Under the microscope: Deadline looms for advisers on FCA suitability review


The FCA has kick-started a wide-ranging review to ramp up regulatory scrutiny over whether firms are giving suitable advice to clients.

The file check exercise will involve 700 firms, including 500 smaller firms – with the aim of collecting more than 1,000 client files.

But advisers have been sent into panic mode by the looming 3 May deadline to provide all the information requested, which has been fuelled by confusion over how to comply with the regulator’s data requests.

Concerns have been raised around what is really driving the FCA’s suitability review, and whether this exercise is more focused on justifying value for money than protecting consumers.

There have also been suggestions the move may be driven by European regulators which have found fault with the FCA’s current supervision processes.

As the review gathers pace, firms have been left wondering whether they should be worried about the FCA’s new-found focus on advice and what, if anything, the review exercise will uncover.

Mixed messages

Last week, the regulator began emailing firms involved in the review to supply a copy of their  advice register in an Excel spreadsheet and the total number of “advice events” – defined as a single product recommendation – for the 2015 calendar year by 3 May.

“It is all very well for somebody in the FCA to say, ‘this is the format’, but they give no thought whatsoever as to how the firm will meet that demand”

Money Marketing understands the FCA used an academic to ensure it had a representative sample of firms, with the regulator supplying anonymised data to select those involved in the study.

But advisers have hit out at the review’s onerous data collection requirements, with some firms suggesting it could take administrators up to 40 hours to gather the information needed, and within a tight timeframe.

There are also concerns the data requested by the FCA is in a different format to that required by retail mediation activities returns, in particular that advice events should be split between non-pension investments, pension accumulation and retirement income.

One adviser, who wished to remain anonymous, says to comply with the data request requires a complete reworking of the complex tables his firm paid “tens of thousands of pounds” to create for the RMAR.

He explains unless a firm’s RMAR is due on 31 December, then the data would need to be taken from two separate tables because the FCA has only asked for 2015 calendar year entries as part of the review.

He says: “Given the fact this is specifically targeting small businesses, why would the requirement be that small businesses have to provide information in a different format and with new business categorised in a different way to the data already required twice a year for the RMAR?”


Douglas Baillie Ltd director Douglas Baillie estimates collating the information required for the review would be a full week’s work for one of his administrators.

For his two-adviser, two-administrator business that means 25 per cent of resources would be allocated to one piece of work, which Baillie calls an “inordinate amount” of work.

Baillie says: “The FCA does not seem to understand that small businesses do not have access to the resources they have.

“It is all very well for somebody in the FCA to say, ‘this is the format’, but they give no thought whatsoever as to how the firm will meet that demand. They think they can just [give] a demand, impose a timescale and we are expected to jump and do it more or less right away. That is unfair and unreasonable.”

Threesixty managing director Phil Young says firms with modern back-office systems are likely to find complying with the review less onerous as the technology could help with aggregating information as one piece of advice.

But he says: “That will be a test for some firms out there who don’t have the technology in place to be able to retrieve that stuff quickly and almost automatically. Regardless of whe-ther there is such a system in place there is always a battle to make sure the data is cleaned up.”

He adds very small firms are likely to only have to submit one file in the second phase of the review, with the FCA considering how much business a firm does with regard to how many files it will select.

An FCA spokeswoman says the format for supplying data is not mandatory. She says: “As stated within our communications with firms, our format is not mandatory and we are happy to accommodate or filter data from firms’ existing systems.


“We have also set up a dedicated hotline if firms need assistance with completing the request and they are welcome to contact us to discuss how they can meet our requests in the most convenient way. We have been contacted by many firms in the first weeks of the work who were grateful for the opportunity to speak to us directly.”

But one adviser is still unconvinced, branding the wording of the FCA’s correspondence as “woolly”.

They say: “It would have been far better if they had said, ‘Please send us the data you have already collected’ because they know what we collate for the RMAR. They did not do that, they said ‘Please see the sample’. It was not clear to us they were saying it was fine to send what we collate for the RMAR. That is not what we took from what they sent to us. We don’t want to be obstructive, we have got nothing to hide and we are happy to give them what they want.”

Motivating factors

The FCA’s 2016/2017 business plan, published this month, identified suitability as one of the regulator’s key risk areas which, in turn, has driven this review.

The business plan said: “Advisers may not always give consumers the most suitable investment advice, may offer a limited range of products or have staff reward schemes that motivate sales over suitability.”

Suitability reviews are common among banks due to the number of Financial Ombudsman Service complaints related to the sale of investment products. Money Marketing understands the FCA may see the review as extending practices previously only applied to larger advice firms into the smaller adviser market.

As well as the business plan, a report from the National Audit Office in February questioning the FCA’s effectiveness in dealing with misselling is also thought to have sparked the investigation.

Law firm Clarke Wilmott solicitor Laura Hazell says: “It may be [the FCA] has decided prevention is better than cure and they want to pay closer attention to what is going on at the outset as a way of addressing the outcome of that report.


“A lot of firms are going to be quite shocked and, even if they have done nothing wrong, it is bound to make some of them nervous.”

Former FSA head of retail policy and regulatory consultant David Severn believes European influence may also have been brought to bear in pushing the FCA into action.

Earlier this month, European regulator the European Securities and Markets Authority published a report looking at how national sup-ervisors assess compliance with Mifid’s suitability requirements.

Following a site visit to the FCA, the report found while the regulator provides market guidance to address issues that have arisen in smaller firms, it rarely conducts follow-up reviews with those businesses to see if issues have been resolved.

Esma also found although the FCA had conducted “extensive” supervisory activity during the period of its review – 1 January 2013 to 31 December 2014 – there was not a great focus on assessing compliance with suitability requirements during that time.

No ‘witch-hunt’

Young says the review is not about carrying out a “witch-hunt” against advisers but rather an exercise to determine what the standards are around advice suitability.

He says: “We do know where there are problems and where issues are flagged up the FCA might do a bit of digging in other areas as well.

“If there are issues that are particularly serious it may be there will be further work that follows off the back of this. But for most people there is nothing major to fear – it is just a good test of where they are up to.”

Young says the likely outcome of the review will be for the FCA to issue a guidance note, with findings on common themes among advice firms and examples of good and bad practice. He says FCA visits to individual firms are unlikely but the regulator might send a letter to a firm if there was something worth noting on their file.

However, Libertatem director general Garry Heath is less optimistic, calling the review a “fishing trip” to find issues with advisers.

Heath says: “We have been down this road before. The FCA goes fishing and then decides what failure it wants to see and fixes the standards accordingly.”