If you have an automated advice or guidance model, please read our existing rules and guidance to check whether your question is covered, before applying for Innovation Pathways support.
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Automated advice or guidance propositions
If your firm is developing an automated advice or guidance proposition, read our case studies based on previous questions submitted to us. You can find these case studies in Chapter 5 of FG17/8: Streamlined advice and consolidated guidance[1].
You should also note the work we’ve completed since the publication of the original Financial Advice Market Review[2]. Our evaluation review[3], published in December 2020, summarises the findings from our research into the consumer investments market.
If you need help completing your application, you can sign up for one of our application support sessions[4].
Financial advice or discretionary investment management services
If your firm gives financial advice or provides discretionary investment management services, whether in the investments, pensions, protection, general insurance, mortgages or debt (debt-counselling) sectors, browse our guidance before applying.
The following information is based on questions firms have raised with the Advice Unit (now Innovation Pathways). It doesn’t constitute formal guidance and doesn’t have the status of guidance in our Handbook.
When reading this guidance, you’ll need to consider the specific obligations that apply to your firm and activities, and you may need to seek your own advice.
Please note that this information is not exhaustive. It’s updated periodically, but may not reflect the latest position.
Designated investments
| Question | Answer | Link | |||
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| Am I providing regulated advice? |
See Article 53(1) to (1D) of the Regulated Activities Order as amended – 'advising on investments' See PERG 8.24 to 8.29 – advising on a 'security' or 'relevant investment' NB: on 3 January 2018, the requirements for 'advising on investments' changed following an amendment to Article 53 of the Regulated Activities Order. The amendment means that most regulated firms are now exempt from the need to hold a permission to 'advise on investments' under Article 53(1) unless the firm is providing a personal recommendation, see further information on the FCA's website, 'Changes to the Regulated Activities Order[5]' See also Article 53E of the Regulated Activities Order as amended – 'advising on conversion or transfer of pension benefits' See PERG 2.7.16G, PERG 7.3.1EG, PERG 7.3.2G and PERG 12.6 – 'advising on conversion or transfer of pension benefits' |
Glossary - 'designated investment'[6] Article 53(1) to 1(D) of the Regulated Activities Order [7]as amended - 'advising on investments' Glossary – ‘advising on investments’[8] Changes to the Regulated Activities Order[15] Article 53E of the Regulated Activities Order [16]– 'advising on conversion or transfer of pension benefits' |
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See PERG 8.26 – generic advice See PERG 8 Annex 1 – Examples of what is and is not a personal recommendation and advice 'Generic advice' means advice or information that does not relate to a particular investment or does not otherwise meet one of the characteristics of regulated advice See recitals 15 and 16 of the MiFID Org Regulation |
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| Am I providing a personal recommendation? |
See Glossary – 'personal recommendation' See PERG 8.30B - Personal recommendations In summary, a 'personal recommendation' is a recommendation that is 'advice on investments[8]' or ' advice on conversion or transfer of pension benefits[22]' which is presented as suitable for the person to whom it is made, or is based on a consideration of the circumstances of that person See the Glossary for definitions of: – 'advising on investments' (see Article 53 (1) to (1D) of the Regulated Activities Order as amended) – 'advising on conversion or transfer of pension benefits' (see also Article 53E of the Regulated Activities Order) A recommendation is not a personal recommendation if it is issued exclusively to the public See PERG 13.3 at Q.19 – 'what is a 'personal recommendation' for the purposes of MiFID?' See PERG 8 Annex 1 – Examples of what is and is not a personal recommendation and advice This provides guidance on what may constitute personal recommendations, including example scenarios to help firms understand when they may be giving a personal recommendation |
Glossary - 'personal recommendation'[23] Glossary - 'advising on investments'[23] Glossary - 'advising on conversion or transfer of pension benefits'[24] Article 53E of the Regulated Activities Order [16]- 'advising on conversion or transfer of pension benefits'[23] |
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| When might I implicitly be providing a personal recommendation? |
See PERG 8.30B.8G and PERG 8.30B.9G This provides guidance on 'implicit' personal recommendations For firms doing MiFID business, see CESR Q&A 'Understanding the definition of advice under MiFID' at paragraphs 45 to 47 – this provides guidance and illustrations on financial instruments being implicitly presented as suitable |
CESR Q&A - Understanding the definition of advice under MiFID[26] |
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| Where can I find rules/guidance on suitability of advice in the area of investments (including pensions)? |
