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Welcome to EQUITY ISSUES, a short note on a relevant issue in the private equity and venture capital industry.

If you would like to discuss any of the points we raise below, please contact me or one of our other lawyers.  

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Claire Cummings

020 7585 1406

claire.cummings@cummingslaw.com
www.cummingslaw.com


 

EQUITY ISSUES

FCA policy statement on retiring guidance relating to inducements and
conflicts of interest

 

The FCA has published a policy statement on retiring its finalised guidance relating to inducements and conflicts of interest (FG14/1) and independent and restricted advice (FG12/15).  The statement comes after the FCA’s December 2017 consultation and feedback there to and confirms that the FCA is retiring FG12/15 and FG14/1 with immediate effect.  The guidance has been largely superseded following changes to the FCA's rules, including those which came into force as a result of MiFID II.

As the FCA's new rules for inducements and the description of advice services came into effect on 3 January 2018, firms should already be complying with the requirements.  The new rules can be found in Chapter 6.2B of the Conduct of Business sourcebook (COBS).

FG 14/1 provided guidance to firms on compliance with the MiFID I-derived inducement rules. In particular, it focussed on the various kinds of nonmonetary benefit which firms may be able to give and receive in relation to the sale of retail investment products in compliance with the rule on inducements.

FG 12/15 stated that independent advice must be unbiased and unrestricted and based on a comprehensive and fair analysis of the relevant market. The new MiFID II rules, which can be found in COBS 6.2B, clearly specify: (i) what firms need to do to describe their advice as ‘independent’; (ii) what range of products they must consider in order to qualify as providing independent advice; and (iii) the requirements on firms which are providing both independent and restricted advice.

Under the new MiFID II rules, an investment firm that provides investment advice on an independent basis and that focuses on certain categories or a specified range of financial instruments shall comply with the following requirements: (i) the firm shall market itself in a way that is intended only to attract clients with a preference for those categories or range of financial instruments; (ii) the firm shall require clients to indicate that they are only interested in investing in the specified category or range of financial instruments; and (iii) prior to the provision of the service, the firm shall ensure that its service is appropriate for each new client on the basis that its business model matches the client’s needs and objectives, and the range of financial instruments that are suitable for the client. Where this is not the case the firm shall not provide such a service to the client.

The extent of the assessment which a firm is required to undertake in order to meet the requirement to assess a sufficient range of relevant products will depend on: (i) the nature of the independent advice service provided by the firm (general or focused); (ii) the investment objectives of the client; and (3) the firm’s close links and relationships with product providers and issuers.  

An investment firm offering investment advice on both an independent basis and on a non-independent basis shall comply with the following obligations: (i) in good time before the provision of its services, the investment firm has informed its clients, in a durable medium; (ii) the investment firm has presented itself as independent for the services for which it provides investment advice on an independent basis; and (iii) the investment firms has adequate organisational requirements and controls in place to ensure that both types of advice services and advisers are clearly separated from each other and that clients are not likely to be confused about the type of advice that they are receiving and are given the type of advice that is appropriate for them. The investment firm shall not allow a natural person to provide both independent and non-independent advice.

The effect of these changes under MiFID II is to further restrict the ability of retail advice firms to accept any monetary or non-monetary benefits (other than certain minor nonmonetary benefits meeting various conditions) in connection with their business of advising. The further effect of these changes is that the guidance in FG 12/15 and FG 14/1 has been largely superseded and is no longer current or required.  Therefore, the FCA has retired both with immediate effect.

 

This document is for general guidance only. It does not contain definitive advice.


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Cummings

Tel: + 44 20 7585 1406
Mob: + 44 7734 057 327

Cummings Law
42 Brook Street
London Greater London W1K 5DB
United Kingdom

www.cummingslaw.com

14 12 2018

 
 

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