Jersey FSC announces Review of Financial Advice (“RFA”)

The Jersey Financial Services Commission (the “Commission”) has today published a Position Paper on the review of financial advice. The paper is the first step in a review of how investment advice is given in Jersey and follows a similar exercise undertaken by the UK Financial Services Authority (“FSA”) entitled the Retail Distribution Review (“RDR”). The Commission invites comments and responses to the Position Paper by the end of October this year.

The aim of the RFA is to raise the professional standards of investment advisers, and reduce the conflicts of interest which are found in commission based remuneration for adviser services.

In summary, the Commission’s intention is to replicate a number of the FSA’s proposals including the requirements for a higher level of qualifications for those giving investment advice and the discontinuing of commission based remuneration. The Commission will allow an extra year for implementation after the FSA’s deadlines and will consult with industry over the details of the proposals. The Commission intends that any amendments to the regulatory framework, as a result of the RFA, will take effect from 1 January 2014.

The Commission considers that increasing professional standards together with new adviser charging requirements will contribute significantly to the reduction of risk to the public of financial loss due to incompetence, dishonesty or malpractice of investment advisers carrying on business in or from within Jersey. Further, these measures will protect and enhance the reputation of Jersey in commercial and financial matters.

The Commission has sought to introduce various measures in an effort to generally improve the quality of investment advice since the introduction of the Financial Services (Jersey) Law 1998. Despite that, there have been a number of enforcement cases in connection with the provision of investment advice, including the Alternate Insurance Services Limited case, which has been the subject of a public statement by the Commission. Examinations of investment advisers and mystery shopping exercises have also highlighted the need for improvement in the advice process.

A series of consultation meetings will be held with an industry working party, and presentations to industry as a whole will be made to finalise the details of the Commission's proposal. The working party will be formed from members of key professional bodies (such as the Personal Finance Society, the Jersey Bankers Association and the Chartered Institute for Securities and Investment), Jersey Finance Limited, direct industry representatives together with representatives from the Commission.

Commenting on the launch of the position paper Mike Jones, Deputy Director of Securities at the Commission stated:

“The key driver for this review is consumer protection. A guiding principle of the Commission is to reduce the risk to the public of financial loss. We hope that this review will result in higher standards of investment advice and limit the potential for mis-selling.“

John Harris, Director General of the Commission, also added:

“We take the view that the changes we are proposing should be acceptable to industry and understood in the wider context and that the end result will be increased transparency for consumers. This will also tie in with our other consumer protection initiatives such as the launch of our Protect Your Money website”.