See COBS 9 – suitability (non-MiFID provisions) See COBS 9A – suitability (MiFID provisions) Firms that make personal recommendations on designated investments must comply with the suitability rules in COBS 9 or COBS 9A See COBS 19.1 – advice or personal recommendations about a 'pension transfer', a 'pension conversion' or a 'pension opt-out' Firms that make personal recommendations on pension transfers, pension conversions or pension opt-outs must comply with the rules in COBS 19.1 See ESMA Guidelines on certain aspects of MiFID suitability requirements See FG 11/5 'Assessing suitability: Establishing the risk a customer is willing and able to take and making a suitable investment' See TR 14/10 'Developments in the distribution of retail investments: Purchasing investments without a personal recommendation or with simplified advice' See FG 17/82[27] ‘Streamlined advice and related consolidated guidance' |
Glossary - 'designated investment'[6] ESMA Guidelines - Guidelines on certain aspects of the MiFID suitability requirements[31] |
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| Where can I find rules and guidance on customer fact-finding? |
See COBS 9.2 – assessing suitability (Non-MiFID provisions) See COBS 9A.2 – assessing suitability (MiFID provisions) See ESMA Guidelines on certain aspects of MiFID suitability requirements See the guidance in paragraphs 2.32 to 2.54 and Chapter 3 of FG 17/8 on the fact find process |
ESMA Guidelines - Guidelines on certain aspects of the MiFID suitability requirements[40] FG17/8 p[39]aragraphs[49] 2.32 to 2.54 |
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| Where can I find rules and guidance on the risk a customer is willing and able to take? |
See COBS 9.2 – assessing suitability (Non-MiFID provisions) See COBS 9A.2 – assessing suitability (MiFID provisions) See ESMA Guidelines on certain aspects of MiFID suitability requirements See FG 11/5 at Part 3, which includes guidance on the use of risk-profiling tools at paragraphs 3.9 to 3.13 and gives examples of good and poor practice in carrying out customer risk assessments See the guidance in paragraphs 2.51 to 2.53 of FG 17/8 on some key issues in risk profiling |
ESMA Guidelines - Guidelines on certain aspects of the MiFID suitability requirements[48] |
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| Where can I find rules and guidance on suitability reports? |
See COBS 9.4 – providing suitability reports (non- MiFID provisions) See COBS 9A.3 – information to be provided to the client (MiFID provisions) See COBS 9.4.4R, COBS 9.4.5R and COBS 9.4.6R (Non-MiFID provisions) and COBS 9A.3.2R (MiFID provisions) for the timing rules governing the provision of suitability reports See case study No.5 in Chapter 5 of FG17/8 |
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| Where can I find rules and guidance on key features documents? |
See COBS 14.2 – providing product information to clients, including key features documents and key information documents See COBS 14.3 (Non-MiFID provisions) and COBS 14.3A (MiFID provisions) – providing information about designated investments to clients, including providing a description of the nature and risks of designated investments to clients set out at COBS 14.3.2R and COBS 14.3A.3R NB: from 1 January 2018, the Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation applies to require provision of key information documents (KIDs) when PRIIPs are advised on or sold – see the PRIIPs disclosure section on our website and Article 13 of the PRIIPs Regulation See case study No.6 in Chapter 5 of FG17/8 |
Glossary - 'designated investment'[36] PRIIPs disclosure: Key Information Documents[46] |
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| What is focused advice? What is simplified advice? What is streamlined advice? | See paragraphs 2.1 – 2.6 of FG 17/8 |
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| Where can I find examples of specific customer needs that could be dealt with through a streamlined advice service? | See FG 17/8 at paragraph 2.54 for examples of specific needs of customers that could be dealt with through a streamlined advice service |
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| Where can I find information on considering a client's existing investments when giving streamlined advice? |
See COBS 9.2 – assessing suitability (Non-MiFID provisions) See COBS 9A.2 – assessing suitability (MiFID provisions) See the guidance in paragraphs 2.46 to 2.48 of FG 17/8 This provides guidance on our expectations where a client seeking streamlined advice does not provide information on their existing investments and specifically requests these investments not be considered as part of the advice process See the guidance in paragraph 2.54 of FG 17/8 This provides examples of information required for particular streamlined advice scenarios |
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| Where can I find information on considering information that I already hold about a customer when giving streamlined advice? |
See COBS 9.2 – assessing suitability (Non-MiFID provisions) See COBS 9A.2 – assessing suitability (MiFID provisions) See the guidance in paragraphs 2.43 to 2.45 of FG 17/8 This provides guidance on the extent to which a firm is required to use information that it already holds about a client |
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| Where can I find information on target markets? |
