Senior FCA official sees cause for concern in RDR implementation
A senior official at the UK Financial Conduct Authority said the regulator sees shortcomings in the way some market participants have responded to the Retail Distribution Review
Clive Adamson, head of supervision at the UK Financial Conduct Authority (FCA), has said that the FCA harbours concerns about the way firms are responding to the Retail Distribution Review (RDR).
Speaking at a Morningstar conference in London on May 15, Adamson said that while he believes advisers have largely achieved the professional standards mandated by the new law, the regulator still sees shortcomings. “We understand that the adjustment of business models will take time, but we do want to understand where the industry is,” said Adamson. “Over the coming months, we will look at whether firms’ business models truly meet what was intended.”
He said the FCA intends to review the progress made by firms in complying with RDR “likely in 2014” to decide whether the initiative is working as planned.
RDR, which came into effect in the UK on December 31, 2012, mandates higher professional standards and restricts the payment of commissions to financial advisers. Regulators had grown concerned that advisers were recommending products based on the amount of commissions they stood to receive, and not on what best benefited the client.
The FCA is concerned that product manufacturers may still be using inducements to influence advisers, said Adamson. He said that while these efforts by producers may fall within the written rules of the RDR, they do not follow “the spirit” of the regulation.
He also expressed concern about the emergence of new distribution channels. “We are interested in what will happen in terms of the new models that are emerging,” he said, adding that the FCA is seeking to work with advisers to understand the new ways products are being distributed to customers and the effects of RDR.
The FCA has seen changes in the wake of RDR, said Adamson. “We have seen that retail banks have largely withdrawn from providing advice to the mass market. We are also starting to see that advisory firms are targeting wealthier individuals.” Critics of the regulation had predicted that high street banks could cease providing financial advisory services in response to the new regulation.
“We do believe that what we originally aimed for with RDR is still the right thing,” he said.
Adamson called for a new approach in which the FCA and firms to work together to ensure the integrity of the market. “We know that the industry has generally been reluctant to tell us things or alert us to when things go wrong. But it’s almost impossible for us to pick up on everything that’s going on by ourselves. We’d like to find out what’s happening, and we need your help to do that.”
This article was first published on Risk