CISI slams FCA inducement ban as ‘double blow to consumers’

The Chartered Institute for Securities & Investment has warned that the UK Financial Conduct Authority’s proposed ban on so-called “inducements” by financial services providers could ultimately hurt consumers rather than helping them, as is the FCA’s intention.

In its response to an FCA consultation on the Financial Advice Market Review (FAMR) CP 17/28, which contains the inducements ban, the London-based standards-setting organisation says it “broadly welcomes the FCA’s proposals to ensure consumers are protected when making complaints and are able to access the Financial Services Compensation Scheme” when obtaining financial advice.

But it says it has concerns relating to the sections in the document that have to do with banning “inducements”, “banning or accepting of inducements”.

“[While] extravagant hospitality gifts and monetary inducements are clearly unacceptable, the banning of inducements outright is likely to have unintended consequences,” the organisation says, in a statement.

“If firms feel as though they cannot take a client, competitor or supplier out for lunch, or accept a space at a conference, for example, then opportunities for people to understand each other will be missed.

“These activities offer the possibility of collaboration, communication and development, which ultimately benefit the end user, and an outright ban may prove to ultimately disadvantage consumers.”

The organisation argues that the FCA’s proposal that its training and competence requirements apply only to those members of financial services companies’ staff who provide “personal recommendations”, “as opposed to those who only provide guidance (ie, staff who advise customers along the lines of ‘this is what I think you should do’, compared to ‘this is what you could do’) is, in CISI words, “counter-intuitive and could result in a detrimental end result for consumers”.

“Customers expect to deal with suitably-qualified professionals, who they trust, when having discussions about their finances,” it adds.

“In the light of a long list of mis-selling scandals, there is still a lack of trust in financial services by consumers, and narrowing the scope of training and competence (T&C) requirements is unlikely to do anything to help restore the trust.”

‘Recommendation v guidance’

In arguing this point, CISI notes that there are likely to be many, “perhaps more”, consumers who will not be aware of the “subtle difference” between “recommendations and guidance”.

“In any case, it is our belief that clients would expect the individual they are dealing with to undergo T&C [training], and have relevant qualifications, irrespective of whether they are providing recommendations or guidance.”

Explained CISI chief executive Simon Culhane, pictured above: “We are not convinced that the FCA has analysed exactly how these two issues, of banning inducements and restricting qualifications, are likely to ultimately hurt the end user, the consumer.

“The proposal, in particular, sends the message to firms, professionals, employees and consumers that training, competence and qualifications are unimportant.

“[While] the cost of the T&C does represent a significant investment for firms, technological advances have meant that more content is delivered at a keener price than ever before.

“The CISI invites the FCA to engage us in a discussion about how T&C can be delivered in a cost-effective way to a wide audience, as we strongly believe that there is nothing to gain by shrinking the knowledge pool.”

Global standards-setter 

Based in London, the CISI sets qualifications for financial services executives globally, and has some 45,000 members in 104 countries, looked after by representative offices in such financial centres such as Dublin, Edinburgh, Spain, Singapore, Hong Kong, Manila, Dubai, Mumbai and Colombo.

It says more than 40,000 individuals in 80 countries have sat its examinations within the past twelve months.

Earlier this year, it formally unveiled a new pension transfer qualification, known as the Level 6 Certificate in Pension Transfers & Planning Advice.

In November, 2015 it merged with the UK’s Institute of Financial Planning, giving it the UK licence for overseeing the Certified Financial Planner designation.

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