Of relevance to:
All regulated firms
One of the recommendations in the joint FCA and HM Treasury Financial Advice Market Review (“FAMR”) was to consider amending the definition of regulated advice so that it is line with the MiFID definition of ‘investment advice’ (as in ‘a personal recommendation’) – see Regulatory Roundup 74. One anticipated outcome of this will be that firms will be willing to provide more advanced guidance services to clients without having to concern themselves about whether they are undertaking the activity of ‘advising on investments’ (current UK equivalent).
A Consultation Response released by the Treasury that confirms that the UK will go ahead with the change in definition.
Interestingly the proposal is that the change in definition will only apply to regulated firms. The government will retain the wider definition for unregulated firms (see the diagram on page 5 of the Response paper).
For regulated firms the definition of ‘investment advice’ will be:
- there must be a recommendation that is made to a person in their capacity as an investor or potential investor (or in their capacity as an agent for an investor or potential investor);
- the recommendation must be presented as suitable for the person to whom it is made or based on the investor’s circumstances; and
- the recommendation must relate to taking certain steps in respect of a particular investment which is a MiFID financial instrument, namely to buy, sell, subscribe for, exchange, redeem, hold or underwrite a particular financial instrument (or exercise a right to buy, sell, subscribe for, exchange or redeem a financial instrument).
For unregulated firms the definition of ‘advising on investments’ is (summary of Article 53 of the Regulated Activities Order) advice which:
- relates to a relevant investment, which includes contracts of insurance;
- is to be given to a person in their capacity as an investor or potential investor (or in their capacity as agent for an investor or potential investor); and
- relates to the merits of them buying, selling, subscribing for or underwriting the investment (or exercising rights to buy, sell, subscribe for or underwrite such an investment).
The amendment means that most regulated firms will not need to have the activity ‘advising on investments’ on their Part 4A permission unless they are providing a ‘personal recommendation’.
The FCA has published an explanatory note on its website. There is no need for firms to take any action now pending publication of a FCA Consultation Paper which is scheduled for “later in 2017”. It also includes a short table summarising the impact of the change on different types of firm.
The intention is that the new definition of ‘investment advice’ will come into effect on 3 January 2018 i.e. ‘MiFID II day’. The FCA will be consulting on the proposal.