Note by the Institute of Chartered Accountants
in England and Wales and others
on the draft Regulated Activities Order
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
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
2. NUMBER OF
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.
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
(c) excludes activities which do not require
the expensive panoply of regulation by the FSA.
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