On 28 February 2017, HM Treasury published a document setting out its response to its proposal to amend the definition of financial advice in Article 53 of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001(RAO) (SI 2001/544)

http://bit.ly/2mEvuMy

HM Treasury explains that the majority of respondents supported the proposal to amend the definition of regulated advice to bring it in line with the definition of personal recommendation set out in the Markets in Financial Instruments Directive (2004/39/EC) (MiFID).

However, a significant number of respondents also expressed concern that a narrower definition could allow more fraudsters to attempt to deliver “advice” that stops short of a personal recommendation, but is intended to persuade an individual to purchase risky investment products.

Respondents are concerned that the FCA would be unable to take action against these individuals for providing misleading but unregulated advice. The government acknowledges these concerns. It has therefore decided to take the following approach, which is intended to both mitigate the risk of consumers being scammed and remove the regulatory barriers that currently constrain the content of guidance services:

• For regulated firms, the definition of financial advice will be amended so that these firms will only be giving advice where they provide a personal recommendation. This means that regulated firms will be able to provide more advanced guidance services (which would previously have been caught by the RAO definition of advice as “advising on investments”) without being subject to the higher regulatory requirements associated with regulated advice.
• For unregulated firms, the existing wider RAO definition of advice as “advising on investments” will remain in place. This means that unregulated firms will not be able to provide the more detailed and tailored guidance on the merits and disadvantages of investment products, and will be limited to providing factual information about products.

The revised text of Article 53 with amendments is set out in Annex B of the response document. It will amend the definition of advice for securities and relevant investments as defined in the RAO, including contracts of insurance.

As the MiFID definition of personal recommendation is being transposed without change into the RAO, EU guidance on what constitutes a personal recommendation will continue to apply to the new UK definition of advice for regulated firms.

HM Treasury clarifies that

• under the new definition (as under MiFID currently) a firm will be providing investment advice whether it recommends a product either implicitly or explicitly.
• recommendations to hold a product (that is, to do nothing) will count as investment advice, and
• a recommendation to purchase a specific product is advice does not depend on the purchase actually being made.

The government will introduce a statutory instrument shortly, with a view to the new definition coming into effect on 3 January 2018.

This will allow the FCA time to consult on and publish new guidance. In the meantime, the FCA has published on its website an explanatory note on the implications for regulated and non-regulated firms of these changes and information on its next steps.