On 21 March 2023, the FCA published a speech by its director of consumer investments, Therese Chambers, delivered at the TISA Financial Advice and Guidance Conference in London.
In her speech, Ms Chambers notes that although the reforms implemented as part of the Retail Distribution Review a decade ago have had positive impacts, it is important to acknowledge where the sector could, and should, be performing better. As well as highlighting these areas, the speech also confirms the FCA’s commitment to ensuring the regulatory burden on firms is proportionate, so that they can do more to help consumers, particularly the most vulnerable.
The speech focusses on the following topics:
CP22/4 on core investment advice
The FCA wants to see a consumer investment market in which customers can invest with confidence, understand the risks they are taking and the regulatory protections provided. The FCA believes there is a strong appetite for a market for cheaper and more simplified advice to help these consumers. This is why, in November 2022, the FCA published Consultation Paper 22/4 (CP22/4) on broadening access to financial advice for mainstream investments, with the aim of making it easier and cheaper for firms to provide streamlined advice for consumers investing in mainstream investments via a stocks and shares ISA wrapper.
Feedback on CP22/4
Responses to the consultation revealed that firms are keen to do more in this area and support the premise of a core investment advice regime, which will work for many business models. However, the FCA recognises the need to offer as much regulatory clarity for firms as possible and understand some of the concerns that have been raised considering the limitations of the target market definition. It is considering the best way to take forward any simplified advice regime as well as the timeline for doing so.
The advice/ guidance boundary review
As announced in 2022, the FCA and HM Treasury will jointly be carrying out a holistic review of the boundary between advice and guidance. The purpose of this review is to gather a detailed understanding of how the boundary is operating and its impact on consumers, which will inform any necessary changes going forward.
Scope of the advice/ guidance boundary
The review is intended to work for the group that these products and services are intended for – consumers – so the ‘consumer voice’ is an important focus for the FCA. Notably, Ms Chambers confirms that accumulation products (including general investment accounts, ISAs and pension wrappers) will be within the scope of the review, as will decumulating assets, including pensions decumulation. However, Defined Benefit transfer advice (even below the £30,000 threshold for advice) and any other pensions with safeguarded benefits (e.g. Guaranteed Minimum Pension or a Guaranteed Annuity Rate) will be excluded from the review.
Timings for the review
The speech notes that the review is a significant and substantial piece of work, meaning that it will ‘inevitably take time’. Together with HM Treasury, the FCA is also considering how to organise its engagement with industry as part of the review, as well as working to give opportunities for more formal input on potential options.
Future Disclosure Framework
The FCA is in the process of evaluating responses to its earlier Discussion Paper (DP22/6) on the Future Disclosure Framework and aims to provide feedback on this ‘in due course’. It has seen positive responses towards a principles-based approach and establishing flexibility to allow firms to effectively communicate disclosure to consumers.
The Consumer Duty
The speech notes that the FCA has seen good progress from firms in implementing the Consumer Duty and has issued a range of materials on its website to help firms understand what this means for their business. However, the FCA believes that there is more firms could be doing now within the existing framework and emphasises the importance of providing information to their customers to enable them to understand their options and the risks and consequences of any decision.
Finally, Ms Chambers highlights the role of the Regulatory Sandbox in allowing firms to test innovative propositions on personalised guidance, and the role of Digital Sandbox as an online platform where firms can access data sets to test and build prototype solutions. She encourages interested firms to speak to the FCA to discuss these opportunities.