these proposals are in line with Treating Customers Fairly (TCF)?
Another area of great confusion is whether or not an FSP can be both a Cat I and Cat II (i.e. able to provide advisory, intermediary and discretionary services from one license). The Regulator is keen to separate such functions (i.e. have a separate license for Cat I and for Cat II), perhaps restricting the fees earned by the same person fulfilling all three functions.
With 21 measures to consider in the review process in determining how an FSP may be classified – coupled with much feedback from the industry on RDR proposals already (of which many of the 55 original proposals are being taken forward) – the FSCA has some challenges ahead in deciding how best to implement new regulations that are clear and not open to misinterpretation.
While potentially positive elements may come out of the RDR proposals – such as providing total disclosure to clients on costs benefitting them best – it’s going to be interesting to see the final outcome. Some further clarity is anticipated once all comments to the discussion document have been assessed by the FSCA, and passed into law.
These changes could require restructuring for some FSPs to be compliant, but as things are still murky in the proposal stage, it would be prudent to keep an ear to the ground, and to consult with a compliance officer as to how adaptable an FSP might need to become.
