As revealed by Money Marketing this morning, the FSA’s consultation paper on delivering the RDR says the internal model would govern “increased and consistent standards of professionalism” using the existing FSA framework.
The FSA estimates that, while set-up costs for an internal model would be broadly the same as for an independent board at between £2.8 and £3.5m. The internal model will be £1.5m a year cheaper to run than an external model, with annual ongoing costs of £3.5m compared to £5m.
This is as a result of shared premises, equipment and resources.
The FSA says: “The major advantage of the internal model is that it does not require any new powers; those already given to us by the Financial Services and Markets Act 2000 are sufficient.
“So, it presents significant benefits from a cost and simplicity point of view, addressing the two most significant concerns held by firms, advisers and our professional standards advisory group.”
The FSA says it will formally recognise professional bodies that meet certain criteria, so that membership will be taken as “satisfying the requirement to evidence the new initial and ongoing competence requirements”.
It says professional bodies would provide front-line monitoring for their members, but membership will not be mandatory for advisers.
However the FSA says it is proposing a new requirement for firms to obtain independent confirmation that their employees have met requirements for attaining and maintaining technical competence.
Where employees are members of professional bodies, the FSA says firms can rely on that membership for confirmation.
The Association of Independent Financial Advisers has welcomed the FSA’s plans to introduce an internal model for oversight of professional standards.
Director general Chris Cummings says: “We are pleased to see that the proposals to form an independent professional standards board have been withdrawn.
“We were worried that the extra costs imposed by this new body would outweigh any potential benefit.”
He adds: “We do support the proposals for a new register of investment advisers as a way of helping consumers understand which adviser is independent and which are bank sales staff.”
Aviva says it is disappointed that the FSA has dropped plans for an independent professional standards board.
Director of distribution development Steve Gay says: “Aviva has long believed that an independent board would have been a cornerstone of driving professionalism within the industry and promoting consumer trust. Aviva believes that the removal of proposals for the Professional Standards Board undermines the FSA’s previous good work in this area.”