FSA: Providers face 'arduous' task preparing for legacy ban

The FSA said it hopes a consultation paper on the treatment of commission on legacy assets has "put to bed” any confusion on the issue, but it warned product providers yet to adapt their systems face an arduous task preparing for the rule change.

Today the FSA confirmed its proposed ban on legacy commission in what was a widely-expected move.

Legacy commission refers to new commission due to an adviser as a result of a change to a contract set up pre RDR, but which occured post RDR.

The change may be in the form of a top-up to a life policy or the buying of new units in a unit trust.

"We now have a clear statement of how the future will look," said FSA head of investment policy Peter Smith (pictured). "Partly why we have issued this paper is to put to bed some of the confusion."

The FSA is now looking to issue a policy paper setting out final rules in the first quarter of 2012.

Smith said those product providers yet to amend their old systems to cater for adviser charging may face difficulty getting up to speed in time for the retail distribution review (RDR) - but said they only have themselves to blame.

"The starting point is this has been our position since March last year (Policy paper 10/6) - any provider that read the rules 18 months ago would have cracked on by now," he said.

"For those who have done nothing, it may be arduous but the rules were abundantly clear."

He added: "Product providers will have to offer RDR-compliant products with no commission attached so they need to think about what to do with their suite of legacy products and it is up to providers to work through what makes sense for them."

Some platforms will also need to make system changes to comply with the new rules, said Smith.

"Our understanding is a lot of people are getting on with it but there is further work for platforms to do."

Smith revealed the delay in getting today's paper out was due, in part, to discussions with stakeholders over whether there was actually any need for a paper given that many advisers are already clear about adviser charging rules.

Today's paper set out 13 scenarios under which the legacy commission ban will kick in, along with a narrow set of circumstances under which advisers can receive trail commission post RDR.

Smith said consultation feedback from could throw up further scenarios or "variations of themes" listed in today's paper.