The problem with bordersRSS icon

Written by Kevin Okell on Tuesday 24 June 2014

The combination of a growing RDR ‘advice gap’, relentless demand for online service and a new sense of openness from the regulator have thrust the world of D2C investing into the spotlight recently. Here at Altus we ran an event on the topic of D2C platforms recently and saw at first hand the level of interest in this area as registrations rapidly exceeded the seats available.

But for all the interest, there remains a palpable sense of frustration at the lack of progress as the regulatory millstone continues to stifle innovation. Despite the fact that RDR and the Internet Age have transformed the financial services landscape, the old rulebook refuses to go quietly and COBS paragraphs continue to be quoted in proposition workshops up and down the land.

Definitions of full advice, simplified advice, generic advice, guidance, suitability, appropriateness and personal recommendations are hotly debated and no doubt all this compliance scrutiny is well-intentioned. But at the end of the day, I can’t help wondering whether all the contortions to comply with national regulation might turn out to be rather futile in a digital age.

As other industries have discovered to their cost, the Internet is a difficult place to police geographic borders and we’re already seeing some financial services being offered to UK consumers from other countries. When Napster started its music sharing service in the U.S. over 10 years ago, some big music labels spent a lot of time and money getting the courts to close them down. Pretty soon though similar sites had sprung up in countries as far afield as Sweden and Mongolia and the Recording Industry Association of America (RIAA) has been chasing its tail ever since.

A more successful response to the digitisation of music content has been the emergence of streaming services which have taken advantage of new technology to store content in the Cloud and deliver it on demand via innovative subscription services. Spotify, iTunes, Deezer and Google Music are all now making significant revenues by adapting their business model to embrace a new paradigm rather than clinging to an old one.

No doubt RIAA will spend a few more years bringing lawsuits against illegal downloaders but eventually the march of technology towards on-demand streaming will render the whole download model redundant. An analogy with the FCA and COBS is hard to resist.

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