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Chris Hannant: The burden of European regulation

The Government and the FCA need to ensure EU rules are implemented in a way best suited to UK businesses.

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With an election to the European Parliament coming up in May, we have seen a flurry of regulatory activity. As is often the case, an election tends to focus minds amongst the current group of MEPs as they realise they may not be returning. Mifid II (Markets in Financial Instruments Directive) reached agreement recently and now the Prips (Packaged Retail Investment Products) regulation has reached the “trilogue” process.

Although Prips is supposedly about product disclosure for insurance investment products, we have seen measures creep in that will apply to advisers.

In the autumn, we saw a proposal to cap advisers’ fees for advice. Apfa identified this proposal, lobbied hard with MEPs and succeeded in getting this deleted. Earlier in the process there was a proposal that advisers be made jointly responsible with providers for product information. This too has been removed.

There remain issues with the requirements to include information on advisers’ remuneration in an annex (as this merely duplicates information that clients already receive) and provisions relating to the basis of fees (which complicate and duplicate existing requirements). These issues have not been finalised yet and Apfa is pressing for them to be deleted.

If they remain, one might take the view that if these requirements are already required and done, they will not add to the regulatory burden. But although the information is provided, the exact form and manner differ.

A further complicating factor is that Prips is a regulation, which means it has direct effect in UK law. This prohibits the FCA from adapting the provisions to its rule book. As a result, I believe they should adapt the rulebook to the Prips provisions. 

The more common form of EU legislation is a directive. These allow individual nation states to adapt their implementation to reflect national needs so long as they align with the directive’s intention.

With a regulation, the FCA will have no room to change the legislation, but does have scope to adapt existing requirements.

It will be essential that it thinks carefully about how any new requirements fit with current ones and ensure they are dovetailed, as far as possible, so that the customer is clear about the proposition and compliance burdens are limited on firms.

The fact that it is a regulation should not mean the FCA does not properly consider its impact and the need to adjust current rules.

A more creative approach is also needed in respect of the implementation of directives. For fear of being accused of “gold plating”, there is a tendency to copy out the text of the directive.

The text is the result of negotiation and as a consequence can often be vague. While the regulator should not stray from the core purpose of the directive, providing greater clarity as to its meaning should be normal practice.

Firms need to understand what is required of them, and for that to be the case the regulator should use more common sense and exercise discretion when implementing European legislation. The Government and FCA need to show a greater willingness to implement EU directives in a manner which best suits firms in the UK.

 Chris Hannant is director general of the Association of Professional Financial Advisers

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