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Lawyers say CP121 may be open to a legal challenge

Leading financial services lawyers are claiming CP121 could be open to legal challenge as IFAs would be forced to operate at a disadvantage to their European counterparts.

At present, CP121 states that intermediaries have to be fee-based or operate the def-ined-payment system to remain independent. But the European Commission&#39s recently published draft investment services directive says independents can rely on commission.

Lawyers Bond Pearce, Clifford Chance and CMS Cam-eron McKenna say that while the FSA can introduce tougher rules than required by the EU, this would leave the door open to legal challenges on a competition basis.

Leading industry experts are also warning that a stricter UK regulatory regime could lead to companies shifting abroad to countries with less burdensome requirements.

IMA deputy chief executive Sheila Nicoll says: “There is nothing stopping the FSA pursuing super-equivalence.

“But there is a danger over the long term that people will move to more favourable reg-imes in Europe.”

CMS Cameron McKenna partner John Newbegin says: “It is open to the FSA to have tighter rules but it could be open to IFAs to challenge as they would be operating at a disadvantage.”

Clifford Chance partner Tim Plews says: “Super-equivalence is allowed but this is as much a competition issue as a purely regulatory one. You might find that the FSA will want to reconsider its proposals in CP121.”

Bond Pearce partner Tony Woodward says: “Europe will win in the end. IFAs are again left not knowing where they stand and will be forced to change again.”

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