The Financial Conduct Authority (FCA) said it could not be “less conservative” in changing the perimeters of what constituted a personal recommendation in financial advice.
In Policy Statement PS18/3, the regulator provided feedback to responses received to the proposals it made in a consultation on the Financial Advice Market Review (FAMR), regarding perimeter guidance on personal recommendations for retail investments.
The consultation paper, which was published in August, saw the FCA propose guidance should fall under the Principles of Business, the client’s best interest rule, and the fair, clear and not misleading rule.
In the new paper, the regulator said it had been asked: “Could the FCA take a less conservative approach to the assessment of what might constitute a personal recommendation, particularly with regard to implicit recommendations?”
In response, it said: “The regulatory perimeter is set by Parliament in legislation. The FCA cannot change the perimeter.
“Where a reasonable observer would view the adviser as presenting a recommendation as suitable for the customer or based on a consideration of their circumstances, then this must be treated as a personal recommendation. We cannot exercise discretion on this.”
Another response to the FCA’s proposals asked if the regulator could provide more illustrative examples to “more effectively address the difficult ‘grey areas’ of interpretation in the legislation”.
The regulator argued, however, that in order to decide whether advice has been given, the individual facts of each case must be carefully examined and so “to be accurate, our guidance must reflect this”.
“We recognise this means that our examples are illustrative and case-specific,” it continued. “They cannot and do not provide a clear line between what is and is not advice in all circumstances but should be helpful to firms in making judgments about whether they are providing a personal recommendation in the context of particular circumstances.
“It is not possible to provide an exhaustive series of examples that would apply to every possible circumstance that a firm might encounter.”
Personal Recommendation Definition
Last August, the FCA proposed consumers who received financial guidance would be protected by the Financial Ombudsman Service and the Financial Services Compensation Scheme (FSCS), following the Treasury’s change of the definition of advice for regulated firms.
Under the new definition, which is based on the Markets in Financial Instruments Directive II (MiFID II), financial advice would need to involve a personal recommendation. Information given without a personal recommendation would be considered to be guidance and regulated in a different way.
This is reproduced from Professional Adviser; all views are from the publication. This originally appeared online on 26 February 2018.
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