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Focus on suitability compliance: a message not only for wealth managers

The FSA's "Dear CEO" letter to chief executive officers of firms in the wealth management industry, published on 14 June, described widespread failings identified in a review of the suitability of client portfolios in 16 wealth management firms, and suggests that the same failings may be prevalent in firms outside its initial sample. The FSA has asked wealth management firms to review their files to consider whether they meet – and can demonstrate that they meet – the FSA's suitability requirements

Firms outside the wealth management sector should also be taking note: this week, a director with compliance oversight was fined and banned for failing to ensure that his firm collected and analysed adequate management information to enable the senior management to properly identify and monitor the compliance risks that the business was exposed to, and for deficiencies in the file review processes.

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Key points from the Wealth Management review

  • The FSA concluded that the majority of firms reviewed posed a high or medium-high risk of detriment to their customers

  • Firms have been unable to demonstrate that client portfolios and/or portfolio holdings were suitable

  • The medium to high risk of unsuitability arose principally from inconsistencies between portfolios and:

    • client's attitude to risk

    • client's investment objective, investment horizon and/or agreed mandate

     

  • Some files also failed to comply with house models

  • The FSA believes that the failings identified may point to deficiencies in management and controls (Principle 3 issues)

  • Firms are expected to assess their current compliance with suitability requirements, to mitigate the risk of future non compliance, and if failures are identified, to proactively consider redress

  • The FSA stresses that it will investigate and take action where appropriate

Article tags

dear ceo letters fca fsa wealth management

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