Out-Law News 2 min. read
04 Mar 2014, 12:02 pm
The Financial Conduct Authority (FCA) said it had identified "more limited progress" than it had expected to see from platforms' customer re-registrations procedures.
Re-registration is a term used to describe the transferring of customer assets from one platform to another without the customer having to sell and re-purchase their investment. Since the end of 2012, platforms have been obliged to permit re-registration of customer assets.
However, Nick Poyntz-Wright, director of long terms savings & pensions at the Financial Conduct Authority (FCA) said that platforms were not responding quickly enough to re-registrations. He also said the regulator was monitoring the effect of exit charges some platforms have applied when customers decide to switch their investments over to another platform.
"We expect firms to facilitate a transfer of investments from one platform to another within a reasonable timeframe," Poyntz-Wright said. "In the course of our work we found more limited progress in this area than we would have expected so we do want firms to attend to that. We also saw some firms introducing exit charges. We wouldn't want those charges to get to a level where they might present a barrier to exit for the customer and inhibit competition more generally in the market."
The regulator was commenting as it announced the findings of a review it had conducted into 10 platform businesses' readiness for new rules set to take effect next month.
"Firms have responded well to the changes and they have introduced robust and well managed projects," Poyntz-Wright said. "There is a high level of senior management involvement and effective governance. In the better examples we saw that firms had clearly taken into account the impact of changes on their customers and not just on their own bottom line and some firms are well advanced in testing the changes they're making and introducing new pricing structures well ahead of the April deadline."
From 6 April, platform services must only be paid for by an explicit charge agreed with the consumer, with some limited exceptions. They will be barred from obtaining a payment in commission from product providers to display their products for sale to investors.
However, so-called 'legacy' commissions will be allowed to continue for two years. Assets bought before 6 April 2014 that generate product provider commissions for platforms will be allowed until 6 April 2016. By then platforms will be required to ensure all assets purchased via their service are removed of commissions, whether legacy or not.
Under the new regime, 'execution-only' platforms, which allow customers to select funds to invest in without the aid of a financial adviser, can receive payments from product providers under certain conditions.
Platforms expert Tobin Ashby of Pinsent Masons, the law firm behind Out-Law.com, said the FCA had raised other issues for platforms to address following its review.
"It is good for the platform industry and its relationship with the regulator that the FCA’s feedback is largely positive on platform providers’ readiness for implementing the new rules in April," Ashby said. "As would be expected, the FCA has stressed the need for ensuring customers understand the changes and their impact. Firms will need to deal with this in their communications and support arrangements."
"Aside from an immediate concern about the lack of contingency planning, the FCA has flagged two areas that we can expect to hear more about in future. The first is access for customers who are now paying an explicit platform charge to all of the functionality on the platform. If access is inconsistent between customers who pay the same charge, for example between advised and non-advised customers, it could lead to questions over fairness," he said.
"The FCA has also reiterated its previous worries about the lack of progress on re-registration arrangements, particularly now in the context of exit charges becoming a barrier to changing platforms. With the FCA’s focus on competition, we may yet see more activity from a regulator trying to improve the ease with which customers can transfer their assets between platforms," the expert added.