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Financial regulator must speed up its feedback responses, expert says


Investment companies and insurance advisers need faster responses to their queries regarding forthcoming regulatory changes, an expert has said.

Insurance law expert Bruno Geiringer of Pinsent Masons, the law firm behind Out-Law.com, said that many providers would welcome a new consultation paper from the Financial Services Authority on how to report financial advisers' fees as a result of new rules governing retail investment advice. However he said that although consulting allowed for good feedback to come in, the process was too slow.

"Many providers and advisers now need faster responses to their queries to be able to change systems to accommodate the [Retail Distribution Review (RDR)] rules and document the new arrangements to put adviser charging into effect," he said.

"We would like to see the FSA develop a blog page or engage with a working party and develop an issues log of all the queries and answers, then to host a conference to allow for some debate and validation of the responses before posting them up as further guidance," he said.

The new consultation paper tackles queries that have arisen as a result of the regulator's RDR Adviser Charging Rules, which were originally published in March 2010. The RDR began in 2006 to address recurring problems of mis-selling and low levels of consumer trust in the retail investment market. Its main provisions include abolishing commission-based sales and the introduction of adviser charging, where the adviser's fee is agreed in advance with the client, to replace the current commission-based system.

The FSA said the retail investment industry had asked for clarification on the facilitation of adviser charges, where investment product providers can deduct the charge directly from the investment if the client agrees. This has led to confusion over whether refunds made to customers who cancel investment arrangements should include the adviser charge in these circumstances, the regulator said. Product providers who planned to facilitate adviser charging have also questioned whether the fees should be included in sales data reports.

"Our view on refunds on cancellation is that these can be made either net or gross of adviser charges, but we are proposing an amendment to the rules on disclosure of the effects of cancellation to ensure a customer understands the position. On reporting of investment amounts, we have added a note to the Product Sales Data requirements in the Supervision Manual to explain that the amount paid into the product should be disclosed, irrespective of whether adviser or consultancy charges are deducted before or afterwards," the FSA said.

The new rules will come into force on 31 December 2012, with any changes that come out of the new consultation coming into force on the same date. The FSA said that any changes to sales data reports would apply from the first accounting period after 31 December 2012.

The consultation paper is also the regulator's first to deal with the forthcoming implementation of the Solvency II Directive, which introduces new EU-wide solvency standards for insurance companies. It deals with changes to the disclosure regime which will be necessary when the delayed regulations come into force.

Last month the FSA announced that it had updated its implementation assumption for the Solvency II Directive (155-page / 3.7MB PDF), which sets out stronger risk management requirements for European insurers and dictates how much capital firms must hold in relation to their liabilities. Rather than coming into force next year as originally planned the Directive is to be transposed into UK law by 1 January 2013 when the responsibilities of the European Insurance and Occupational Pensions Authority (EOIPA) take effect, while the new standards will come into force for UK firms the following year. However, the FSA said it was consulting on the disclosure changes now to give firms "as much time as possible to prepare".

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