FCA proposed ban on inducements and restricting mandatory qualifications for certain staff only, is a double blow for consumers, says CISI ​

By Lora Benson | Nov 15, 2017


A proposal by the UK Financial Conduct Authority (FCA) to ban the offering or acceptance of inducements within the financial services profession could ultimately hurt consumers, says the Chartered Institute for Securities & Investment (CISI).

In its response to the FCA’s consultation on the Financial Advice Market Review (FAMR) CP 17/28, the registered charity and professional body broadly welcomes the FCA’s proposals to ensure consumers are protected when making complaints and are able to access the Financial Services Compensation Scheme (FSCS) when receiving either personal recommendation or guidance from a firm.

However, the CISI has raised its concerns relating to the sections COBs 6.1A and COBs 6.1B on “banning or accepting of inducements”.

The CISI says: “Whilst extravagant hospitality gifts and monetary inducements are clearly unacceptable, the banning of inducements outright is likely to have unintended consequences. 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 CISI also commented on the FCA’s proposed approach regarding qualifications, whereby the regulator is suggesting that training and competence requirements apply only to those staff who provide “personal recommendations”, as opposed to those who only provide guidance (i.e. staff who advise customers along the lines of ‘this is what I think you should do’, compared to ‘this is what you could do’).

“This move is 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. 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,” says CISI.

The CISI also noted; “Whilst there will be many informed consumers who will appreciate the difference between recommendations and guidance, there will be many (perhaps more) who are not aware of this subtle difference. In any case it is our belief that clients would expect the individual they are dealing with to undergo T&C and have relevant qualifications, irrespective of whether they are providing recommendations or guidance.”

Simon Culhane, Chartered FCSI, CISI Chief Executive said: “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. Whilst 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.”