UK redefines financial advice in line with Mifid

The UK will go ahead with plans to change the definition of financial advice so that regulated firms will only be giving advice when they provide a personal recommendation.

UK redefines financial advice in line with Mifid

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The Treasury has published its response to a consultation paper, released last September, which looked at amending the definition of advice.

Mifid definition

The change, due to come into force on 3 January 2018, will bring the definition in line with Mifid.

Under Mifid, a personal recommendation must be made to an investor or potential investor and must be presented as suitable to their circumstances and ‘relate to taking certain steps in respect of a particular investment’.

The changes mean regulated firms will be able to carry out ‘more advanced guidance services that would have previously have been caught by the RAO (Regulated Activities Order) definition of advice as “advising on investments”, said the Treasury.

“However, unregulated firms will not be able to provide these more detailed and tailored guidance services. This dual approach mitigates the risk of consumers being scammed,” it added.

Unregulated firms

For unregulated firms, the Treasury said it will maintain the definition set out in the regulated activities order (RAO), whereby they are not allowed to provide any “advice on investments” without authorisation.

Advice that qualifies as ‘advising on investments’ must relate to a relevant investment, which includes contracts of insurance. It must also be given to a potential investor and relate to the merits of them buying, selling, subscribing for or underwriting the investment.

The ringfencing between advice and guidance is designed to “provide firms with the confidence to develop detailed guidance services, whilst protecting consumers from fraudsters”.

The two definition are set out in the diagram below.

 

FAMR

The move follows the recommendations made in March 2016 in the Financial Advice Market Review (FAMR), a joint review by the Financial Conduct Authority (FCA) and Treasury into how to make advice and guidance more easily accessible.

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