See 3.3 of Product Intervention and Product Governance Sourcebook (PROD) See 1.17(1) of the Responsibilities of Product Providers and Distributors for the Fair Treatment of customers (RPPD) See pages 6 and 7 of TR 14/10 This provides useful information for firms distributing retail investments and discusses good/poor practice in relation to firms' practices around target market identification See the guidance in paragraphs 2.7 to 2.16 of FG 17/8 on identifying the target market for the product offering and / or streamlined advice service See the guidance in paragraphs 2.17 to 2.22 of FG 17/8 on filtering processes that firms could use to ensure that products are distributed in accordance with the needs of the intended clients for the service See the guidance in paragraphs 2.24 to 2.25 of FG 17/8 on designing client interfaces for sales that are made through a streamlined advice service |
The Responsibilities of Providers and Distributors for the Fair Treatment of Customers (RPPD)[41] |
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| What professional standards apply to individuals involved in designing and signing off automated advice processes? |
See the guidance in paragraphs 2.24 to 2.28 of FG 17/8 This provides guidance on the design of the client interface and the extent to which non-qualified individuals can support clients through system-delivered personal recommendations See the guidance in paragraphs 4.14 to 4.21 of FG 17/8 This provides guidance on the required professional standards for staff involved in simplified automated advice processes See ESMA Guidelines on certain aspects of MiFID suitability requirements: General Guideline 11 and supporting guidelines provide information relating to the skills, knowledge and expertise necessary for staff involved in suitability assessment processes See SYSC 5.1, TC2 and TC3 – general requirements regarding staff skills, knowledge and expertise, competence and record keeping |
EMSA Guidelines on certain aspects of MiFID suitability requirements[57] |
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| Where can I find rules on adviser charging? |
See COBS 6.1A – rules on adviser charging See guidance in paragraphs 4.1 to 4.9 of FG 17/8 on the adviser charging and remuneration rules in COBS 6.1A |
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| Where can I find information to help me understand whether I am providing advice or a discretionary investment management service? | See the examples table at PERG 8.29.7G |
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| Where can I find rules and guidance on assessing suitability in the area of managing investments? |
See Glossary – 'managing investments' See COBS 9 – suitability (Non-MiFID provisions) See COBS 9A – suitability (MiFID provisions) See ESMA Guidelines on certain aspects of MiFID suitability requirements See FG 11/5 'Assessing suitability: Establishing the risk a customer is willing and able to take and making a suitable investment' See Annex 2 of TR 15/12 for examples of good and poor practice in the area of delivering suitable outcomes to investment portfolio customers See guidance in paragraphs 4.31 to 4.45 of FG 17/8 This provides guidance on the suitability requirements applicable to firms offering discretionary investment management services (including model investment portfolios) |
Glossary - 'managing investments'[50] ESMA Guidelines - Guidelines on certain aspects of the MiFID suitability requirements[97] |
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| Do firms managing investments need to comply with the rules on providing suitability reports in COBS 9.4? |
See COBS 9.4 – providing suitability reports (Non-MiFID provisions) See COBS 9A.3 – information to be provided to the client (MiFID provisions) The rules on providing suitability reports only apply if a firm provides a personal recommendation to a retail client NB: from 3 January 2018, the provisions of MiFID II apply and there are specific obligations on the provision of statements on how the client’s investments meet the preferences, objectives and other characteristics of the client when a firm provides a portfolio management service – see Article 25(6), Article 54(12) and recital 82 of MiFID |
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| Do the adviser charging rules apply to firms managing investments? |
See COBS 6.1A – rules on adviser charging The rules on adviser charging only apply to a firm which makes personal recommendations to retail clients in relation to retail investment products or P2P agreements |
COBS 6.1A[101] | |||
| What should I consider from a behavioural economics perspective when developing an automated advice model? |
Principle 6 of the Principles for Businesses – Customers' interests See COBS 2.1.1R – the client's best interests rule See FG 11/05 'Assessing suitability: Establishing the risk a customer is willing and able to take and making a suitable investment selection' This considers the role played by risk-profiling and asset-allocation tools, as well as the providers of these tools See Occasional Paper No.1 'Applying behavioural economics at the Financial Conduct Authority (April 2013)' particularly Section 6 on identifying and prioritising risks to consumers See Occasional Paper No.3 'How does selling insurance as an add-on affect consumer decisions? A practical application of behavioural experiments in financial regulation (March 2014)' See Occasional Paper No.8 'Consumer Vulnerability (February 2015)' particularly Appendix 4 Practitioners' Pack See Approach to Consumers particularly Chapter 3 on Key Principles |
- Including pensions but excluding pure protection contracts and P2P agreements.
