FCA has published the results of its Thematic Review into suitability at wealth management firms. It wanted to assess whether firms had improved their practices around suitability assessments and appreciation of the risks customers were prepared to take, following earlier thematic reviews, a Dear CEO letter in 2011 and suitability-based enforcement actions. FCA assessed 150 files across 15 firms, and considered compliance with specific rules in COBS chapters 2 and 9 and with the requirements on setting out charges clearly and properly in periodic reports. Overall it found:

  • several firms had taken steps to improve and show suitability of customer portfolios;
  • many firms still need to make substantial improvements in gathering, recording and updating customer information;
  • firms need to do more to show portfolios truly reflect the investment needs and risk appetite of customers, especially those who say they are willing to take higher risks; and
  • firms’ governance, monitoring and assessment arrangements must be sufficient to ensure firms comply with the suitability rules.

FCA’s review found broadly equal numbers of firms who raise no substantial concerns need to make some improvements, and fall substantially short of FCA’s expectations. 41% of the files it reviewed showed only a low risk of unsuitability, with 23% being high risk and the rest unclear. As a result, five of the firms FCA reviewed may need to undertake significant remediation programmes and may be subject to enforcement action, and six more may need to devise a plan to remedy shortfalls. FCA has published examples of good and poor practice around:

  • governance and control environment;
  • putting oversight arrangements in place;
  • carrying out effective monitoring;
  • keeping customers up to date;
  • investment objectives;
  • risk appetite;
  • matching the customer’s portfolio with risk appetite;
  • investment time horizon;
  • restrictions on portfolios;
  • capacity for loss; and
  • turnover.

It expects all firms to review their policies and procedures against the findings, and also reminded firms they will need to carry out further review against MiFID 2 requirements in due course. (Source: FCA Publishes Wealth Management Review)