Suitability

Any firm who received FCA’s June 14 “Dear CEO” letter on Suitability in Wealth Management firms will have long since replied, confirming that they “read and understood” the letter and “considered the implications”.

But all firms – irrespective of whether or not they received their own copy – should be aware of FCA’s intention. As Margaret Cole stated in the letter, “(FCA) consider suitability – and the ability to demonstrate it – a key area of risk in this sector and wealth management businesses can expect to see continuing and increasing supervisory focus on these issues in the year ahead.”

Fulcrum Compliance anticipate FCA following up on this Dear CEO letter with a round of themed visits to firms in the Wealth Management sector, either in the coming quarter or first quarter of next year.

All firms in this sector should, if they haven’t done so already, be conducting a comprehensive file review to ensure that they meet FCA’s expectations. Not to have done so by the time of FCA’s follow up may only lead to more costly and protracted rectification.

Fulcrum Compliance have undertaken a number of assignments in this area. This includes both reporting on firm’s systems for assessing suitability, and reviewing client files.

We can work alongside your in-house team, or carry out an independent review. Either way, we can provide you with re-assurance that you have taken what FCA describe as the “reasonable steps” to ensure suitability.

Telephone Records

Firms will be working towards the implementation in November of FCA’s new mobile phone call recording requirements.

These will sit alongside FCA’s existing COBS 11.8 call recording requirements, which have been in place for some two years now.

Having answered the “how” question, firms should give some thought to the issue of what to do with these – and its existing – recordings once captured.

There is a clear belief amongst supervision teams that these recordings are regulatory gold dust, shining a light in darkened corners of the firm. Consequently there is a clear supervisory expectation that now you have the calls, you’ll be listening to them – and not on an ad-hoc basis just to confirm whether it was a buy or sell.

It is certainly the case that the more risk FCA believes your business model to represent, the more likely it is that the call recordings will indeed provide valuable evidence of training needs, or at worst, any heavy handed sales tactics.

Therefore firms who sell direct to retail customers will have call monitoring programmes of varying degrees of intensity which reflect their business model.

It is important for a firm to have a structured approach to call monitoring and a clear idea of what it is looking for when it listens to calls – otherwise much valuable time can be spent listening to many calls to little end.

Fulcrum Compliance recommend that the firm selects a manageable sample of calls, ensuring that over the period of the monitoring, all sales staff are listened to. Details of the calls reviewed and the findings should be noted.

If you are considering your own call monitoring, Fulcrum Compliance can assist in devising a monitoring programme which meets these requirements and satisfies FCA’s expectations.

A New Post Box

For most firms, the submission of regulatory returns will be the only interaction it has with the FCA.

Making sure that the returns go in on time is central to giving FCA the picture of a well-run firm.

A recently released (30 August) “Frequently Asked Questions” from FCA advises that henceforth, the due dates of Non-Gabriel Paper (“NGP”) reports will from September be advised to firms through the Gabriel reporting system.

NGP reports are those few generally annual reports (e.g. Controllers, Close Links, and Annual Accounts) that firms are required to submit but which cannot be input to FCA via Gabriel. The fact that firms will in future be reminded of their due dates through normal Gabriel channels is helpful.

Two points arise from this. Firstly, we suspect that FCA fears that a number of firms are overlooking these reports and failing to submit. The new automatic reminder system will make it easier for firms to adhere to a due date in the future.

Firms should take this opportunity to check that they are up to date in their submissions.

Secondly, CP 11/11 of June this year proposed that in future, these returns be not sent direct to normal supervisory contact, but to a dedicated central team. FCA believe that this will enable them “to enhance (their) intrusive supervisory regime by improving the enforcement of reporting deadlines.

A simplified method of collecting regulatory reports should allow the central reporting team to monitor submissions from all firms, facilitating the consistent application of the rule that allows us to levy an administrative fee on firms who fail to submit their reports on time.”

This all sounds relatively straightforward and sensible. Firms should anticipate the new address for these reports in a Policy Statement due in September.

Given the importance of getting returns in to FCA in good time, any firm which, for whatever reason, fears that it will in fact miss a reporting deadline, should contact FCA as soon as possible to advise them of same.