Small print: Why the 
FSA’s legacy assets paper 
needs urgent attention

In response to an FSA consultation paper on the post-RDR treatment of legacy assets, Cofunds’ managing director of operational services, Stephen Mohan, fears the regulator’s failure to issue new rules may harm consumers.

Through TISA, Cofunds was instrumental in bringing to the attention of the regulator the need to recognise the complexity around legacy and collectives.

We worked with, and supported, the group that, at the FSA’s request, worked on a non-partisan solution to the issue. It’s because of the level of input and explanation provided that we are disappointed with the FSA’s consultation paper.

There are two fundamental issues with the paper. Firstly, what is written can be read to mean something completely different from what the FSA has said up to now – assets, despite being unchanged, could lose their legacy status by virtue of being in a portfolio on which advice is given.

Secondly, the lack of detail in the paper will lead to firms having different policies, which will create regulatory arbitrage; something the FSA should be keen to avoid.

The reason for this confusion is the FSA’s desire not to offer new rules or guidance. Its attempt to explain legacy through clarification of existing guidance (PERG), has been the root cause of the issue and we urge the FSA to abandon that approach. As a minimum, we urge the FSA to publish straightforward clarification as soon as possible so that firms have the fullest amount of time to make any changes.

We have a number of points to raise:

A clear industry standard

In the interests of consumer protection and market confidence, the guidance should be clear and precise, and not open to interpretation. It’s also key that the financial services industry has confidence all firms understand their obligations and work to a common industry standard.

Retail investment products

We do not believe that the PERG guidance, as currently drafted, is a suitable reference point for the purposes of legacy commission arrangements on the basis that its remit is substantially wider than the RDR. For the purposes of RDR, the references to ‘investment’ should be replaced with ‘retail investment product’. It should then be clear to firms that commission can be paid on transactions in non-retail investment products such as stocks and shares portfolios.

Likewise the references to ‘fund’ could send out a mixed message leading firms to believe that a personal recommendation in some types of investments does not constitute advice and can be treated differently when determining commission arrangements. All references to ‘fund’ should be replaced with ‘retail investment product’.