When the FSA replaces all self-regulatory organisations as sole regulator
for the financial services industry, a single handbook of rules and
guidance will replace the 14 rulebooks that currently apply.
Part of the new rules is the Code of Business Sourcebook detailed in the
FSA's consultation paper 45. This sets out and reinforces good business
practice for client relationships and encourages fair and clear
communication to build consumer confidence in the financial services
The FSA's approach of evolution not revolution means that IFAs will
already be familiar with much of the detail – and there certainly is a
great deal of detail. The 400-page document has provided plenty of food for
thought for the compliance boys, who will latch on to the minutiae of the
But having deliberated, cogitated and digested the information, it is fair
to say that the paper does not just regurgitate all the old rules. In its
quest for simplification, the FSA has sought feedback on many issues and
this paper will kickstart debate on a number of areas which affect IFAs'
The FSA's attempt to simplify product disclosure – in the first instance
through consumer research – must be applauded.
The amount of statutory information required for a single product is
likely to test most consumers' – and IFAs' – patience. But pity those who
go on to buy a package of products. A mortgage, plus term insurance, plus
income protection, means that consumers will receive more than 20 pages of
data. Most of which, I suspect, will go unread.
The FSA could simplify the process further by:
Allowing IFAs to make point-of-sale illustrations electronically.
Making projections optional on certain less investment-focused products.
Changing the presentation of status disclosure – although, clearly, this
could only be implemented after the polarisation review – by making the
terms of business letter shorter and more readable.
When changing the rules on disclosure, the regulator must make sure they
are consistent with other proposals such as those for mortgage disclosure,
league tables and requirements for stakeholder pensions.
Very few rules exist to govern the use of the internet and other
electronic media. Instead of embracing the vision and acknowledging the
distinctiveness of this medium, the FSA appears to be treating e-commerce
aslittle better than a glorified means of delivering key features.
The result is that the same rules that govern the way firms communicate
through product literature and over the telephone now extend to internet
and email communications, too.
The FSA could be accused of being short-sighted by focusing on e-commerce
as we see it today. It ignores the value of the web in terms of the ease of
interactive access it provides and the way it helps consumers navigate
through complicated information. By trying to apply dated rules to new
systems, there is not enough flexibility to adapt the rules and guidance to
cover the long-term potential of e-commerce.
More controversial is the plan to do away with projection tables. While
this is not yet a firm proposal, it is up for discussion and will have a
big impact on IFAs. It is important that projections remain an intrinsic
part of key features to give consumers some idea of the value of the
contract in the future. Otherwise, how will they understand their plan?
Without a projection, consumers will be reduced to making comparisons
based on each firm's assu-med rate of return, potentially enabling product
providers to hide high charges and poor inv-estment returns.
The FSA could improve the projection system by reviewing rates more often
to ensure they are realistic and making it clearer to consumers that the
figures given are not guaranteed.
Whether it is a result of the simplification of rules going too far or a
genuine desire to introduce new requirements – at odds with the FSA's
statement that: “We have not proposed any changes of policy substance” –
there do appear to be some new requirements. The regulator will need to
provide additional guidance on many points, including:
Clarifying the circumstances under which a pro-duct provider can supply
IFA-specific product lit-erature. The paper suggests that IFAs will now
have to pay all the production costs for product literature. Previously,
costs were only incurred for non-standard literature.
Surely, as long as a standard version of direct-offer financial promotion
material is available at no cost to intermediaries, it should not threaten
Identifying any limitations on software that provider firms can offer
intermediaries to enhance the quality of service to their customers. This
would create a more level playing field.
A change to the approval process which appears to suggest that once a
financial promotion has been approved by a provider the IFA can communicate
it without having to take responsibility for it.
Clarifying when an article (like this one) becomes a fin-ancial promotion.
Full details of consultation paper 45 are posted on theFSA's website at
The regulator has already consulted practitioners within the industry. In
addition, it has issued the consultation paper to stimulate comment as it
seeks reassurance that, in consolidating so many rulebooks, it has not
slipped up and inadvertently created technical and practical difficulties –
such as asking advisers to pay for provider literature so their
independence will not be compromised.
While life offices and trade associations will be dottingthe i's and
crossing the t's on their responses, it is adviserswho are best placed to
comment on how these simplified rules will affect them in their day-to-day