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The FCA 'arrow' visit: what next for suitability?
by Elsa Buchanan on Feb 26, 2014 at 11:28
Recent Financial Conduct Authority (FCA) visits to firms suggest suitability is the focus of renewed attention.
According to industry insiders, the issue appears to have moved forward, with a bigger focus on stockbrokers. Wealth Manager understands one national wealth manager has had ‘arrow’ (unannounced and targeted) visits by the FCA, looking into files dating back a decade.
A source at the firm explained it had ‘pushed on’ in terms of suitability with a client review 15 months ago, but acknowledged it was having to fact-find in more detail than it ever has.
‘Because we’re an equity stockbroker, our risk profiles must include equities. It seems there is an assumption by the regulator that we’ve pushed people over the last 100 years to have equities when they didn’t need to, [so] from our point of view it’s all about provability,’ the source said.
Technically, however, firms are only required to keep files for six years.
‘It also means we’re covering our backsides going forward. I don’t think it’s going to make the client’s life or the outcomes any better, but it is going to prove what we did was suitable,’ the source added.
As a result, changes have been made to compliance procedures. ‘The firm has gone where they think the bar will be in two years’ time. The regulator is more comfortable with the centralised processes because they can see how things can be controlled.’
The group anticipates another visit from the FCA, while some older wealth managers could see closer supervision.
Michael Lally, director at Thesis Asset Management’s, said centralisation of processes and more in-depth documentation is a ‘particular problem’ for large regional stockbrokers.
‘In most cases each office operates almost as a separate profit centre, with no central discipline but it doesn’t make them the bad boy,’ he said. ‘You’d imagine they would be a soft target [for the FCA]. It’s the clipboard mentality of the regulator.’
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