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ABI joins fight to retain menu under Mifid

‘Menu has not been as effective as hoped but removing it for some products would be confusing’

The Association of British Insurers is joining Aifa in pushing the FSA to apply for an article 4 justification to guarantee the payment menu is not swept away or compromised by Mifid.

Regulation project manager James King says the ABI wants the FSA to stand firm against fierce lobbying from the Association of Private Client Investment Managers and Stockbrokers, as it would be wrong to remove existing requirements for advisers without providing clarity on any replacement measures.

King says the ABI opposes removing the requirement to provide a menu or initial disclosure document for some investment products within the scope of Mifid while retaining it for insurance products, as this would confuse advisers and consumers.

He says the menu should be retained in the short term although the ABI believes it has not been as effective as hoped in terms of transparency and usefulness for customers.

Over the longer term, King says the ABI is keen to see improvements as a result of the FSA’s forthcoming review of depolarisation and disclosure.

To retain the menu and IDD, the FSA will have to apply for an article 4 justification to add additional rules to the directive.

Overall, King says he is impressed by the FSA’s desire to simplify the Cob sourcebook radically and hopes the regulator will stick to its word when evaluating which parts of Mifid should apply to non-scope business on an individual cost-analysis basis.

The ABI says it is comfortable with the FSA’s intention to apply Mifid rules on suitability to non-scope business, with King suggesting the move would be cost-effective for advisers and providers.

But he says the ABI is worried about suggestions that the FSA is considering an article 4 justification to retain the requirement to provide retail customers with suitability letters.

He says it is sensible for advisers and providers to continue to provide these letters, to help with Financial Ombudsman Service requirements and client needs, but this should be done to abide by high-level principles rather than bureaucratically written into the new rules.

King describes Mifid proposals on appropriateness as a “strange beast”. He acknowledges FSA statements suggesting that it will not extend the appropriateness test to non-scope business but says clarity on products such as child trust funds is needed from the Treasury and FSA.

He says the FSA must also ensure the basic advice regime is kept outside the directive’s scope but the Government and FSA should carry out a post-implementation review of stakeholder to decide its future.

He warns that Mifid requirements on inducements should not be carried across to non-scope business as it would be difficult, expensive and bureaucratic for providers and advisers to document non-monetary benefits such as training and seminars.

King says: “We want the regulator to stand strong against calls for the menu and IDD to be removed without someone coming up with a better suggestion. We also fear the removal of this disclosure requirement for some Mifid-scope investment products while retaining it for insurance products as it will lead to confusion.”

Aifa deputy director general Fay Goddard says: “There are plenty of arguments to be had about how the menu can be simplified and ensuring different scopes of advice are included but first we have to ensure that the future of the docu- ment is safe in the upcoming consultation.”

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