UK Financial services firms say that FSA 'Replacement Business and Centralised Investment Propositions' guidance has been unclear

30 May, 2012

In a snapshot survey examining industry reaction to the FSA Guidance Consultation on Replacement Business and Centralised Investment Propositions, independent compliance consultancy The Consulting Consortium has revealed that 47% of respondents felt thatthe FSA had not clearly articulated requirements from the outset. An additional 47% of respondents felt that the requirements had changed from those initially proposed on 4 April 2012.


Over half of respondents were “not sure” or did not think that their firm had appreciated the impact ofthe FSA guidance – 33% believing that their firm had actually underestimated the impact. And yet 80% were confident that they would be able to demonstrate that any changes recommended to clients were “in the best interests of the customer”. 


Ian Stott (pictured), ClientServices Director at The Consulting Consortium said:“The results of our research suggest a worrying disconnect between businesses’ understanding of the FSA guidelines and how these are being interpreted.  About 40% believe the advice is clear, but many have not interpreted the guidance correctly and they now have to backtrack, which is keeping us busy. The other 60% aren’t clear about what it is they need to be doing”.


53% thought that the guidance relating to Replacement Business was unclear, and the requirements “vague”- many suggesting that the ability to demonstrate that changes were being made in the interest of the customer was ‘dependent upon the quality of client files’. 


Ian Stott commented: “While problem cases are likely in any review, taking the step to conduct, in advance, a robust review of what the firm has done in the past may be the most effective way to deal with this new view from the FSA.” 


With regards to Centralised Investment Propositions (such as model portfolios or outsourcing to DFMs) 54% of respondents had not implemented a CIP. Of those who had, 40% agreed that this was as a measure to comply with RDR requirements. 


“There is a lack of clarity regarding the use of Centralised Investment Propositions. 40% of respondents, who have implemented one, say that this is in order to comply with RDR. Recent press reports suggest that the FSA is going to take a close look at these, and there will be a need for DFMs as well as advisers to have knowledge of the clients’ risk profiles and so on,” Ian Stott continued.


“This Guidance Consultation paper contains potentially some of the most devastating guidance we have seen in the area of business conduct. The truth is that most firms will need to review what they are doing or have done, perhaps in haste in preparation for RDR, to check that their business models conform to the views expressed in this Guidance Consultation.”

About the author

Related Posts

Leave a reply