A New Obstacle for Accountants in their Role as Investment Business Advisors

Does Investment Business or Insurance Activity currently provide your practice with an income stream? Do you provide investment business activities as part of your overall services to clients, either to offer a rounded added value service or to add to your practice income? If the answer to that is ‘yes’ then you need to be aware that there are potential changes afoot which are outlined in the Financial Regulators latest consultation paper CP45 on the Minimum Competency Requirements (imbed link to Consultation paper here http://www.financialregulator.ie/consultation-papers/Documents/CP45%20Review%20of%20Minimum%20Competency%20Requirements/CP45%20Review%20of%20Minimum%20Competency%20Requirements.pdf)

At this stage you will be aware that the Financial Regulator permitted individuals who had not passed an accredited qualification to use their experience, if they met certain criteria, to be classed as an ‘accredited individual’ and avail of a grandfathering regime. There are many recognised investment business qualifications in the market, along with others such as the Law Society gained recognition for existing qualifications. Unfortunately the accountancy institutes were not successful in being recognised as a comparable qualification for investment business purposes, so instead many accountants must avail of the ‘Grandfathering’ route to achieve recognition as an accredited individual thereby avoiding the need to pass industry examinations. In brief terms that regime recognised the experience gained in respect of individuals who had undertaken investment business activities between 1 January 1999 and 31 December 2006 to continue to do so.  The deadline to ‘Grandfather’ competency closes on the 31 December 2010.

Availing of Grandfathering is not merely a requirement to tick a box to say you had the relevant experience. Availing of the grandfathering status actually meant that you were to look at your experience on an activity by activity basis, within the 8 year period and determine in which activities you had enough appropriate and relevant experience to allow you to continue acting in that activity.  The requirement was to have conducted an activity for at least 4 out of the 8 years to be recognised as proficient in that area. Grandfathering is not a blanket recognition of experience but rather where there was the requisite experience in a particular product or activity then the individual could continue performing that activity past the end of 2010, if they had formally assessed their experience and availed of the ability to grandfather through.

This means that in 2011 and beyond those that had grandfathered through are restricted to conducting the activities they historically performed.  No new investment activities could be performed without first obtaining a relevant industry recognised qualification.

With the Grandfathering status came a more onerous CPD requirement than that required by the institutes. Under the new regime grandfathered individuals will need to achieve 45 structured hours over a 3 year cycle, which are relevant to the activities the individual was conducting.  This requirement exceeds that of the institutes.

That said, up until now it is likely and possible that those who have availed of the grandfathering would have been able to continue with their existing business and no impact on their revenue earning potential.  However Consultation Paper 45 issued by the Financial Regulator indicates that this, in fact will not be the case, rather those that have grandfathered will also now have to obtain a relevant industry qualification by 2015. 

In addition to the above there are also proposed changes to the CPD requirements which will mean that individuals must obtain 15 structured hours each and every year with one of the bodies who has achieved an accreditation for its qualification, and it must be relevant to the activities which are being undertaken.  In effect this means that unless the institutes are recognised as accredited bodies they will be unable to provide their own members with any relevant CPD in this area. Failure to achieve the required 15 hours per annum will result in the suspension or withdrawal of grandfathering status.

What does this actually mean to you if the accountancy institutes are not successful in obtaining recognition accountant’s competency this stage?  Essentially it will mean that if you are currently grandfathered unless you pass industry exams by the end of 2014 you will be able to do little else other than very basic activities and refer only to wholly independent authorised advisers. By deduction this may also mean that to conduct investment business you will require regulation by an authorised body other than your accountancy institute. Accountancy practices will more than likely become regulated by the Financial Regulator.

The primary issue right now is grandfathering. At present those who have felt they do not need to be grandfathered must realise that an activity such as a referral to a multi agency means the compliance responsibility to a greater extent rests with the firm making the referral and you need to avail of grandfathering or hold a relevant qualification to allow you to do so past the end of 2010.   A further example could be advice on a deposit account with a term greater than or equal to 12 months.

However looking forward many aspects of your day to day accountancy activities relating to tax advice, corporate finance advice and insurance activities are caught under the investment business regulations and require you to evidence competency by passing exams or grandfathering and retaining the designation will mean obtaining relevant CPD at the required levels.   

Essentially all of this means that the Financial Regulator is proposing changes which will potentially undermine the accountancy institutes abilities to continue to be Approved Professional Bodies under the Investment Intermediaries Act 1995, as they do not provide a recognised relevant qualification, and will be unable to provide accredited CPD.  One could wonder whether there is an intention to edge the expertise that is part and parcel of the package of using a qualified accountant as an overall adviser out of the investment business market by favouring industry qualifications instead. 

As the institutes were unsuccessful in obtaining recognition for their qualifications in the first instance, it is imperative that they follow in the footsteps of the Law Society, and are now successful in their negotiations, to retain the right of members who are able to cash in on their vast experience to provide investment business advice in their role as the trusted advisor. Ultimately we must now ensure that the Financial Regulator does not determine that accountant’s experience is essentially worthless by forcing qualified and experienced professional accountants to take industry qualifications merely to justify continuing to provide the high quality level of advice which forms an inherent and integral part of the service they already provide to clients in relation to tax, business and personal finance affairs.

The Financial Regulator requires responses to this consultation document by the 13 August 2010. Hopefully the institutes, as member representative bodies, will succeed in ensuring that accountants get a fair deal.
 

Michelle Kane
Email:   mkane@omnipro.ie
Web:     www.omnipro.ie

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