The FSA has sent a Dear CEO letter to wealth management firms after it found 80 per cent of files it reviewed presented a high risk of unsuitable service.
Speaking at the Chartered Institute for Securities & Investment’s annual conference in London today, FSA director of conduct policy Sheila Nicoll (pictured) said the Dear CEO letter followed a review the FSA carried out of files from 16 wealth management firms.
She said four out of five of the files reviewed had a high risk of unsuitability or the suitability could not be determined.
Out of the 16 firms, 14 were judged to pose either a high risk or medium risk of detriment to their customers. The FSA says wealth management firms offer different business models and the research looked at a range of businesses from major international private banks to domestically focused and privately held firms.
Over two thirds of files were either inconsistent with firms’ models or with clients’ attitude to risk.
Nicoll said in some cases firms were unable to demonstrate suitability in line with know your customer requirements, or were using out of date customer information.
The FSA also found that firms were unable to demonstrate that client portfolios were suitable due to inadequate risk profiling, some firms not implementing Mifid client classification requirements, and lack of a record of clients’ financial situation.
Nicoll said a number of the firms reviewed are facing regulatory action and the FSA will carry out follow up work later this year.
Firms that have received the letter have to respond to the FSA saying they have understood the letter’s contents by August 9.
The FSA suggests that firms may want to consider sampling client files, and assessing whether the client portfolios and the current holdings are suitable based on the documented client information held.