Upcoming changes financial professionals need to be aware of

There are changes in the air which will affect accountants, financial advisers and other professionals in the financial services industry, and the advice they provide. The Financial Conduct Authority (FCA) has announced a consultation on a new regulatory regime for retail investors. At the same time, the government is planning a crackdown on tax avoidance.

New regulatory regime for retail investors

The FCA has announced a consultation on a new regulatory regime for retail investors. This comes as a result of the government's "repeal and replace" plan following Brexit and may also include a review of sections of the Mifid II and Priips regulations. The FCA's executive director for markets, Sarah Pritchard, has said that there is a "unique opportunity to design flexible and proportionate regulation which is tailored to the UK market. Regulation that supports retail investors to buy products that suit their needs." It is hoped that new rules will be finalised in the first six months of 2025.

Pritchard announced that the FCA wants to hear from financial advisers regarding the new regime, which will largely relate to adjusting the approach to risk appetite. She said: "The concern regularly expressed is that we have become focused on the chance of loss at the expense of possible return."

Impact of new regime on Consumer Duty

The introduction of the Consumer Duty last year shifted the FCA's approach, from 'rules based' regulation to becoming more outcomes-focused. The proposed retail investors regime will also be outcomes-focused, allowing firms to be innovative and flexible in advising clients. In particular this will allow sole traders or small firms to tailor their approach to their own clients, with the FCA acknowledging that it is these types of advisers who often feel the effects of regulation the most.

Advice-guidance boundary review

Pritchard also added that firms with innovative ideas do not need to wait for the FCA to complete the advice-guidance boundary review.

In December 2023 the regulator published a policy paper in conjunction with the Treasury setting out initial thoughts on how to address the line between firms providing advice and providing guidance. The FCA considers that the purpose of such a review will only be reached in a "vibrant and sustainable" advice market. Pritchard noted that the FCA's aim is for retail investors to have "access to the help and guidance that they need, at a cost they can afford, when they need it – so that they can make informed decisions" from a varied and extensive market.

Pritchard noted that there are three key challenges with reforming the advice-guidance boundary:

• Finding suitable protections for consumers;
• Balancing an outcomes-focused approach with areas where prescriptive regulation is needed; and
• Striking the right balance between certainty and room for innovation.

It appears that the advice-guidance boundary review will be ongoing alongside the consultation on the new regulatory regime for retail investors, with the advice-guidance boundary perhaps becoming clearer once the new regime is in place.

Crackdown on tax avoidance

The Labour Party Conference saw the Chancellor, Rachel Reeves, deliver a speech outlining the Government's priorities for the upcoming budget. She noted that there will be a crackdown on tax avoidance and closure of tax loopholes, as the "government will not sit back and indulge the minority to avoid paying the taxes that they owe". HMRC is already recruiting 5,000 new compliance officers to work on this crackdown.

Other government priorities

Reeves also pointed to other changes which will be outlined in the Autumn 2024 budget which will impact those working in financial services. She noted that there will be reforms to the pensions system, although there is no detail as yet as to what reforms can be expected.

The Government has also pledged to introduce VAT on private school fees and heavily invest in public services.

What this means for financial professionals

The regulatory landscape is shifting and professionals need to ensure they are keeping up to date with changes as and when they take effect. For those firms who service retail investors, responding to the consultation for the new regime may be wise, to ensure concerns and desires are understood by the FCA.

The suggestion from the FCA that advisers should be able to approach their advice with flexibility and innovation, with a focus on the outcome for consumers, will need to be carefully balanced with ensuring any tax advice is in line with the upcoming crackdown on avoidance schemes. Professionals may well face claims from clients if HMRC come knocking.