Regulation

The FCA

FCA REQUIREMENTS

The FCA have published extensive guidance regarding suitable investment advice.

FG11-05 : Establishing the risk a customer is willing and able to take and making a suitable investment selection

  • “We have noticed an increased reliance on asset-allocation tools and model portfolios. It is our view that tools, and other structured approaches to selecting products and funds can be a useful starting point for an investment selection, when used as part of a robust suitability process.”
  • “We are concerned that, where firms solely use volatility as a proxy for risk and ignore other risks, this can result in investment selections that, for example, include complex assets that may not be suitable given the risk the customer is willing and able to take”

 
CP12-09 : Consumer redress scheme in respect of unsuitable advice to invest in Arch cru funds

  • “it is no defence for an IFA to say that they relied, or were justified in relying, on statements made by a product provider or a third party’s opinions about the suitability of an investment”
  • “the duty to determine suitability cannot be delegated”
  • “it is up to the IFA to determine the risks in the product

 
30 May 2013 : FCA’s One Minute Guide to Due Diligence

 
TR15-12 : Wealth management firms and private banks: suitability of investment portfolios

  • “firms should ensure that they understand the nature and risks of products or assets selected for customers”

 
TR16/1 : Assessing Suitability: Research and Due Diligence

  • “When firms have CIP’s, they must ensure the advice is suitable for the individual client”
  • “Research and due diligence needs robust systems and controls in order to be effective. To be effective, file reviews should involve a genuine assessment of the recommendation rather than simply checking the presence of research and due diligence”
  • The FCA will publish second consultation paper on the implementation of the Markets in Financial Instruments Directive (MiFID II) later this year, which will include requirements in relation to research on products.

 
 
Regulation is in place to protect investors against taking unknown risks. Find out more about this risk and the funds that have failed here.

 

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