The Model Office Blog

FCA, Suitability & Model Office #RegTech

[fa icon="calendar"] May 30, 2017 5:17:51 PM / by Chris Davies

The Financial Conduct Authority recently released Assessing Suitability Review looked into the suitability of the advice offered by the pensions and investment market, and the quality of disclosure in the sector.

It assessed 1,142 individual pieces of advice given by 656 firms against the suitability and disclosure rules in the regulator’s Conduct of Business sourcebook.

The findings show that most firms are providing suitable advice – but the story on disclosure is less rosy.

Firms performing well on suitability: 

The findings show that:

  • in 93.1% of cases, the sector provides suitable advice (Split 97% networks & 93% directly authorised)
  • in 4.3% of cases, the sector provides unsuitable advice
  • in 2.5% of cases, the sector provides unclear advice

The FCA attributes these positive results to ‘the successful adoption of the Retail Distribution Review by advisers…reinforced by ‘our previous supervisory and enforcement activities’.

Yet nearly half of firms fail on disclosure:

In nearly half of cases, firms’ performance is unacceptable or uncertain:

  • in 52.9% of cases, the sector provides acceptable disclosure (i.e. the regulator’s requirements have been complied with)
  • in 41.7% of cases, the sector provides unacceptable disclosure (i.e. rules have not been complied with)
  • in 5.4% of cases, the sector provides uncertain disclosure

‘Disclosure’ in this context relates to firms’ information on charges. The Authority says that it is:

‘an important aspect of the advice process as it assists customers in making informed decisions about their financial affairs.’

How to deliver what the FCA is looking for – suitability

One of our previous blogs Model Office and the case for constructive governance covered the importance for having a culture of compliance at the heart of the business, which will result in (amongst other issues) client-centricity and advice suitability.

How to deliver what the FCA is looking for – disclosure

In the past, the way firms have disclosed certain information has been very prescribed. Last year the FCA did away with templates for some key disclosure documents – giving firms more autonomy over the way they provide information.

In many ways, this is a positive for firms, moving compliance away from being a box-ticking exercise and giving more freedom as to how they choose to disclose.

The flip side of this, of course, is that firms now need to be more proactive in ensuring they include the right, and sufficient, information in their disclosures.

This is where a culture of good governance comes in.

So what’s the answer? The treating customers fairly principles are a good start in particular:

  • Outcome 2: Products and services marketed and sold in the retail market are designed to meet the needs of identified consumer groups and are targeted accordingly.
  • Outcome 3: Consumers are provided with clear information and are kept appropriately informed before, during and after the point of sale.

In other words we need to make sure products are fit for purpose and deliver what they promise and give consumers adequate information and products that do what they say they will, with sufficient support and redress where needed.

This can be done quite simply by providing clear terms and conditions, which include examples of services and their costs in pounds and pence, all in plain terminology. MO's platform allows your firm to benchmark where it sits against the FCA suitability requirements and our on-going research into professional practice. 

Please click the below icon link to MO's platform and learn more about MO today..

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Topics: Benchmark, compliance, client centric, Financial regulation, Financial business development, fintech, Human resource development, client engagement, regtech, Constructive compliance, Risk management, practice management, FCA, advice, mifid, HMT, suitability, FAWG, FAMR, Fitbit

Chris Davies

Written by Chris Davies

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