Financial Regulation: a preliminary consideration of the Government's proposals - Treasury Contents

Written evidence submitted by Brewin Dolphin



  Further to our briefing paper on RDR for the TSC and the debate in November 2010 (attached) the table below shows the issues covered jointly and severally by the two proposed Regulations.

  The European Commission is consulting on a Directive to ensure a common level of consumer protection for Packaged Retail Investment Products (PRIPs). The scope of PRIPs is broadly similar to the RDR covering a similar product range and issues (although it does not cover professionalism which includes qualifications and competency). The fact that PRIPs is likely to be implemented shortly after the RDR means there is a real risk of further confusion, costs and "gold plating".
RDRPRIPs (To be implemented as part of MiFID2,[30] UCITS, IMD)
Unit Trusts YesYes
Investment Trusts Yes Yes
Investments packaged as life insurance policies YesYes
Stakeholder pension schemesYes No (ongoing work by EIOPA)
Personal pension schemesYes No (ongoing work by E)
Structured deposits Yes Yes
Structured securities Yes Yes
Derivatives NoYes
Deposits NoNo
Stocks and Shares No No
Any other designated investment which offers exposure to underlying financial assets, in a packaged form which modifies that exposure when compared with a direct holding in the financial asset YesYes
Key Investor Information DocumentsNo Yes
Client Categorisation No Yes
Best Interest of the Client No Yes
Suitability NoYes
Conflicts of InterestNo Yes
Adviser Charging (no trail)Yes Yes
Independent/RestrictedYes Yes
DEADLINE31 December 2012 Estimated 2014-15
COST£1.7 billion €500 million +

    "The Commission estimated that the PRIPs disclosure and sales rules would cost intermediaries, insurers and banks across Europe between €350 and €550 million with another €110 million or €220 million in ongoing costs. The impact for European advisers and brokers would be between €50 and €125 million in one-off costs and €50 to €80 million in ongoing costs."[31]

  Brewin Dolphin (BD)—turnover in 2010 was £250 million and below we set out the RDR principal measures and our projected costs of their implementation.


  The particular aspect of RDR not addressed in PRIPs is adviser qualifications. While competency is part of the overall MiFID regime—most IFAs in the UK are not presently subject to MiFID (they may well become so following PRIPs, though possibly not in respect of competency).

  We agree that all advisers need to be suitably qualified to advise on retail investment products and that mis-selling scandals of the past should be tackled. Therefore, we fully support the FSA in its aim to ensure that there is a credible infrastructure in place and that all advisers are fully qualified. However, we believe that the RDR implementation timetable is not long enough to enable the industry to deal with all those who will need to become qualified under the new regime and to approve and monitor all firms' individual CPD systems.

  BD estimated costs of training and exams including opportunity costs for all staff to be RDR compliant are £3.3 million and will be in addition to our existing £1 million T&C budget.


  Restricted Status of firms, ie those not able to offer the full range of products within the scope of RDR. These firms will be required to implement the following changes to their practices and incur these estimated additional costs (for firms the size and scope of BD):

    — Client communications—Restricted status and new adviser charging rules must be communicated in writing to all clients (one way only) cost: £150,000.

    — Restricted status compulsory oral communication—text to be read to new clients over the phone or in person taking five minutes per client—BD costs based on new business in 2010—£630,000.

    — Additional reporting requirements to the FSA—set up costs £35,000 and ongoing annual costs £23,000—total £58,000 in year 1.

    — Additional reporting requirements for clients—systems modification and set up costs estimate £100,000., with minimal ongoing annual costs.

    — Designated Professional Bodies (eg Law Society) members may not refer business to "Restricted" firms (or they must refer business to Independent firms) ~ 1/4 of BD's business is introduced by solicitors and accountants and so could result in unquantifiable but considerable loss.

    — Fee only charging by financial advisers—whether Restricted or Independent—may drive many small firms out of business and thereby reduce competition and consumer choice. Full and fair disclosure of all fees and commissions to the client should be a sufficient measure. PRIPs also bans third party payments and the proposals here are broadly similar to RDR and there is a significant overlap with the rules on inducements.


    — The full implementation of the RDR should be delayed until the PRIPs proposals are agreed by the European Commission. The considerable cost differential for implementation between the FSA's latest estimate for RDR of £1.7 billion for the UK industry and the EC estimate for PRIPs of €500 million + for all EU members, is too wide to contemplate doing the job twice.

    — The RDR proposes disproportionate "one-size-fits-all" measures that have angered the financial services industry and risk a loss of confidence in the Regulator itself and among consumers.

    — The RDR process and costs should be reviewed and the good principles of professionalism and transparency taken and introduced at the same time as PRIPs selling practices and transparency proposals, under the new Consumer Protection and Markets Authority (CPMA) regulatory structure which the Coalition Government plans to introduce.

17 January 2011

30   MiFID2-implementation estimated 2013 Back

31   Citywire 26 November 2010 Back

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