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What’s important about the Financial Services and Markets Act (2000)?

The act provides important safeguards for consumers.

This Act is there to ensure that the people who offer investment advice are trustworthy and competent, properly supervised and properly trained. The intention is to make sure that advice is given in your best interests and that you have full, accurate information about the products you have chosen or been advised to buy. This applies both before and after purchases.

The Act also provides close regulation of the organisations that sell investment products. At the moment every person or organisation that provides investment advice must be registered with the Financial Services Authority (FSA). Early in 2005 registration will be extended to include mortgages and insurance.

It is important to understand the distinction made in the Act between investments that are made because a Financial Adviser recommended them, and the situation where the customer selects the investment. In this second case, the Financial Adviser will simply be processing the investment for the client and this is known as “execution only” business. With “execution only” business, the Advisor is only responsible for administering the sale efficiently. He or she cannot be regarded as being responsible for the appropriateness of the product for the client’s requirements.

The Act also states that the client must be informed of a Financial Adviser’s Terms and Conditions at the beginning of a transaction. This must include details of the complaints procedure, laid down by the FSA and carefully implemented and scrutinised by them.

To summarise the procedure, if a client has a complaint, they should explain it in writing to the Compliance Officer of the business who provided the advice. The organisation must then investigate the complaint and give a detailed reply to the client. If the Compliance Officer agrees with the complaint and there has been financial loss for the client, the organisation should agree a settlement with them. However, if the client has experienced financial loss and is not happy with the organisation’s conclusions or their proposed financial settlement, the case should be escalated to the Financial Ombudsman. This service is free to the client and completely independent. A decision from the Financial Ombudsman is normally binding on both parties.

Another protection that is provided for clients is the Financial Services Compensation Scheme. This gives the client a level of cover for situations where a UK financial organisation becomes bankrupt or cannot meet its financial responsibilities to investors.

Other relevant questions…

How does the law relate to my purchase of Life Insurance?
How does the law affect Life Insurance sold on the Internet?