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EU-turn puts defined payment in jeopardy

The European Commission has reversed plans to make investment advice fee-only in a move that undermines a key argument in the FSA&#39s CP121 proposals for a defined-payment system.

The FSA used EU legislation to justify its arguments for change in CP121. The draft of the key investment services directive says investment advice should be subject to EU-wide harmonisation and is defined as a core service.

This could leave FSA proposals for the DPS out of step with European practice.

The directive says: “The impartiality and objectivity of advice is to be guaranteed through effective disclosure of inducements/commissions and organisational arrangements to manage conflicts of interest in multi-function firms.”

The commission has also accepted that the requirements of the ISD and the insurance mediation directive need to marry up to avoid the spectre of dual regulation.

Consultation on the ISD closes on May 31.

Aifa director general Paul Smee says: “I am pleased the commission seem to have been listening to our concerns. We are worried about the effect that European proposals will have on the FSA&#39s own proposals.”

LIA director of public affairs John Ellis says: “If anyone thinks the ISD is an excuse for CP121, then a hole has been blown in their argument. The FSA has taken an overly res-trictive view and the EU underwrites what we will be saying in our CP121 response.”

An FSA spokesman refuses to comment on whether the ISD was consistent with CP121 but says: “The right approach to directives is for individual countries to introduce them in such a way as is appropriate for that country and its industry. There is nothing stopping us from having a higher level of legislation.”

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