CLLS responds on financial advice

The City of London Law Society (CLLS) has published the response of its Regulatory Law Committee to HMT’s consultation on amending the definition of financial advice in Article 53 of RAO. It notes there is considerable confusion in the market currently, because of the differing definitions of “advice” under FSMA and MiFID, the definition of a personal recommendation, and the financial promotion regime. Points of interest in the CLLS’ response include:

  • agreeing that the definition of the regulated activity of advice should be limited to personal recommendations, and should be aligned to the MiFID 2 definition as closely as possible;
  • noting the proposed changes will result in some types of firm, mainly tip sheets and their electronic equivalents, no longer falling within MiFID scope (except in relation to restrictions on financial promotions). The CLLS believes this involves a degree of risk for consumers. However, the focus on personal recommendations will enable regulatory resources to be directed towards the area where consumers reasonably expect protection;
  • that FCA will need to review its rules to consider whether any amendments are necessary, what impact there is on other requirements (like certification), and application of rules to unregulated activities of regulated firms. FCA has already flagged that a change to the definition of advice would affect its proposed extension of the inducements and RDR regime; and
  • that the proposed wording means there will still be uncertainties over the exact scope of the new definition and where the regulatory perimeter is. CLLS makes a suggested change that would help, and comments on areas of uncertainty, such as what is a “large number of people”, but says some degree of uncertainty over the regulatory perimeter for advice is inevitable and may even have some benefit in enabling the exercise of discretion in complex fact situations. However, it says FCA could usefully provide perimeter guidance on these questions, without setting a hard boundary that could be manipulated.