A spokesperson for the UK regulatory body, which replaced the Financial Services Authority on 1 April, confirmed a review called the “Distortion of the RDR” would be launched in either late August or early September to look specifically at situations where advisory companies are intentionally dodging the strict new rules.
In January, the then FSA announced it would be launching periodic reviews into compliance with the RDR.
While the full scope of the “Distortion of the RDR” review has not yet been confirmed, the spokesperson said it may include a look at those firms passporting advisory services into the UK from within the European Economic Area (EEA), to ensure they are adhering to the new rules. Legislation introduced by the RDR includes a ban on commission and a requirement that advisers hold the equivalent of a degree level qualification in financial services.
The review may also look at whether there are abuses of the RDR by UK firms, such as where companies purport not to offer advice but actually do.
Under the EEA’s single market directives, which seek to guarantee the freedom of movement of goods and services within subscribing European member countries, companies are able to “passport” their services into other EEA countries, as long as they hold the requisite licence.
In the case of financial advisers, the relevant licenses are provided under the Markets in Financial Instruments Directive and the Insurance Mediation Directive.
Review ‘great news’
Sam Instone, chief executive of AES International, an advisory firm with its head office in the UK but with operations across Europe and the United Arab Emirates, said: “It is great news that the FCA are planning to review those international firms purporting to be licensed within the UK but who do not meet the minimum conduct of business and qualification standards.
“The multitude of EEA based insurance brokers who flout the rules destabilise the marketplace and pay scant regard to the consumer outcomes they create.”
Conversely, Paul Stanfield, chief executive of European trade body, the Federation of European Independent Financial Advisers, said he is not aware of many advisory firms which currently passport into the UK and has not noted an increase in this number since the introduction of the RDR in January.
However, Stanfield added despite him not being aware of it happening in great numbers, “it does not mean the FCA should not look into it; it is important for the UK regulator to assess this to ensure that UK consumers are being appropriately advised and serviced”.
Meanwhile, Tony Pentland, head of business development at Cyprus based advisory firm 3D Global, said, while he does not believe passporting is an issue per se, since the RDR was implemented he has found many firms are claiming to hold Personal Finance Society qualifications when they do not.
“In general we believe that the RDR has been good for the industry in particular raising the standard of professional qualifications through the industry, however it has highlighted a number of advisers working in Europe that purport to have PFS qualifications and in reality they do not,” said Pentland.
“As a company we have have used the PFS and Chartered Insurance Institute as the standard for qualifications as clear CPD lines can be followed with membership of the professional body. There are very few people registered with the PFS working in Europe but many who purport to be qualified.”
To read a technical overview of the RDR, click here
