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FSA/PN/092/2007
30 July 2007

The Financial Services Authority (FSA) has today published a Policy Statement confirming that it will retain a number of specific consumer protection measures when its new rulebook for investment business – Conduct of Business Sourcebook (COBS) – is introduced on 1 November 2007.

The FSA previously outlined these measures in its Policy Statement 'Reforming Conduct of Business Regulation' in May this year, and this confirmation is one of the final stages in the completion of the revised rulebook for investment business. This will enable firms to finalise their preparations for the new regime.

As well as reflecting the FSA's drive towards principles-based and better regulation, the new rulebook incorporates the relevant conduct of business provisions of the Markets in Financial Instruments Directive (MiFID). Following discussion with the European Commission, the FSA is satisfied that the requirements it has retained are consistent with the objectives of MiFID and – where applicable – with the Directive's criteria for retention. These requirements principally cover:

• the conditions advisers have to meet to call themselves 'independent';
• the provision by advisers of a simplified prospectus or key facts document;
• for packaged products, the information advisers should give clients on how much commission, or commission equivalent, they are paying for the service being provided; and
• how investment managers use client dealing commission to pay brokers.

Andrew Sykes, Head of Retail Investment Policy at the FSA, said:

"In confirming our position on these measures, we are nearing completion of our new investment conduct of business rules that will come into effect later this year. These measures allow us to retain a number of important safeguards for consumers. We are only retaining measures where we have been able to show that the benefits of doing so will outweigh the costs.

"More generally, in line with our principles-based approach to regulation, our new investment rules will give firms greater freedom over how they meet both our requirements and the outcomes we expect."

The FSA also confirmed that advisers will still need to set out why the investment products they recommend are suitable for consumers in a suitability report (a simplified version of the current suitability letter). However, firms will have greater discretion over how they meet this outcome.

Notes for editors

1. Policy Statement 07/14: 'Reforming Conduct of Business Regulation – Final Feedback on CP06/19' is available on the FSA website.
2. Article 4 of the implementing directive to MiFID sets out conditions that Member States have to satisfy if they wish to create or retain national requirements that go beyond the Directive, and requires these to be notified to the European Commission. The Treasury, on the FSA's behalf, notified the Commission of certain provisions the UK wished to retain on 31 January 2007 (the Commission's deadline for notifications). Following conclusion of discussions with the Commission, and consideration of stakeholder feedback, a revised set of Article 4 notifications will be submitted to the Commission in due course, and published on the FSA website.
3. Policy Statement 07/6 (published in May 2007) and Consultation Paper 06/19 (published in October 2006), both entitled 'Reforming Conduct of Business Regulation', are available on FSA website.
4. In October 2007, the FSA will publish a Policy Statement on responses to Consultation Paper 07/9: 'Conduct of Business regime: non-MiFID deferred matters'. This is a separate consultation on the application of COBS in areas outside the scope of MiFID, which closes on 3 August 2007.
5. The FSA has today launched a new webpage on COBS on its website. This consolidates the information that the FSA has published on the new regime, to assist firms' preparations for November's launch.
6. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.
7. The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.