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SII Compliance Forum 15 November 2006

SII Compliance Forum 15 November 2006. Reforming conduct of business regulation Jennifer Long – Retail Policy FSA. Agenda. More principles-based regulation Reforming COB – featuring MiFID Some NEWCOB specifics DISP and T&C Next steps. More principles-based regulation (MPBR).

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SII Compliance Forum 15 November 2006

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  1. SII Compliance Forum15 November 2006 Reforming conduct of business regulation Jennifer Long – Retail Policy FSA

  2. Agenda • More principles-based regulation • Reforming COB – featuring MiFID • Some NEWCOB specifics • DISP and T&C • Next steps

  3. More principles-based regulation (MPBR) • Senior management responsibility • rethink approach to regulation and business practice • more flexibility to decide best way to comply with principles / high-level rules (eg: consider the reasonable information needs of customers and treat them fairly to decide best way to deliver required standard of consumer protection) • MPBR requires significant changes in approach and behaviour of both regulator and industry

  4. More principles-based regulation (MPBR) • MPBR necessarily involves expressing standards in a more high-level way • MPBR / high-level rules = less prescriptive regulation • Less prescriptive regulation is NOT relaxation of standards of behaviour we expect • MPBR can provide equivalent level of consumer protection

  5. Handbook Review • Initial proposals (July 2005) • CP05/10 ‘Reviewing the FSA Handbook’ (Chapter 5) • 31 October 2006: • CP06/19 ‘Reforming COB Regulation’ • CP06/20 ‘Financial promotion and other communications’

  6. Reforming COB - aims • NOT an amended version of current COB • Completely new sourcebook. Much shorter. • Easier to read and understand; comply with and amend • Takes account of MPBR / high-level rules (focuses on outcomes rather than processes) • Minimum necessary prescription • Improvements in structure and presentation (eg directive copy-out, labelling EU requirements) • Implements MiFID – complex process (no automatic read-across to non-MiFID sectors)

  7. Reforming COB - aims • Presumption against retaining / creating detailed rules unless: • implements European legislative requirements (MiFID, DMD); or • is only practicable way of achieving a regulatory outcome • Criteria for retention / creation of Guidance: • must be genuinely useful (eg: indicates possible means of compliance, or copies out directive recital) • Eliminate unnecessary guidance (eg: restatement of rule, paraphrasing legislation)

  8. Areas of significant simplification • Financial promotion • Prescribed content for risk warnings • Client reporting • Suitability

  9. NEWCOB Specifics • Client categorisation • Financial promotion • IDD/menu and product disclosure • Suitability and appropriateness

  10. Client categorisation • MiFID basis • Still 3 categories • Different boundaries • Professionals: 'per se' and 'opted up' • Tougher to opt-up from retail • Grandfathering and transitionals

  11. Financial promotions (1) • CP 06/20, NEWCOB Chapters 4 and 5 • Simplification • Less product-specific prescription • Some deregulation • Eg SCARPS detail

  12. Financial promotions (2) • Fair, clear and not misleading • Some detail • past and future performance • New approach to direct offer • Derivatives/warrants • No 'may be suitable' • Appropriateness test

  13. Disclosure • Review IDD/menu • Product disclosure • 19(3) requirements • Packaged products • Simplification • Remove post-sale KFD • Keyfacts logo and message

  14. Suitability • Integrated standard • MiFID copyout • IMD 'demands and needs' • Same outcomes, looks different • Inherent flexibility • Professional clients (MiFID) included • Suitability letters

  15. Appropriateness (1) • New, MiFID requirement • Non-advised sales • Pragmatic implementation • Not extending scope • No non-scope firms/products • Except some derivative/warrant fin proms

  16. Appropriateness (2) • What the test involves: • Does client have knowledge and experience to understand risks? • Complex products – always applies • Non-complex products • at initiative of firm • 'personalised communications'

  17. DISP and T&C • T&C • MiFID-compliant now • Inwardly passporting firms • Retail review consultation 2007 • DISP • MiFID starting point • But not limited to investment business

  18. Next steps • Overview • 1 month consultation: 28 Nov 2006 • Policy statement: Jan 2007 • 4 month consultation 23 Feb 2007 • Policy statement: Q2 2007 • Deferred matters consultation: Q2 2007 • NEWCOB/COB: 1 Nov 2007 • Full details: • Implementation Plan for MiFID update

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