- FG 17/8 sets out guidance in response to a number of Financial Advice Market Review (FAMR) recommendations, namely, streamlined advice, fact find process, non-advised services, together with guidance brought forward from FG 12/10: Simplified Advice guidance and FG 15/1: Retail Investment Advice guidance.
Pure protection
| Question | Answer | Link |
|---|---|---|
| Am I providing regulated advice? |
See Article 53(1) of the Regulated Activities Order as amended – 'advising on investments' See PERG 5.8 – advising on 'contracts of insurance' See PERG 8.24 to 8.29 – advising on a 'security' or 'relevant investment' See our webpage on 'Changes to the Regulated Activities Order[5]' NB: on 3 January 2018, the requirements for 'advising on investments' changed following an amendment to Article 53 of the Regulated Activities Order. The amendment means that most regulated firms are now exempt from the need to hold a permission to 'advise on investments' under Article 53(1) unless the firm is providing a personal recommendation |
Glossary - 'pure protection contract'[56] Article 53(1) of the Regulated Activities Order [7]as amended - 'advising on investments' |
| Where can I find rules/guidance on suitability of advice in the area of pure protection? |
Paragraph 3 of ICOBS 1 Annex 1 Application Part 2 – in relation to pure protection contracts, firms may elect to comply with COBS instead of ICOBS ICOBS 5.2 – statement of demands and needs ICOBS 5.3 – advised sales COBS 9 – suitability |
Regulated mortgages contracts
| Question | Answer | Link |
|---|---|---|
| Am I providing regulated advice? |
See Article 53A of the Regulated Activities Order as amended – 'advising on regulated mortgage contracts' See PERG 2.7.16BG and PERG 4.6 - advising on 'regulated mortgage contracts' |
Article 53A of the Regulated Activities Order [59]as amended - 'advising on regulated mortgage contracts' |
| Am I providing a personal recommendation? |
See Glossary – 'personal recommendation' A 'personal recommendation' includes ' advice on a home finance transaction ' (and therefore advising on a 'regulated mortgage contract'), which is presented as suitable for the person to whom it is made, or is based on a consideration of the circumstances of that person A recommendation is not a personal recommendation if it is issued exclusively through distribution channels or to the public |
Glossary - 'personal recommendation'[25] |
| Where can I find rules/guidance on advising in the area of mortgages? |
See MCOB 4.7A – advised sales Firms advising on regulated mortgage contracts must comply with the suitability rules in MCOB 4.7A, in particular MCOB 4.7A.2R MCOB 4.8A – execution-only sales Firms may only enter into, vary or arrange regulated mortgage contracts without advice in limited circumstances, see MCOB 4.8A MCOB 4A – additional disclosure by MCD mortgage credit intermediaries Firms advising on MCD regulated mortgage contracts must comply with MCOB 4A |
General insurance
| Question | Answer | Link |
|---|---|---|
| Am I providing regulated advice? |
See Article 53(1) of the Regulated Activities Order as amended – 'advising on investments' See PERG 5.8 - advising on 'contracts of insurance' See PERG 8.24 to 8.29 – advising on a 'security' or 'relevant investment' See our webpage on 'Changes to the Regulated Activities Order[124]' |
Glossary - 'general insurance contracts'[63] Article 53(1) of the Regulated Activities Order (link is external)[126] as amended - 'advising on investments' |
| Where can I find rules/guidance on advising in the area of general insurance? |
ICOBS 4.1 - disclosure ICOBS 5.1 – eligibility to claim benefits Firms will find guidance and rules on customers' eligibility to claim benefits under insurance contracts at ICOBS 5.1 ICOBS 5.2 – statement of demands and needs Insurance intermediary firms must comply with the rules on statements of demands and needs in ICOBS 5.2 ICOBS 5.3 – advised sales Firms advising on the suitability of insurance contracts must comply with the suitability rules in ICOBS 5.3 NB: from 1 October 2018, the Insurance Distribution Directive applies – see PS 18/1 |
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Debt-counselling
| Question | Answer | Link |
|---|---|---|
| Am I providing debt-counselling? |
See Article 39E of the Regulated Activities Order (as amended) – 'debt counselling' See PERG 17.1 to 17.7 – debt counselling Q&A |
See Article 39E of the Regulated Activities Order [57]– 'Debt counselling' |
| Where can I find rules/guidance on advising in the area of debt-counselling? |
CONC 8 – debt advice Firms that provide debt advice must comply with the requirements in CONC 8.3 |
CONC 8[65] |