On February 28, HM Treasury published its response (Response) to its consultation on amending the definition of “financial advice” for the purposes of article 53 of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001(RAO). The Response gives summaries of responses submitted to the consultation by market participants, as well as the government’s position.

HM Treasury states that the majority of respondents agreed with amending the definition to bring it in line with the definition of “personal recommendation” in the Markets in Financial Instruments Directive. However, due to concerns that a narrowed definition could allow unregulated firms to provide misleading and unregulated advice, HM Treasury has provided for separate approaches for unregulated and regulated firms:

  • For regulated firms, the definition of financial advice will be amended so that these firms will only be giving advice, requiring them to hold a permission to advise on investments under Article 53(1), where they provide a personal recommendation.
  • For unregulated firms, the existing wider RAO definition of advice as “advising on investments” will remain in place. This means that unregulated firms will be limited to providing factual information about products.

On the same day, the Financial Conduct Authority (FCA) published a summary on its website of the implications of HM Treasury’s decision (Summary). The Summary clarifies what the amendment will mean for the following types of firms:

  • Regulated firms that hold a permission other than, or in addition to, a permission to advise on investments or to agree to advise on investments under article 64 of the RAO will be able to take advantage of the new exemption in article 53 without needing to have permission for providing advice on investments under article 53(1), as long as they do not provide personal recommendations.
  • Regulated firms that do not hold the advising on investments or agreeing to advise on investments permission(s), but do hold another permission, will be able to provide advice on financial products and services without the advising permission. However, they will still need to seek the advising permission(s) if they want to provide personal recommendations.
  • There will be no change for regulated firms that only hold permissions for advising on investments or for agreeing to advise on investments.
  • There is no change for unregulated individuals and firms that are not authorized by the FCA; they will not be able to provide any form of regulated advice without authorization.

The Summary states that there is no need for firms to take any action now. Firms will not have to re-apply for existing permissions for advising on investments or agreeing to do so until the FCA’s Handbook and Regulatory Guides have been amended.

It is planned that the government will introduce a statutory instrument to give effect to the amendment with an intention that the new definition will go into effect on January 3, 2018. In the meantime, the FCA will consult on changes to its Handbook and Regulatory Guides to coincide with the January 2018 changes.

The Response and Summary are available here and here.