The findings were based on the 79% of client files which the FSA said either had a high risk of unsuitability or whose suitability could not be determined. Further, 67% of files reviewed were not consistent with one or more of the firm’s in-house models, the client’s documented attitude to risk, and the client’s investment objectives.
“We have identified significant, widespread failings, which we are concerned may also be prevalent in firms outside our sample”, said Margaret Cole, managing director, conduct business unit, at the Financial Services Authority.
The regulator is asking wealth management CEOs to consider whether their business can meet – and demonstrate that they can meet – its suitability requirements.
The letter detailed failings that included an absence of basic know-your-customer information, out of date KYC information, and a lack of a record of clients’ financial situation. The review also identified inconsistencies between portfolios and both the client’s attitudes to risk and their investment objective, horizon and/or agreed mandate.
Cole said the FSA is undertaking follow-up work with firms reviewed, including “ongoing regulatory action”, adding that some have already put in place major rectification programmes.
The regulator is asking wealth manager CEOs to consider client information and whether it satisfies obligations regarding customers’ desired investment portfolios, and has demanded that an acknowledgement of the letter be sent by 9 August.
