The Edinburgh Reforms are the first set of post-Brexit changes to UK financial regulations with the aim of unlocking investment and growth. While much of the reform package remains uncertain, the key elements for financial advisors and wealth managers are the new retail disclosures currently under consultation and potential changes to the scope of regulated advice. Both amendments could help open up the market to a wider client base.
Most potential changes are in the early stages
These reforms include potentially extensive deregulation of banking, investment management, and capital markets and have been widely referenced as the ‘Big Bang 2.0.’ The reforms outline areas of change within the UK’s regulatory framework, but details over the extent of changes are scarce – with many subject to a series of consultations. This means that changes are far from guaranteed, and many will not be confirmed until as late as 2024.
When financial advice becomes but simple guidance
Yet for wealth managers, plans to loosen regulations surrounding financial advice for mainstream investment products provide a real opportunity. Potential changes are likely to reclassify advice on simplistic investments as guidance, releasing them from extensive Financial Conduct Authority (FCA) regulation. By reducing these regulatory hurdles, the new regime would make less affluent clients requiring basic financial advice more profitable to service. Wealth managers may look to expand their offerings to a wider market as eligible products could be provided without taking on disproportionate costs.
New retail investor disclosures could entice more issuers – if done right
Retail disclosure requirements are also set to be relaxed with the repealing of the EU Packaged Retail and Insurance-Based Investment Products (PRIIPs) regulation, with the FCA mandated to consider competitiveness in regulatory decisions. By creating more targeted and flexible rules, replacing PRIIPs will address concerns over risk clarity and disclosure proportionality. It will also encourage investment management firms to make a larger range of products available to UK retail markets due to reduced compliance risk and costs. For wealth managers, this should allow the provision of a wider range of products to retail markets at a lower regulatory cost, with disclosure standards proportional to product risk, perhaps giving UK-based managers an additional edge.
However, these reforms do coincide with the new Consumer Duty regulations, which subject firms to additional responsibilities over regulated advice. These greater standards are likely to offset some of the cost reductions from the Edinburgh reforms but could provide a positive impact on credibility, consumer protection, and service quality without substantially affecting other benefits.
With fundamental changes across all areas of financial regulation in the UK, it is certain that the Edinburgh Reforms will have definite implications for the financial advice industry in the years to come. The extent of changes may yet be unknown, but whether it is a Big Bang or not, the focus on creating a dynamic, more accessible, and more competitive financial services market will be music to wealth managers’ ears.