OUR PROFESSION

CONSULTATION RESPONSES

 

 

Our Profession

Consultation Responses

Response to the FSA consultation paper 06/20 Financial Promotion and other communications

(Questions unrelated to the implementation of the Markets in Financial Instruments Directive)

AIFA is the trade association that represents UK regulated independent financial advisers (IFAs). Membership of AIFA is voluntary and on a corporate basis. AIFA currently represents over 70% of IFA firms in the UK.

IFA firms are the leading distribution channel for retail financial products in the UK. They generate over 60% of business by monetary value and are the major sector advising and arranging private pensions in the UK. As such, IFAs represent a dominant force in the maintenance of a competitive and dynamic retail financial services market.

We welcome this opportunity to comment on FSA's proposals and would like to state that we found FSA's pre-consultative work on this consultation paper immensely helpful.

AIFA supports a financial promotions regime based on principles and high level standards. The flexibility afforded under the over arching rule to ensure that a financial promotion is clear, fair and not misleading should deliver adequate consumer protection but avoid some of the overly prescriptive and repetitious information than can obscure what is most important and relevant to a particular product or investment. We do believe that this is an area where 'more can be delivered by less'.

However, one area where we consider it important to retain more detailed information in a promotion is where products are marketed directly. We are concerned that the FSA's approach to direct offer may not provide sufficient clarity over the non-advised status of the advice and would like to see a clear reference to the fact that responsibility for the decision to purchase lies firmly with the individual within all direct offers. The information should also be comprehensive and balanced as most people will be strongly influenced by the initial information disclosed in the financial promotion. Later receipt of full disclosure requirements will have less impact. We would expect FSA to be particularly vigilant in monitoring direct offer financial promotions in a less prescriptive regime.

IFAs and other intermediaries of financial products use a significant amount of marketing material and product literature produced by the manufacturers. The rules permit firms to rely on material produced by others provided they take reasonable care to establish that the provider of the material has confirmed that the financial promotion complies with the rules. Whilst this presents no change to current rules, there have been instances where intermediaries have relied on a promotion when recommending a product, only to learn at a later date that the information may not have been as clear as it ought to have been. Responsibility for the advice, even though based on what may transpire to be non-compliant information, lies solely with the adviser. We believe that there needs to be within the rules, a system for allocating responsibility without having to resort to the courts.

AIFA and ABI have joined forces to produce a document to help clarify the division of responsibilities for financial promotions. A copy is attached as Annex 1. Whilst the main purpose is to provide guidance to members, we would also hope that both FSA and FOS give due regard to the guidance.

This does raise the matter of Industry Guidance, as proposed by FSA in DP 06/5. In our response to the DP, we expressed concern over the proposed process for obtaining FSA 'confirmation'. The document referred to above was initially drafted by an ABI working party. AIFA's involvement resulted in some significant changes following protracted discussion and consultation with members. We question how FSA would approach a similar exercise should ABI, for example, seek FSA confirmation on a similar subject had there been no joint participation.

FSA has acknowledged in the past that MiFID terminology is often different from that currently used by FSA and which are known to UK firms. We are therefore disappointed with FSA's proposal not to provide guidance on particular terms used in MiFID. More specific, the application of the new rules is difficult to ascertain as they apply to all, or in part, to different firms and communications. In working out which rules apply, firms will need to establish which apply to MiFID scope and non-scope firms, scope or non-scope business and promotional and non-promotional business. We do think that the majority of IFAs, most of which are out of scope, will need guidance.

4MQ.1:

We support FSA's proposals on the application of information to non-MiFID scope business.

4MQ. 2:

The move from the 'reasonable steps' standard to a requirement to ensure that all information is clear and not misleading is more onerous, which makes it all the more important that there is a straightforward route to redress for firms relying on third party promotions that fail to meet the requirement.

The revised wording also allows more subjectivity and therefore could lead to more disputes over what is clear and not misleading.

4MQ.3:

We agree with the application of the provisions to non-MiFID scope business subject to the comments already provide.

4MQ.4:

We do not support the FSA's new approach to direct offer financial promotions and think it does weaken the consumer protection provided by the existing rules.

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