The Financial Services Authority (FSA) has identified “two key risks” over the implementation of the retail distribution review (RDR).
The regulator says an emerging risk surrounding the transition to the retail distribution review, is firms seeking to maximise recurring revenue streams.
The FSA has previously warned that firm behaviour could lead to “poor outcomes for consumers”.
“This risk remains an emerging issue and will remain valid in the run up to the introduction of the RDR,” it says. “We will, therefore, continue to monitor firm behaviour and take appropriate regulatory action as necessary.”
The regulator says a potential concern was business model change, highlighting sales bias, ongoing service, provider influence and compliance.
Sales biases includes cases where fees rest on product sales or are paid for ongoing advice, regardless of whether products are sold, according to the regulator. (article continues below)
FSA ongoing service concerns centre on where firms move to portfolio advice or discretionary management and more transactions are made than ncessary.
Provider influence could come about, the FSA says, where providers seek to avoid the commission ban on commission by offering other incentives to advisers, such as business or consultancy services, “although inducement rules should mitigate this”.
A compliance risk is possible where business model change will put strain on advisers’ compliance functions, warns the FSA, with some advisers expected to seek appointed representative status within networks stretching their own compliance functions.
“Firms should ensure that their systems and controls, including competence of employees, keep pace with any changes in their strategy and business model, and with any new services the firm is offering,” the FSA adds.