UK's Financial Services Authority FSA Unveils Draft Rules On De-Polarisation

The Financial Services Authority (FSA) today published consultation paper 166 (CP166) setting out the detail of how it proposes to abolish the polarisation regime for those advising on packaged product business.

The FSA Board's decision to abolish polarisation was announced on 21 November 2002 following lengthy consultation.

David Severn, Head of Retail Projects at the FSA, said: "The new regime is aimed at increasing choice for the vast majority of consumers for whom the polarisation regime we inherited has denied such choice. It takes nothing away from those who already have access to independent advice.

"Polarisation has failed to deliver the benefits that were hoped for when it was introduced. Our proposals will most benefit the average consumer whose financial needs do not lead them to consult independent financial advisers but who nonetheless deserve better access to advice on suitable products and greater choice."

CP166 proposes that:

• firms currently restricted to selling just one company's products to customers will in future be able to offer their customers more choice;
• firms which wish to continue to hold themselves out as 'independent' can do so provided they both advise from across the market and offer their customers the option to pay by fee;
• abolition of the polarisation regime means that firms must clearly explain to consumers what the scope of advice or service they are offering is. This will be achieved through a new specific initial disclosure document; rules about disclosure in advertising and on stationery, all firmly backed up by a consumer education campaign.

As part of its campaign the FSA intends to include consumer alerts on the Consumer Help part of our website; use leaflets, press activity and joint campaigns with organisations such as the Citizens Advice Bureau (CABx) and through the Post Office. Firms may be encouraged to send approved literature to consumers explaining the charges that have been made. All of this can also be used to support the introduction of the specific initial disclosure document which, along with certain other FSA required documents, will be recognisable by the 'Key Facts' logo.

• the so-called "better-than-best" rule will be abolished. This rule effectively prevents an independent intermediary firm from recommending a product from any provider which owns 10% or more of the firm. Abolition of the rule will mean that independent firms will be free to attract investment to increase their financial strength. There will be safeguards in place to ensure that such investment does not undermine the independence of a firm; and
• FSA will continue with the present requirement that appointed representatives must, for investment business purposes, have a single principal. This is to secure clear lines of accountability and responsibility for an appointed representative's advice. However, for those appointed representatives who do no more than 'introduce' customers to an authorised firm it is scrapping the single principal rule.

The FSA believes it important that there be greater transparency for consumers over the cost of advice and it will be consulting separately on measure to achieve this in the spring. The FSA does not propose to implement the removal of the polarisation restrictions until it has also concluded that separate consultation on the cost of advice. This means that removal of the polarisation restrictions is not likely to take effect until late 2003 or early 2004.