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A keynote speech by the FSA’s director of conduct and policy at the Chartered Institute for Securities & Investment (CISI) annual conference, Sheila Nicoll (pictured left) announced that the FSA would be writing to the CEOs of wealth management firms warning them of increased scrutiny.

The letter, to CEOs of wealth management firms, is as a direct result of concerns raised through a review of sixteen wealth managers. The letter is designed to warn wealth manager CEOs of the FSA’s concerns over investment risk profiling and suitability, an absence of Know-Your-Customer records, inconsistencies between the client’s investment objectives and horizon and firms’ lack of client information. The FSA’s reviews often found no record of the client's financial situation or the failure to obtain sufficient information on the client's experience and objectives.

Elaborating on the reason for the FSA’s letter, Sheila Nicoll said “The letter follows a review of a sample of sixteen firms, from across the spectrum. Our findings were serious enough to raise concerns there may be more widespread problems across the industry. This is why we’re writing now, to make our concerns and expectations clear.

“We found the firms were not able to demonstrate suitability for a number of reasons. These include the absence of basic know-your-customer information or a reliance on out-of-date information.” Nicoll said.

“The firms were also not adequately recognising the risks that their clients were prepared to take, and there were inconsistencies between portfolios and the client’s attitude to risk, investment objective, investment horizon or the agreed mandate.”

Nicoll’s keynote speech gave a clear indication of the FSA’s intentions in addressing these failings saying “Our aim is to do a follow-up review of firms later this year, and in the meantime we’re involved in ongoing regulatory action with a number of firms. Some have already put in place major rectification programmes.”

The FSA's increased scrutiny on investment risk, suitability and the lack of up to date client records coincides with Amatica's work in delivering Front Office solutions to wealth managers including investor risk profiling and suitability, identity searches, Know-Your-Customer and related records.

© Amatica 14/06/2011