FCA to Audit a years’ worth of firms’ advice Posted 19-04-2016



The FT Adviser reports that the Financial Conduct Authority has sent letters to 700 adviser firms requesting evidence of all of the financial advice they gave between 1 January 2015 and 31 December 2015 as part of the FCA’s suitability review.

Firms selected from a “statistically representative sample” of the market are to provide the regulator with records of all personal recommendations by 3 May this year with independent advisers required to provide investment rebalancing details as well. From the information supplied, the FCA will decide which files the firms will have to submit for review. File reviews are expected to centre on assessing suitability, including the way firms document their investment and research processes.

We are not surprised. It all started a long time ago but started coming to a head in 2011 with the ‘Dear CEO’ letter highlighting the regulator’s concerns about investment advice suitability. Recent events have resulted in Suitability shooting to the top of the FCA’s priority list:

  • TR15-12 and TR16-01 expressed the regulator’s increasing frustration that firms that do not appear to have heeded their messages to date.
  • In December 2015, the FCA published the results of their thematic review of 150 files from 15 firms:
    • a third fell substantially short of their expected standards
    • a third need to make some improvements to meet their standards
    • a third raised no substantial concerns
    • failings at five of the firms were so severe they may now be the subject of enforcement investigations
  • In February, the National Audit Office threw down the gauntlet when they published a report on how ineffective the FCA is in dealing with, and preventing, misselling. The NAO’s recommendations are a clear rebuke saying the FCA should
    • “develop further its strategic view of the risks of misselling and its approach to tackling them
    • “communicate its expectations with regard to misselling clearly and consistently to firms…”
    • The report concludes with a summary highlighting that the misselling of financial products causes serious harm – not just to individuals but also to the financial stability of the UK.
  • Peter Hamilton (a barrister specialising in financial services at 4 Pump Court and co-founder of moneymatterslegal.co.uk) assesses the NAO’s report saying “The really depressing aspect of this report is that it shows yet again how ineffective the FCA is and the FSA was before it. The hundreds of thousands of words written in the many reports about the regulatory failings since 2001 seem to have brought about no fundamental change in the performance of the regulator of the conduct of financial services firms. Indeed, it cannot answer the simple question the NAO asked: does it deal with misselling cost-effectively?”
  • To ignore the NAO’s challenge would be to agree with their damning assessment. In response, on 5 April 2016, the FCA published its 2016/17 business plan with an emphasis on the suitability of advice.
  • And today (19 April 2016), the FCA initiated its advice suitability audit.

Clarke Willmott solicitor Laura Hazell says “A lot of firms are going to be quite shocked, and even if they have done nothing wrong, it’s bound to make some of them nervous.”

We have been watching and listening to the regulator for years and our opinion is that the FCA is going to evoke more than nerves in 2016/17. We suspect they have run out of patience and are not only in a mood to take action but are obliged to do so in order to retain credibility after the NAO’s damning report.


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