The Treasury has proposed amending the definition of financial advice to bring it in line with wording used in rules derived from the European Union.

Officials have this afternoon launched a two month consultation on changing the words in article 53 of the Regulated Activities Order to reflect the text set out in MiFID, an EU directive which harmonises regulation for investment services across member states.

Today’s proposal has stemmed from the Financial Advice Market Review, and was first announced at Budget 2016.

Changes to the definition of advice will give firms the “confidence to develop better and more tailored guidance services to help customers make informed financial decisions”, the Treasury said today.

For consumers with straightforward financial needs or small amounts to invest the cost of full regulated advice may outweigh the benefits, or it may be uneconomic for firms to provide them with regulated advice, officials said.

The Treasury statement today read: “Currently, firms are reluctant to offer guidance services to these consumers, increasing the risk of them making poor investment decisions on their own. A key reason for this reluctance is uncertainty around what constitutes regulated advice and what does not.

“The main reason for the uncertainty is the fact that UK firms face two definitions of financial advice. The UK currently defines regulated financial advice as ‘advising on investments’ which is set out in the Regulated Activities Order (RAO).

“This definition is broader and less specific than the definition used in the Markets in Financial Instruments Directive (MiFID), which is based upon a firm giving a customer a personal recommendation. FAMR found that the MiFID definition is clearer for firms and consumers and is also much easier for firms to build into their compliance processes.

“The consultation proposes to amend the wording in article 53 of the RAO to reflect the text set out in MiFID, so that consumers only receive “regulated advice” when they are offered a personal recommendation for a specific product.”

The consultation ends on 15 November.