In September 2016 HM Treasury published a consultation setting out the Government’s proposal to amend the definition of regulated advice under Article 53 of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (RAO), to bring it in line with the EU definition set out in MiFID.  This would mean that only advice which makes a personal recommendation would be regulated.

In the consultation the Government set out a number of potential risks posed by moving the regulatory boundary acknowledging that there was a risk that fraudsters may attempt to use guidance services to distribute products, without being subject to regulation.

HM Treasury has now published a response to its consultation.

Having considered the responses to the consultation, the Government has decided to change the definition of financial advice for regulated firms. Regulated firms will be giving advice only where they provide a personal recommendation. However, the Government will leave the wider RAO definition of advice as “advising on investments” in place for unregulated firms.

The change will remove the regulatory barriers constraining the content of current guidance services, including the different requirements that currently apply depending on whether a firm is providing factual information on particular investments, or moving beyond that into more tailored guidance on the merits and risks associated with buying or selling particular investments.

The Government will lay a statutory instrument shortly. The new definition will come into effect on 3 January 2018. This will give the FCA time to consult on and publish new guidance.

The FCA has also published a new web page in which it describes at a high level what these changes to the RAO mean for different types of firms. The FCA also provides a summary of the changes.

In terms of next steps, the FCA states that there is no need for firms to take any action now. Firms will not have to re-apply for existing permissions for advising on investments or agreeing to do so. The FCA will consult on the changes to its rules and guidance later this year. It will also consult on updating its guidance on regulated advice and personal recommendations, building on the guidance that it previously issued in Finalised Guidance 15/1: Retail investment advice: clarifying the boundaries and exploring the barriers to market development.

View Changes to the Regulated Activities Order, 27 February 2017

View Amending the definition of financial advice: consultation, 27 February 2017