Change is coming – FSB provides first insight into RDR commentary
We are heading towards crunch time when the whole regulatory landscape of the financial services sector will change. If all goes well, and there are no further delays, the goals of Destination 2016 will soon be implemented, which will see the establishment of two specific bodies that oversee regulatory compliance in the industry.
One of the key pieces of legislation the Financial Services Board (FSB) wants to implement is the Retail Distribution Review (RDR) which will change the way in which advice is given to clients and how intermediaries charge for this advice.
Through a release on its website, the FSB gave an update on the status of the implementation of RDR.
Phase 1 imminent
The FSB has always been adamant that RDR will be introduced into the industry through a phased approach. As part of this phased approach, a subset of 14 RDR proposals was identified for implementation in “Phase 1.”
These were envisaged as RDR proposals to be effected within the existing regulatory framework, using existing subordinate legislative and administrative powers. The implementation window for these Phase 1 proposals was intended to be between the close of the period for comment on the RDR (March 2015) and the effective date of the Financial Sector Regulation (FSR) Act.
At the time that the RDR was published, the effective date of the FSR Act was anticipated to be in the second half of 2015. This timing has shifted, and a revised version of the FSR Bill was tabled in Parliament on 27 October 2015, with promulgation expected in late 2016.
A total of 88 commentators provided feedback on the RDR paper through the formal consultation process, with additional comments and perspectives provided by industry participants and from multiple other sources. During the six month period from April to September 2015, the FSB has undertaken a comprehensive review of all stakeholder feedback received, including feedback on the Phase 1 proposals.
This work has been undertaken by a dedicated, cross-departmental FSB RDR project team. Additional workshops on various subsets of the RDR proposals have also taken place with industry reference groups.
Categorisation
According to the update, the FSB has taken note of requests made by many commentators to consider the interconnectedness of the various RDR proposals and the importance of sequencing the implementation of the proposals to minimise market disruption and uncertainty as far as possible.
In particular, commentators correctly pointed out that clarity on the final categorisation model – in other words the proposed three-tier model of categorising advisers is important. This is because any material changes to this proposal will have knock-on impacts on a number, although not all, of the other RDR proposals.
The majority of commentators on Proposal K (the proposed categorisation) indicated a preference for a two-tier categorisation, sometimes also proposing different terminology to describe the tiers from that used in the RDR. The corner stone of a two-tier model fell into two broad groups:
- those that proposed strict criteria for tied advisers, with all other advisers classified as “non-tied” or “independent”; and,
- those that proposed strict criteria for independent advisers, with all other advisers classified as “tied” or “non-independent”.
Be flexible
The FSB reports that one association proposed a variant on the RDR three-tier model (the “ASISA model”). This model proposes that the three-tier “Proposal K” model be retained, but that the multi-tied category should apply where more than one product supplier exercises any form of influence over the adviser, in which case all such product suppliers should be jointly and severally liable for the advice provided on any products (whether the products are products of those suppliers or not).
In addition, where only one product supplier exercises any form of influence, the adviser would be classified as a tied adviser of that supplier, who is liable for all advice provided on any products (whether the products are those of that product supplier or not). The ASISA model also proposes that such tied advisers need not be limited to products of the primary product supplier or group but can also offer certain external products with the approval of the primary product supplier.
In light of feedback received, the FSB agrees that Proposal K should be reconsidered.
Editor’s Thoughts:
There is a lot that the FSB put out, so we will be doing more than one newsletter on this issue. With regards to these issues, it is enlightening to see that the FSB it trying its upmost to create a document that doesn’t case unintended consequences. South Africa needs to open its doors to business, not create barriers to entry. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].
PS: The FSB's "Status Update: Retail Distribution Review Phase 1" can be downloaded here. The FSB welcomes comments on the preliminary information provided in the document from any interested persons. It would be appreciated if any comments or questions for clarification could be submitted by e-mail to [email protected] or by post to Ms Leanne Jackson, Head: Market Conduct Strategy, Financial Services Board, PO Box 35655, Menlo Park, 0102 by no later than 1 February 2016.
