Out-Law News | 14 Mar 2014 | 9:44 am | 2 min. read
The use of tools that present information to investors about trading decisions taken by fund managers and which allow those investors to match those fund mangers' trades could constitute the provision of advice, the FCA said, according to a report by the FTAdviser.
The publication said that the regulator made the comments in a letter it sent to the Retail Derivatives Committee, which is a group made up of representatives from a number of trading platforms. The content of the FCA's letter was first reported on by the Financial Times.
"A copy trading service provides information on the basis that it is a good idea for customers to copy the signals of their chosen signal provider," the FCA said, according to the FTAdviser's report. "In the FCA’s opinion, this is likely to amount to provision of information in circumstances which give it the force of a recommendation."
Whether the platforms are said to be offering just information to users or regulated advice is important as more stringent rules apply where advice is said to be being given. The regulator appears at this stage to be applying its interpretation of the existing rules on providing information, or providing investment advice or a personal recommendation. However, a spokesperson for the FCA told Out-Law.com that the regulator is to publish new guidance on copy trading within the next month.
The FCA is currently in the midst of a review of the 'execution-only' platforms market. Execution-only platforms are those that allow consumers to make investment decisions directly on the platform without the aid of advice. Earlier this year the FCA said that it was keen to know why many retail investment platforms have shown a preference for providing non-advised services over services that streamline and automate financial advice.
Platforms expert Tobin Ashby of Pinsent Masons, the law firm behind Out-Law.com, said: "It will be interesting to see whether the new guidance that has been mentioned gives any indication of where the FCA's thinking is going on the wider questions of advice and non-advised sales. Firms will be keenly looking for any signs of further clarity from the regulator in this area in anticipation of the results of the thematic review."
In accordance with the Retail Distribution Review (RDR) regime, financial advisers are required to inform clients whether they are providing advice on an 'independent' or 'restricted' basis, and they are prohibited from receiving commission from product providers or fund managers for recommending to clients that they invest in particular products or funds.
From 6 April, platform services must only be paid for by an explicit charge agreed with the consumer, with some limited exceptions. Platforms will be barred from obtaining a payment in commission from product providers to display their products for sale to investors. However, commission payments on so-called 'legacy' assets - those bought by consumers prior to 6 April 2014 - will be allowed to continue for two years.