Wealth Management – Suitability Review

Firms in the Wealth Management sector will be used to having been under the FCA microscope for some time now.

Recent FCA communications have included the Finalised Guidance “Assessing Suitability” of May, where FCA gave recommendations on the assessment of suitability.

We discussed the possible implications of this in our March Newsletter, when this Guidance was at a consultative stage.

FCA’s investigations have now given rise to a “Dear CEO” letter, released on 14 June. This requires immediate action by all firms who provide advisory or discretionary investment management services – not least because FCA expect a formal acknowledgement from firms that received the letter directly that it has “read and understood” the letter and has “considered the implications”.

This is no one line “fire and forget” email to FCA. FCA say in the letter, in what can only be described as understated terms, that “they expect that you will want to consider the information contained in your client files and if it is likely to satisfy your obligations…”

Take the hint – 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 by the time this Dear CEO letter is followed up later this year is to invite further regulatory scrutiny, which will only be more costly and protracted for having been deferred.

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.

Complaints – who’s in charge?

Not quite the rhetorical question it might seem – under recently released draft rules from the FCA in Consultation Paper CP 11/10, FCA require firms to nominate a person as having “responsibility for oversight of the firm’s compliance with DISP”, the section of the FCA Handbook that deals with complaints.

This follows some fairly large fines handed out to large retail banking groups for poor complaint handling procedures, the most recent being a fine in May of £3.5m and £17m compensation for customers of Bank of Scotland.

In a large organisation, identifying that individual may seem an easy task. Firms with extensive complaints-handling departments will be able to identify that person from their structure chart.

However it is not that simple, as the rules require that for all firms, irrespective of size, this person must hold a “governing function” within FCA’s controlled functions regime, i.e. they must be the Chief Executive or a Director.

What might have been the firm’s default position – to nominate the Compliance Officer for this role – will therefore not work unless that person is already a director.

Although contained within the body of a “consultation paper”, this new rule has already been consulted on and will come into force on 1 September 2011.

The firm’s procedures will need to recognise where the complaint “buck” stops. Other new rules coming into force on the same date require firms to consider wider systemic issues presented by complaints.

Before this September date, firms are required to publish by 1 July “appropriate information” regarding their internal procedures dealing with complaints. A note on the web site should suffice.

A firm’s complaint–handling process is one of the most visible areas where a firm should be able to demonstrate its “fair treatment” of customers, and FCA will continue to focus on this.

Any firm with retail customers will need to consider its complaint handling procedures in the light of these new rules.

No Retail Re-assurance

Retail advisers in the process of transitioning themselves to the new RDR requirements will have read with interest FCA’s recently released Fact Sheet on Accredited Bodies.

It has long been known that all retail advisers will be obliged to obtain a Statement of Professional Standing (“SPS”) from one of a number of yet to be fully recognised Accredited Bodies.

FCA has made clear that holding an SPS is a requirement for giving advice. This is clear from FCA’s earlier Fact Sheet on Professionalism.

But the new Fact Sheet on Accredited Bodies is at best, elliptical on the matter of what happens if an adviser cannot get an SPS, or if the SPS is withdrawn.

In these circumstances, the Fact Sheet suggests, all that will happen is that you tell your firm and find a new Accredited Body.

This ignores what happens next – that your firm will have to take steps to withdraw you from FCA registration, suspending your ability to give advice. And it assumes the unlikely scenario that having failed to get an SPS from one Accredited Body, that it will be a simple matter to get one from another.

We suspect that this will be far from the reality, and that whatever it was that caused an Accredited Body to withhold an SPS may well disqualify that person from membership of another.

But no one should be surprised by this. One of the key objectives of the RDR is a raising of professional standards. FCA enforcement procedures might be seen as, amongst other things, too slow to allow FCA to weed out advisers who represent a risk to the public.

Now, FCA won’t necessarily have to – it can rely on the Accredited Body’s own disciplinary processes to do this. The new Factsheet makes this clear – FCA “may be satisfied that the case can be dealt with by the accredited body”.

Which rather contradicts the other statement in the same Factsheet: that advisers do not now have “two licences or two regulators”. Whilst the CF30 function may indeed be “the only legal licence to trade”, the fact that you need the SPS on an ongoing basis makes it every bit as important as a licence issued by a regulator.

So don’t relax – make sure you have that SPS and keep hold of it.


Subscribe to our Newsletter

If there are any other colleagues / contacts who you think might be interested in receiving the Newsletter, do ask them to sign up here.

* indicates required
Privacy Policy

Contact Us

At the point of balance