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Suitability crackdown: have firms taken heed of FSA warnings?
by Danielle Levy on Sep 10, 2012 at 11:34
The FSA remains determined to crack down on suitability failings it says are ‘widespread’ in wealth management, but have wealth managers now done enough to satisfy the regulator?
Last week the FSA reaffirmed a commitment to crack down on ‘significant widespread failings’ it had identified following a review of 16 firms last year. Fourteen businesses were judged to pose a high or medium risk of detriment to clients, causing the regulator to publish a ‘Dear CEO’ letter.
The FSA said that given the high failure rate, it believed similar problems were likely to found elsewhere within the industry, and it has now launched a wider thematic investigation, examining the suitability of client recommendations and internal safeguards and controls.
The watchdog also acknowledged that findings from the initial review had led to enforcement referrals, skilled person’s reports (or section 166s) and remediation programmes.
While further fines and section 166s represent a possibility, we asked the industry whether it has taken heed of the warnings, and if so, how?
One chief executive from a medium-sized wealth management company said the FSA’s Dear CEO letter had sparked a major review within the business, which he estimates will cost tens of thousands of pounds.
He agreed the FSA had been right to investigate the issue and said the company had discovered failures to demonstrate suitability on a number of client accounts, particularly at the smaller end.
‘We knew we had problems. The point here is documentation management and the ability to evidence suitability for all clients was not there,’ he said. ‘I understand why the FSA has picked up on this. The most vulnerable part of the client base is where it is hardest to evidence suitability, for example older and smaller clients.’
As a result of the Dear CEO letter, the firm has brought in external resources and consultants, adapted existing systems and gathering management information directly from this.
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