Out-Law News 1 min. read

FCA scrutinising execution-only platforms market

Platforms that enable consumers to directly invest in shares and other retail investment products without the aid of retail investment advice are the subject of a new review being undertaken by UK regulators.

The Financial Conduct Authority (FCA) confirmed to Out-Law.com an earlier report by Investment Week which had said that the regulator has launched a review of the 'execution-only' market.

"We have noticed growth in non-advised investment sales and the early development of investment sales via streamlined, simplified advice processes," a spokesperson for the FCA said. "As part of the FCA’s new approach, we want to take an early look at these distribution channels to ensure that consumers are getting the right outcomes and, if necessary, provide clarification for firms."

Financial services law expert John Salmon of Pinsent Masons, the law firm behind Out-Law.com, previously called for clarification as to the extent to which direct-to-consumer (D2C) platforms can be considered to be making personal recommendations as opposed to merely providing information.

An 'execution-only' platform is a term that is used for a platform that does not offer advice when allowing investors to select which products or funds to invest in. Execution-only platforms are forms of D2C platforms, although there some D2C platforms that provide advice to their clients.

The issue of whether platforms can be said to be providing advice is important as the provision of retail investment advice is subject to a set of new rules that kicked-in at the end of last year.

Under 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.

"For wrap platforms, offering a direct to consumer facility for individuals to buy, sell and manage their investments, the concern is how safe are they if they see their role to help customers and their platform offers decision trees, model portfolios, best buy fund lists, tailored fund information and decision trees," insurance regulation specialist Bruno Geiringer of Pinsent Masons said.

"Officials from the FCA have commented in the press and at events publicly about whether certain practices amount to regulatory advice and this has raised serious questions. Coupled with the initiative in IMD2 to require providers of investment insurance to undertake appropriateness tests for execution-only sales, the regulatory landscape around execution-only is currently very confusing. Businesses need to have better guidance than that so this review is overdue and very welcome," he added.

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