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European rules could affect intermediaries

The European regulatory agenda continues to have a huge impact on the UK financial services sector.

Over 70% of regulation now comes out of Brussels.

The mainstream media and the tabloids in particular tend to get their knickers in a twist over European issues such as the regulation of bananas. Last month saw a publication from the Financial Services Authority which is a good example of the impact European Union directives can have not only on intended recipients but also on other firms caught in the crossfire.

The FSA has published a consultation paper on reforming its Conduct of Business regime. This has two main purposes – to set out its approach to reforming the COB sourcebook and to consult on its proposed implementation of the business requirements of the Market in Financial Instruments Directive and its legislation.

It also has two subsidiary purposes. These are first, to discuss the implementation of the Unfair Commercial Practices Directive for financial services and second, to consult on a number of MiFID-related changes to other parts of the Handbook – most importantly for mortgage intermediaries, complaints handling and training and competence for non-MiFID firms.

The changes proposed for the complaints sourcebook are designed to provide a new module (New DISP) which has fewer, more focussed rules that remove some elements of prescription.

Of interest to mortgage intermediaries will be the relaxation of some requirements that are pre-sently in place, notably:

• A change from a commitment to acknowledging a complaint within five days to acknowledging it ‘promptly’.

• The removal of the four-week written holding reply to a broader requirement to keep complainants ‘reasonably informed of the progress of their complaint’. The eight-week rule remains.

• The removal of the requirement to issue a final response letter to complainants where their complaint has to be referred to another firm because that firm is at fault for the matters complained about.

Training and competence issues also fall within MiFID’s scope. The proposals focus on the changes the FSA must make to implement MiFID and over which it has no discretion.

There are three areas where changes are necessary but the one of most interest to Association of Mortgage Intermediary members is the proposal to remove the T&C requirements of MiFID firms to pass exams within specified time limits, and the associated record-keeping guidance.

The proposal would remove this requirement for all firms including mortgage and general insurance intermediary firms.

The removal of time limits for passing exams is clearly a concern. This change seems like a step backwards for an industry which has worked so hard to raise the professional standing of advisers through qualifications.

In theory, this could mean that advisers can be supervised for the duration of their careers if necessary and never have to be qualified – a situation that will not place the industry in the best possible light.

But the FSA believes that firms will have a strong incentive to encourage their staff to pass exams quickly so they will not be required to work under supervision, with the additional costs this involves. Under these proposals, any time limits set for employees to have to pass exams will be left to the firm’s senior management.

AMI will be formally responding on this and other issues raised by the consultation.

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