Focusing on MiFID II? Perhaps you should be more concerned about suitability…
13 September 2017
Although the timing of the latest thematic review of suitability standards might be questionable, the reason for the FCA’s continuing focus on suitability is obvious. They’ve spent a lot of time and effort over the last 6 or 7 years getting the message through to the sector to raise its game. A series of thematic reviews, and the associated reams of guidance, should have made the FCA’s expectations crystal clear. Yet the last thematic review (in 2015) found that 60% of client files still failed to evidence suitability.
Sadly, this is no surprise to us. The failings the FCA keeps pointing to are the same ones we routinely find when we review firms’ suitability assessment processes and client files. Vague objectives; unclear time horizons; missing information about the client’s assets, income or expenditure; conflicting indicators about risk profile; lack of a proper assessment of knowledge and experience or a capacity for loss sense check; no evidence that any of these details are periodically re-assessed in case they’re out of date… and so on. In our experience, some firms still think suitability is limited to monitoring the portfolio against the agreed mandate, neglecting the need to demonstrate that the selected service and mandate are suitable in the first place (and remain so over time).
The FCA has intimated that it will not come down like a ton of bricks on firms that are making a reasonable effort to implement MiFIDII; like abiding by the spirit of what it’s aiming to achieve, but not quite getting it right first time.
But don’t expect the same leniency if they find any suitability failings – its patience with firms that still can’t evidence suitability consistently has well and truly run out.
If you’re looking for independent, expert help on anything suitability-related, please get in touch with Neil Walkling, Richard Scrivener or Maurice McDonald.