FSA Publishes Report On Retail Distribution Review

by Jason Gorringe, Tax-News.com, London

30 April 2008

The UK's Financial Services Authority (FSA) published an interim report on Tuesday setting out the current thinking on the Retail Distribution Review (RDR) following a six-month consultation with the market.

Feedback on the discussion paper, published in June 2007, called for a simpler marketplace, and particularly for a clear separation between advice and sales.

The interim report, which is not a final policy document, sets out how this might be achieved, as well as acknowledging the significant challenges that this separation poses.

According to the FSA, the report is being published now to maintain momentum, and will be followed by a full feedback statement in October, which will set out in more detail the regulatory implications and timetable for change, once further work has been completed.

Amanda Bowe, the FSA's Head of the RDR, explained that:

"We have been listening very carefully to the feedback provided over the last few months and today's report shows how we are likely to respond to that."

"Respondents told us to keep things simple, have a clear distinction between advice and sales, ensure alignment with the potential Money Guidance service, and pursue our aims of raising professional standards."

"We think a simple landscape is important if consumers are to understand the industry and have trust and confidence in those they are dealing with. And we think the industry needs to be able to serve the changing needs of consumers as well as treat them fairly."

"However, we do not underestimate the significant difficulties that come from this simple picture and we need to deepen our understanding of the impacts on consumers and firms - in particular whether this structure is economically viable," she added, going on to conclude:

"There is still a great deal of work to do, therefore, before we take any decisions about regulatory change and set out the timetable for that change. We remain committed to taking the time to get things right and will introduce proposals that will lead to a more efficient and effective retail investment market for everyone - consumers and firms."

The FSA announced that it is also setting out three key challenges for the industry to deliver market-led solutions. These relate to professional standards; remuneration arrangements; and the provision of simple services to consumers.

In a separate move, the FSA has this week published the results of feedback on possible prudential rule changes to help reduce the frequency and impact of any poor or unsuitable advice by firms in the personal investment firm sector.

The Feedback Statement on the Review of the Prudential Rules for Personal Investment Firms (PIFs) sets out responses to the discussion paper published in July last year, and is aligned with the RDR Interim Report.

The regulator revealed that feedback to the paper suggested that the link between prudential rules and poor or unsuitable advice was too indirect to reduce its frequency, but that there was more scope to reduce its impact by providing resources to deal with claims.

The FSA will consider further how to extend and refine the current capital resources requirements according to the size of a firm, and will create arrangements for firms that stop trading to bear greater costs of customers' claims than is currently the case.

The FSA plans to consult on proposed changes later this year.

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