City regulator proposes delay to new rules governing investment platforms

The Financial Services Authority (FSA) said that it intends to delay the implementation of the new rules after admitting that it would be "helpful" for it to "resolve" some questions it had received from platform providers about "operational aspects" of the new rules.

The FSA previously consulted on overhauling the regulation of platforms after conducting a Retail Distribution Review (RDR) of the market. It said that, subsequent to its consultation, firms had expressed concerns about rules relating to the information platform providers would be required to provide 'beneficial owners' of investment units as well as the voting rights of those beneficial owners. Changes to those rules will later be proposed and consulted on but the "basic structure" of the reforms will not alter, the regulator said.

"We have received an increasing number of questions in the last few months from firms and trade bodies on implementing the rules," the FSA said in its quarterly consultation document (107-page / 839KB PDF). "These queries have focused on operational aspects of the rules, including important issues such as the scope of application given differing business models across the potential population of intermediate unitholders."

"We accept there are genuine questions which would be helpful for us to resolve before the industry proceeds to implementation. To do this, we plan to consult on amendments to [new rules governing platforms], so we propose to defer the implementation of the current rules to 31 December 2013. This is to ensure we have adequate time to consult and make any subsequent rules, and firms have enough time to implement the revised requirements."

"We will leave the existing rules in place because we are not intending to alter their basic structure, involving investor notifications being provided by platforms and other nominee companies on a non opt-out basis. In this paper we are consulting solely on deferring the date the rules come into force, to allow time for the subsequent consultation and for firms to implement revised rules after that," the regulator said.

Platforms are online services that allow financial advisers to manage their clients' investment portfolios. Some platforms can be used by customers directly.

In 2010 the FSA set out major plans to overhaul the regulation of platforms following an RDR it had conducted. In August last year it published (73-page / 1.19MB PDF) final rules aimed partly at providing greater transparency over charges consumers face when using platforms.

The new rules force investment advisers to "take reasonable steps" to ensure that their choice of platform does not bias their selection of products for consumers. Platforms are also required to present their products in an "unbiased manner" and they must also "meet the same standards as product providers when they facilitate adviser charging." Platforms are also required to "disclose any fees or commission offered to them by third parties in advance of providing a service to customers."

The rules mean that a firm making a personal recommendation to a retail client in the UK to invest in a retail investment product will no longer be permitted to receive a commission set by the product provider. Instead, the firm will be paid an adviser charge agreed with the client in advance, under other new rules stemming from the RDR.

The FSA's consultation on delaying the implementation of the new rules is open until 6 July. It said that platform providers that have worked towards implementing the new rules would not have wasted their efforts in doing so and that consumers would also not lose out because of a year's delay in the rules implementation.

"While we accept that (some) firms will already have invested resource in preparing for implementation of the original rules, we expect little of this work will have been superfluous, as we do not propose to change the basic structure and intention of the rules," the FSA said. "For consumers, provision of specified information about their fund holdings through nominees would start a year later than originally planned."

"However, some nominee firms do currently allow investors to obtain information through them, although some charge for this service. Overall, we believe it will be beneficial for consumers that firms have a clear set of requirements to implement," it said.

In its most basic form, a platform aggregates data from several sources to provide a consolidated view of the client's total investments. Many platforms, however, also provide facilities for investments to be selected, bought and sold. Some platform operators use their platform to sell their own products as well as those of other providers.

There are different forms of platforms. 'Wrap' platforms are paid by providers of certain financial products to feature those products and they also charge consumers. Rebates from product providers are sometimes credited to customers' cash account with the wrap and used to pay the wrap platform fee and any fees the customer has agreed to pay their financial adviser.

Fund supermarkets, however, often follow a 'bundled' charging model and do not usually make an explicit charge to the customer. In such cases, the fund supermarket receives payment from product providers for its services, usually in the form of a rebate of the fund manager's charges.

Products providers may also be charged additional sums by the fund supermarket, for example for having their products on the platform. These are known as shelf space fees. Other fund supermarkets, however, are developing unbundled charging models, charging the client a separate fee.

The regulation of platforms has become an area of increasing focus by the City watchdog the Financial Services Authority (FSA) with an increasing number of consumers turning to platforms as tools for the management of their investments.