FCA retires Finalised Guidance 12/15 and 14/1 on describing advice services and inducements

Of relevance to: All firms providing advice on or distributing retail investment products and financial instruments to retail clients
Key date: With immediate effect

Two Finalised Guidance publications (FG12/15: Retail Distribution Review: independent and restricted advice and FG14/1: Supervising retail investment advice: inducements and conflicts of interest) and a factsheet (Using platform-based investments and the independence rule) are being retired by the FCA with immediate effect as they were largely superseded on 3 January 2018 by changes brought about by the revision (“MiFID II”) of the original Markets in Financial Instruments Directive (“MiFID I”).

Firms should already be complying with the MiFID II-based requirements and no longer need to have regard to FG12/15 and FG14/1.

FG12/15 – Retail Distribution Review: independent and restricted advice

FG12/15 was originally developed to help firms apply the rules on describing advice services as either ‘independent’ or ‘restricted’, introduced as part of the Retail Distribution Review (“RDR”) at the end of 2012.

New requirements on describing advice in COBS 6.2B were brought in as a result of MIFID II, specifying:

  • what firms need to do to describe their advice as ‘independent’;
  • what range of products firms must consider in order to qualify as providing independent advice; and
  • the requirements on firms which are providing both independent and restricted advice.

As a result of the MiFID II-based rules being different in substance to the RDR rules, FG12/15 is considered no longer current or required.

The FCA is also withdrawing with immediate effect a separate FCA factsheet (‘Using platform-based investments and the independence rule’) referenced in FG12/15 which has also been superseded.

FG14/1 – Supervising retail investment advice: inducements and conflicts of interest

In broad terms, FG14/1 provided guidance to firms on compliance with the inducement rules derived from MiFID I. In particular, it focused on the various kinds of non-monetary benefit which firms may be able to give and receive in relation to the sale of retail investment products in compliance with the rule on inducements.

With effect from 3 January 2018, the FCA has made a number of changes to the inducement and adviser charging rules, to:

  • implement MiFID II’s updated inducement requirements, including the new MiFID II requirements restricting the monetary and non-monetary benefits which can be received by investment advisers and portfolio managers; and
  • clarify application of the existing RDR adviser charging rules in COBS 6.1A and 6.1B.

The effect of these changes is to further restrict the ability of retail advice firms to accept any monetary or non-monetary benefits (other than certain minor non-monetary benefits meeting various conditions) in connection with their business of advising.

FG14/1 has effectively been superseded and is therefore no longer considered current or required.

The practical effect of one aspect of these new rules is that firms which provide independent or restricted advice to retail clients in the UK, and which are subject to COBS 2.3A.15 R, and/or to the rules in COBS 6.1A, cannot accept any payment, commission or benefit of any kind which is paid or provided in connection with their business of advising, except for:

  • any form of charge payable by or on behalf of a retail client in relation to the provision of a personal recommendation (i.e. adviser charges); and
  • acceptable minor non-monetary benefits (which, for the avoidance of doubt, cannot involve any monetary payment).

These new rules do not prevent firms from organising or attending conferences, providing that their actions comply with applicable rules.

The list of potentially acceptable minor non-monetary benefits (in COBS 2.3A.19 R(5) and COBS 6.1A.5A R(2)(e)), expressly refers to participation in conferences.

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