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FSA sets out how adviser business models will be tested

FSA Front 480

The Financial Conduct Authority will explicitly test advisers’ business models as part of proposed changes to the basic requirements firms have to meet to become and stay authorised.

The FSA has published a consultation paper on how it plans to update the FCA handbook, the new regulator’s rulebook, which sets out changes the Treasury is looking to make to authorisation requirements under the new regulatory structure.

The requirements, known as “threshold conditions”, are the basic criteria all firms must meet to gain authorisation and which they must continue to meet to remain authorised.

The Government has proposed a new business model threshold condition which would require the FCA to assess whether a firm’s business strategy is suitable for its regulated activities.

The Treasury, rather than the FSA, is consulting on the addition of the business model threshold condition. The FSA is consulting on guidance relating to the new requirements.

The regulator has given a list of some of the issues firms should consider to prove the strength of their business model to the FCA, and that it is appropriate to the firm’s regulated activities.

The issues include:

  • the assumptions the firm has relied on, the rationale behind the business model, the pricing and product strategy and the needs of and risks to consumers;
  • how the firm intends to implement its business model, including areas such as outsourcing arrangements;
  • sustainability, for example identifying and mitigating potential risks and contingency plans;
  • areas a firm may wish to consider when its business model changes, such as the risks to and the impact of changes on the consumer.

The FSA says the guidance is not specific or exhaustive. It says: “The introduction of the new business model threshold condition demonstrates the importance the FCA will place on a firm’s ability to put forward an appropriate, viable and sustainable business model, reflecting the nature, scale and complexity of the business the firm intends to carry out.”

The regulator says a firm’s business model and any changes made to it, including product strategies, is key to ensuring the business is sustainable and that customers are treated fairly.

It adds: “Although a specific business model threshold does not currently exist, when assessing a firm against the threshold conditions as a whole, the FSA does ask for information about a firm’s business model.

“Therefore the revised threshold conditions, which now include a specific business model threshold condition, make explicit what is already implicit and as a result we believe our new business model guidance reflects existing practice.”

Yellowtail Financial Planning managing director Dennis Hall says: “The FSA should have all this stuff nailed well before RDR comes in. It has done it at an advisory level with certificate of professional standing and now it is concerned about whether businesses are sustainable. It is indicative of the FSA to do it all on the last minute.”

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Comments

There are 13 comments at the moment, we would love to hear your opinion too.

  1. Derek Bradley ceo Panacea Adviser 30th November 2012 at 12:54 pm

    Am I having a senior moment when reading this?

    Although a specific business model threshold does not currently exist, when assessing a firm against the threshold conditions as a whole, the FSA does ask for information about a firm’s business model.

    “Therefore the revised threshold conditions, which now include a specific business model threshold condition, make explicit what is already implicit and as a result we believe our new business model guidance reflects existing practice.”

    Can somebody please put this into plain English?

  2. We really are totally screwed aren’t we?

  3. The FSA’ business model-SCREW IFAs’

  4. So basically they will put into the rules what they already do but based on it not being in the rules.

  5. “Therefore the revised threshold conditions, which now include a specific business model threshold condition, make explicit what is already implicit and as a result we believe our new business model guidance reflects existing practice.”

    Yep – TOTALLY Clear! You WHAT?

  6. @ Derek
    Let me know when you get it translated wont you – I need to know whether the time we’ll have to spend doing this will threaten the sustainability of our business….

  7. I sat in one of their BRAW meetings trying to disabuse myself of the growing conviction that the biggest risk to my business was them.
    I was of course unsuccesfull, why? Because obviously it is true.
    My little 5 employee firm, looking after clients for the last 20 years is being scrutinised and wrung inside out by people who have no interest in our continuing in business and no genuine interest in the quality of the service we are providing to our clients.
    They simply wish to bully us

  8. David Cowell, Myddleton Croft 30th November 2012 at 2:58 pm

    I wonder what they will do with the information they garner?
    Past experience leads me to believe that they aren’t that clever at their own business model.

  9. I can’t see a problem with this. All you do is use the assumptions underpinning RDR, i.e. that clients will be perfectly happy to pay large fees for advice. Business model therefore is ‘give advice, charge fees, make profit’. Simple, other than the annoying fact that most of us will be out of work in twelve months time based on those assumptions. Oh well….

  10. Let me get this straight – the FSA/FCA is paid for through levies not tax as its ‘independent’ of the government.

    An yet the Treasury is getting involved?

  11. x= 4[p-d] x n -4/7 x 3[m+6]

    That should do it!

  12. Rebus Fortissimus 30th November 2012 at 5:08 pm

    No surprise that the regulator takes a beating from the adviser community when it describes how it will enforce some regulations…
    But it’s undeniable that the method and communication style to implement/launch/outline/create-a-clear-terms-of-reference-for the FCA invites cynicism.
    We need plain english, an engagement with the adviser community that has some meaning as well as a clear recognition of the obligations that come with making money in this space.
    Fundamentally, RDR and its associated quangos are around to solve a problem that genuinely exists. That’s the bit I’d like to see more widely acknowledged in these forums.
    I quite like that the treasury is involved – it has an interest in this stuff working.
    But yes – own goal FSA. Or is that FCA?

  13. Oh how we wish they’d all just fudge off and leave us in peace to do what we’ve demonstrably been doing better than any other sector since time immemorial.

    Isn’t there a multitude of manifestly greater issues on which the FCA should be focussing its attention and resources?

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