The Financial Conduct Authority (FCA) has outlined how it will monitor the wealth management and private banking sector and warned it to expect further thematic reviews.
Speaking at the Association of Private Client Investment Managers and Stockbrokers (Apcims) compliance conference, Clive Adamson, FCA director of supervision, said that the sector was under scrutiny and that the regulator would examine its sale of in-house products and how it handled conflicts of interest.
He said: ‘We want to see that you have thoroughly considered any potential conflicts of interest and will look, for example, at how many in-house products or products manufactured by an associate of the firm are held within individual portfolios – questioning whether this is right for the customer.
Adamson (pictured) said that if firms' records of customers’ attitude to risk and reasons for investing were not clear the regulator would question why.
The sector will be monitored by the FCA’s new wealth management and private banking department, due to go live 15 July, which will look at firm’s business models, strategies, culture and front-line staff.
Adamson said ‘Essentially, it is a shift from looking at how a firm controls itself to how it runs itself. The reason for this is that we believe these areas are some of the primary drivers of poor behaviours.’
Adamson also said that the regulator will be more transparent about their interests ahead of starting thematic reviews, which it has stated will be their primary way of delivering ‘conduct priorities’.
He said: ‘We are in the final stages of setting up a wealth management and private banking department at the FCA in order to provide an area of expertise for this important sector.
‘In time, we will also conduct further thematic work in this space. But pending that and given the complexities of the businesses operating within this industry, we believe that firms should focus on a number of key areas.’
The key areas include:
- Considering oversight arrangements to ensure they are suitable for the nature, size and complexity of the firms in question.
- Recording and keeping up-to-date consumer information in order to ensure their individual portfolios continue to be suitable for them.
- Identify and manage conflicts of interest.
- Reviewing the services customers have signed up for, and agreeing upfront the exact nature of the service they will provide and how the customer will pay for this.
- Ensuring that their customers’ wealth is legitimately acquired.
- Confirming that portfolios are consistent with customer objectives
- Clearly setting out their periodic reports.
In 2011 the Financial Services Authority (FSA) highlighted a number of concerns about the wealth management industry following a thematic review.
The regulator undertook the review in 2011 and in June that year wrote a ‘Dear CEO’ letter which highlighted the widespread failures.
In August last year the FSA said it was continuing to interact with wealth management firms and would commence further thematic work.