UK FCA progresses with the next phase of the Advice Guidance Boundary Review

At the end of 2024, the Financial Conduct Authority (FCA) focused the first consultation of its Advice Guidance Boundary Review on pensions support and set out its plans to develop related proposals for targeted support for wider investments by mid-2025.

The FCA outlined the review process and areas of focus for 2025 in its update on its approach to access to financial and investment support published in November last year. As part of the Edinburgh Reforms announced in late 2022 – the post-Brexit initiative designed to drive innovation and competition by reforming the UK's financial services sector – the FCA began the review to examine the regulatory boundary between financial "advice" and "guidance".

'Advice gap'

From a regulatory perspective, advice involves giving a customer a personal recommendation, distinguishable from the provision of information, guidance or other general services. The review aims to close the "advice gap", which refers to a lack of personalised support being offered to consumers, many of whom are not receiving the advice required to make informed investment decisions.

In the opinion of the FCA, the gap stems from a combination of lack of consumer confidence and firm reticence – particularly to give personal recommendations due to regulatory requirements and associated risks. The regulator hopes that the consultation will prompt firms to broaden offerings in this area, increasing access to affordable support and cultivating a healthier appetite for investment among UK consumers.

Proposals and reaction

In December 2023, the UK government and FCA jointly published a paper setting out three high-level proposals to increase the accessibility of advice for consumers. The proposals included further clarification of the advice boundary, a new regulatory framework entitled "targeted support" and a "simplified advice" regime.

Respondents agreed that the proposals were a step in the right direction, with the majority of responses showing a preference for the second proposal for targeted support. Feedback suggested that this could help consumers at scale, as long as its benefits were well explained to consumers. There was consensus that further clarification of the advice boundary alone was unlikely to resolve the advice gap.

Focus on pensions

Recognising that auto-enrolment has increased the number of consumers with defined contribution pensions, the FCA commenced its first consultation to emerge from the Advice Guidance Boundary Review with a focus on pensions support.

Consultation paper CP24/27, published on 12 December 2024, set out how the FCA envisages targeted support working for pension savers and detailed the conduct standards it proposes to ensure consumers are better supported by firms in future. The consultation closed for comment on 13 February.

The European perspective

The FCA is not alone in its efforts to clarify the meaning of investment advice. In July 2023, the European Securities and Markets Authority published a supervisory briefing that considered the application of "advice" under the Markets in Financial Instruments Directive II, to new business models, social media and mobile applications.

While the briefing did not alter the definition, it did provide useful guidance for firms by clarifying the difference between recommendations and generic advice, and noting that advice made via websites, apps and social media could, in some cases, constitute personal recommendations.

What next?

By July, the FCA plans to have developed similar proposals for targeted support in relation to wider investments and consulted on its draft rules to apply across consumer investments and pensions.

In the meantime, the FCA will seek the views of consumer representatives, including the Financial Services Consumer Panel, as well as conducting roundtable conversations with small advice firms to understand whether such firms could offer a simplified advice service.

The FCA will also work closely with the Information Commissioner's Office (ICO) and the Pensions Regulator (TPR) on how the proposals interact with the Privacy and Electronic Communications Regulations 2003.

The FCA, ICO and TPR released a joint statement to help managers and pension schemes in November 2024 to provide the information their customers and members need. This addressed how TPR’s code of practice and guidance on communications requirements and the FCA’s Consumer Duty interact with direct marketing rules under data protection law and regulations.

Osborne Clarke comment

The review is a positive step towards helping firms navigate the advice boundary. Firms will welcome any initiative to increase financial inclusion and support to provide comprehensive financial services to consumers.

However, developing and successfully implementing a new targeted support or simplified advice regime will likely come with challenges – and firms and interested parties will want to engage with the FCA during its consultation process.

And, as with all regulatory change, there may be new opportunities for firms to innovate and offer new propositions as the FCA develops its proposals.

Osborne Clarke works with firms across financial services and has particular experience supporting financial advisors offering services to consumers both at launch and on an ongoing basis. We would be delighted to discuss the implications of the Advice Guidance Boundary Review on your business.