Financial Services and Markets Appendices to the Minutes of Evidence


APPENDIX 39

Note by the Institute of Chartered Accountants in England and Wales and others[9] on the draft Regulated Activities Order

1. PRECAUTIONARY AUTHORISATION

  This evidence relates only to the proposals made by HM Treasury on avoiding the need for precautionary authorisation. We support the aims of the proposals as stated in the consultation document and agree with the Treasury Committee of the House of Commons who said "the definition of financial advice needs to be drawn as narrowly as possible to prevent unnecessary regulation". We also agree with the Treasury objective stated in the Overview to the draft Financial Services and Markets Bill that "the need for the costs of regulation [should] be proportionate to the benefits".

  We are concerned that the detailed provisions of the draft Order do not appear to achieve these agreed policy objectives. We are also concerned that the consultation indicates that the FSA will have an important role in achieving these policy objectives by issuing guidance about what is and what is not investment business, but gives no specific power or duty for the FSA to issue appropriate guidance.

2. NUMBER OF FIRMS INVOLVED

  We fear that there may be no real reduction in the 13,000 or more accounting and law firms who currently maintain authorisation on a precautionary basis. In addition, we fear that the lack of clarity in the draft Order combined with the change to a single regulatory body in the FSA could lead to more firms taking out precautionary authorisation. For example, there are currently approximately 15,000 firms of accountants who are unauthorised. Lack of clarity as to the circumstances in which they may advise small family businesses which are incorporated may lead to these firms reconsidering their position.

3. OBJECTIVES

  We do not seek to reinvent the RPB regime. We agree that professional firms which intend to provide mainstream investment business services should be authorised by the FSA. We do seek to ensure that legislation which provides for criminal sanctions is clear and is administered in a way which:

    (a)  makes it very clear to practitioners which activities are covered;

    (b)  does not fetter the ability of clients to discuss their affairs freely with their chosen professional adviser; and

    (c)  excludes activities which do not require the expensive panoply of regulation by the FSA.

4. PROPOSAL

  The draft Order seeks to avoid the need for precautionary authorisation in many cases through excluding activities which may "reasonably be regarded as necessary in the course of a professional business". The word "necessary" is a very restrictive test and we are unclear whether the addition of the words "may reasonably be regarded as" will have any significant effect in relation to precautionary authorisation. By contrast, the Investment Services Directive does not apply to investment services which are provided "in an incidental manner in the course of a [regulated] professional activity". In our view, the most effective way of achieving this aim would be for the legislation to exclude activities which are incidental to the practice of a profession, while giving the FSA power to specify activities which (because they believe that they carry particular risks to consumers) should not receive the benefit of the incidental exclusion.

1 April 1999


9   The Institutes of Chartered Accountants in England and Wales, Scotland and Ireland, The Association of Chartered Certified Accountants, The Law Society, The Law Societies of Scotland and Northern Ireland, and The Institute of Actuaries. Back


 
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