In July last year, the Financial Conduct Authority (FCA) published a discussion paper on whether it should introduce a “duty of care” requirement that could place a general obligation on advisers to act in their clients’ best interests.
What are the FCA’s objectives with the discussion paper?
Within the discussion paper, the FCA outlined several credible options it could explore to address any gaps within the regulatory framework, including: Introducing a statutory duty of care: this would have a higher status than the principles, so respondents argue that it would be taken more seriously by firms.
Extending the scope of the client’s best interests’ rule: the rule could be extended to cover all regulated activities through the amendment of principles six or nine.
Introducing additional rules or guidance: the regulator is seeking views on whether the same outcomes could be achieved by introducing additional rules and guidance around the existing principles, monitored through the FCA’s ongoing programme of supervision.
This also forms part of the FCA’s commitment to reviewing its handbook following the UK’s departure from the EU. If the FCA is serious in its desire to review the effectiveness of the regulatory regime, then there are more beneficial measures it could put in place.
The discussion paper has met with mixed reaction from the industry. Some have said these new suggestions by the FCA are a waste of time and could create confusion for both consumers and firms as to exactly what it means.
Sandro Forte, CEO, Forte Financial Group says: “To reach an objective view on these proposals let us consider what the Regulator has introduced in recent years: Compulsion in respect of better education for advisers, reduced/capped fees, fee disclosure, Treating Customers Fairly (TCF), higher quality of documentation standards and even the introduction of consumer discretion around the payment of ongoing advice fees. Consumers are not bound by any decision made by the Ombudsman whereas advisers have no recourse available, even if that decision is legally or factually incorrect.”
Forte goes on to say: “We all recognise many professions have challenges with consumer perception – but we all too easily forget that good financial advisers help their clients become financially independent, reduce their tax burden, provide much needed funds for bereaved families and help educate future generations to ensure hard-earned assets are not decimated.
“Introducing yet another set of highly complex – and indeed burdensome – rules will add further uncertainty. It will affect distribution of products, add another layer of costs and suffocate best practice.”
Sabuhi Gard is an investment writer at Incisive Works
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