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Following the publication of its inaugural
20/04/26
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The key takeaways from CP26/10: Simplifying the pensions and investment advice rules
Following the publication of its inaugural Regulatory Priorities report for Consumer Investments earlier this month, the FCA has published its much-anticipated consultation on simplifying pensions and investment advice rules. It is clear the FCA has collaborated with many important stakeholders before setting out these significant proposals, which will have a material impact on the business models of all wealth management firms.
Following the consultation the FCA is expecting to publish its Policy Statement in Q4 this year. The changes will have a fundamental impact on firms and there is a lot to consider before implementing any changes. Whilst there are many new proposals being consulted on, we have highlighted three of the main proposals below:
1. Replacing COBS 9&9A with COBS 9C
The FCA proposes to consolidate COBS 9 and COBS 9A into a single new chapter, COBS 9C. Firms advising across different product types, for example, MiFID-scope investments alongside non-MiFID products, currently maintain parallel processes to comply with different rule sets.
COBS 9C will set out the rules for basic, simplified, comprehensive and ongoing advice. The rules for targeted support will remain in COBS 9B.
Whilst this consolidation should reduce that duplication, which will be welcomed, firms will need to map their existing policies and procedures for COBS 9 and 9A to the new COBS 9C. Firms will need to make sure their policies and procedures are compliant before the new rules come into force.
2. From “necessary” to “sufficient” information
The FCA proposes replacing the requirement to obtain “necessary” information with an expectation to take account of “sufficient” information in the advice process. The FCA states it wants firms to exercise proportionate judgement and to gather only what is genuinely needed to demonstrate the suitability of a specific recommendation, rather than defaulting to a comprehensive fact-find irrespective of scope.
For a consumer wishing to make a one-off investment into a stocks and shares ISA or who is receiving advice on a pension switch, the relevant know-your-customer (KYC) information will often be limited. For a consumer seeking advice on retirement planning, significantly more KYC information will be required to ensure the advice is suitable.
The implication is that firms can design differentiated advice processes, dependent on the complexity of the advice. The FCA will support this with updated case studies, but this is an area that firms will need to consider, ensuring they always collect “sufficient” information before providing advice.
3. Flexible ongoing services and periodic suitability reviews
Perhaps the most anticipated section of the consultation is the ongoing advice section. There is a lot to consider, but one of the headlines is that the proposal to remove the mandatory annual assessment rule and give firms the flexibility to decide how frequent periodic reviews should be. The FCA recognises that an annual review is not proportionate for all clients and expects lower charges for clients who receive less frequent reviews. The key is demonstrating value for money.
This section of the consultation also gives further information on the FCA’s expectations on the client disengagement process. Like many of its recent publications, it places a significant onus on firms to design these processes while ensuring they are consistent with the Consumer Duty. This means the FCA can be less prescriptive and does not need to draft new rules.
Whilst the proposals are not expected to come into force before Q4, it is important that firms read the consultation and consider the implications for their current business model. The proposals are significant, and firms will need to be ready to implement them before they go live.
It is also important that firms take appropriate action before the new rules come into force. For example, the FCA has emphasised the importance of fair value, which is already a requirement. With the FCA launching its multi-firm work on ongoing advice earlier this month, it is important that firms are confident that their current fair value assessments and disengagement processes are compliant.
How TCC can help
Translating CP26/10 can be complex, and our regulatory experts can talk you through the proposal and how it may impact your firm’s business model. We can give you practical steps to take before the new rules come into force and to ensure you are ready when they go live. Get in touch today to find out how we can help.