The FSA has published its guidelines for a simplified, less prescriptive version of the suitability letter as part of its final disclosure measures for the new conduct of business sourcebook.
It has also announced that firms will only be allowed to use the FSA’s keyfacts logo if they copy out the menu and IDD documents as they appear in the handbook, despite the fact that the documents will move from rules to guidance from November.
The FSA says the new suitability report must set out the client’s demands and needs, explain why the firm has concluded the recommended transaction is suitable for the client and an explanation of any possible disadvantages of the transaction for the client.
The regulator says advisers will have greater discretion in what appears in the document whilst retaining consumer protection.
The FSA’s policy statement also clarifies other requirements that have been retained as consistent with the objectives of Mifid- in the aftermath of the FSA’s recent decision to move requirements to supply a menu and IDD from rules to guidance.
These include requirements for an adviser to be called independent, the simplified prospectus or key facts document and disclosure of how much commission or commission equivalent they are paying.
The FSA policy document confirms the regulator’s post implementation review is examining a range of possible options for menu and IDD replacements, which would be subject to consultation in early 2008 and may require Article 4 notifications to the European Commission.
The new conduct of business sourcebook will be introduced on November 1.
FSA head of retail investment policy Andrew Sykes says: “In confirming our position on these measures, we are nearing completion of our new investment conduct of business rules that will come into effect later this year. These measures allow us to retain a number of important safeguards for consumers. We are only retaining measures where we have been able to show that the benefits of doing so will outweigh the costs.
“More generally, in line with our principles-based approach to regulation, our new investment rules will give firms greater freedom over how they meet both our requirements and the outcomes we expect.”