FCA Advice Unit to re-open for applications on 03 January 2017

The Financial Conduct Authority (FCA) Advice Unit is part of Project Innovate, which aims to encourage innovation in financial services in the interests of consumers, and is open to those already authorised as well as firms seeking authorisation. Of particular interest is the feedback from the first tranche of applications.

Background

The FCA’s Advice Unit was created following the Financial Advice Market Review (FAMR). FAMR explored the supply and demand sides of the market for financial advice and guidance, the barriers to consumers accessing these services and the potential remedies. Technology was identified as having a key role to play in reducing the cost of advice and developing new ways to engage consumers.

The Advice Unit focuses on models that aim to serve the gaps in the current market for advice identified by the FAMR:

  • investments
  • pensions (accumulation and decumulation), and
  • protection.

Other innovative advice models in other sectors should apply to the FCA’s Innovation Hub for support.

The Advice Unit

The Advice Unit is part of Project Innovate and provides regulatory feedback to firms developing automated models that seek to deliver lower cost advice to consumers. The Unit is open to firms that are supplying or aiming to supply automated advisory or discretionary investment management services. It also provides regulatory feedback to firms that meet its eligibility criteria and which are conducting, or seeking to conduct, regulated business in the UK financial services market.

The Advice Unit works with firms developing models that provide a personal recommendation or discretionary investment management services for their clients. The focus on automated advice includes fully or partly automated online services and other models that use technology to deliver lower cost advice.

The FCA will not charge any additional fees to firms meeting the eligibility criteria during the initial phase of its operation.

Eligibility criteria

Potential to deliver lower cost advice to unserved or underserved consumers
  • the model caters for consumers who do not have significant wealth or income
  • the model serves consumer segments that are likely to benefit from advice but where existing supply/demand-side barriers currently limit take up, and
  • the firm has considered its target market and the number of consumers that might gain access to advice as a result of the proposition.
Genuine consumer benefit
  • the model is innovative
  • the model is likely to deliver lower cost advice for target market consumers
  • the firm can demonstrate how the advice model is likely to deliver positive outcomes for targeted consumers, and
  • the model is not likely to have a detrimental impact on competition within the relevant/related markets.
Automated advice proposition
  • the core element(s) of the advice journey are automated, for example, collecting fact find information, risk profiling, suitability assessment.
Clarity of proposal
  • the firm has developed a clear proposal that outlines the consumer journey, consumer outcomes and how potential risks will be mitigated, and
  • the firm has considered and taken a view on how regulations may apply to their business model.
Sector
  • the firm/model is focused on the sectors identified by FAMR where new and more cost-effective ways of delivering advice are desired: investments, pensions (accumulation/decumulation) and protection.
Need for regulatory input
  • the model raises regulatory questions with the regulatory framework which are novel/difficult for a firm to resolve through existing FCA rules and guidance.

In addition, the firm will need to:

  • be conducting or looking to conduct regulated business in the UK financial services market
  • confirm that its automated advice model will provide consumers with a personal recommendation or a discretionary investment management service
  • consent to the FCA publishing anonymised material based upon its interactions and any regulatory feedback provided, and
  • agree to treat any regulatory feedback provided by the Advice Unit confidentially and not to disclose it to third parties without the FCA’s prior consent.

What the Advice Unit provides

The FCA will provide two forms of regulatory feedback to firms:

  • Individual regulatory feedback - firms that meet the Advice Unit’s eligibility criteria will be given regulatory feedback on their model, a dedicated point of contact and end to end authorisation support if currently unauthorised.
  • Published resources for all firms - the FCA also looks to develop tools and resources which may be useful to all firms in the financial advice space. Some of these tools may include publication of reports to the industry, scenario testing and a guide to authorisation.

First tranche feedback

In the initial tranche the FCA received 19 applications. Nine firms met the eligibility criteria and qualified for regulatory feedback from the Advice Unit on the automated advice models they were developing.

Applicants for the second cohort should note some of the FCA’s observations from the first cohort which are relevant to the assessment of applications:

  • The eligibility criteria (specifically the "Sector" criterion) make clear that the focus of the proposed automated advice model should be on investments, pensions (accumulation/decumulation) and protection. This corresponds to the advice gaps identified by the Financial Advice Market Review (FAMR). Last time some firms applied with an automated advice proposition for the mortgage market.
  • Applicants need to confirm that their automated advice model will provide consumers with a personal recommendation or a discretionary investment management service. Last time some applicants were not clear about this.
  • The Advice Unit is for firms conducting or looking to conduct regulated business in the UK financial services market. Last time some applicants were not seeking to become authorised and were looking to offer their proposition to firms who were already authorised. In such cases the FCA may be able to entertain an application where the applicant has applied (or is willing to apply) with a partner firm that is already authorised/willing to become authorised.
  • The eligibility criteria (specifically the "Need for regulatory input" criterion) require there to be a need for regulatory input. Last time some applications did not articulate which specific areas of the current regulatory framework were providing novel/difficult questions. The FCA found some applicants did not have a specific need for regulatory input and wanted the Advice Unit to provide a "sense check" of their model against the regulatory framework.

Next steps

This second tranche will be open for applications until 03 February 2017.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.