Wealth Management: FSA to commence further thematic work

Following a review that we undertook in a sample of wealth management firms, we wrote in June 2011 to all Chief Executive Officers of firms that offer wealth management services to retail clients. In this Dear CEO letter we highlighted that our work had identified significant, widespread failings, which we were concerned might also be common in firms outside our sample.

We have continued to interact with those firms in our sample to mitigate the risks identified, principally around record-keeping and/or suitability. This has led to enforcement referrals, skilled person’s reports and significant remediation programmes. In addition we have delivered a series of external seminars to compliance officers and consultants, raising awareness of the standards we expect.

We will be interviewing key individuals from firms that formed part of our previous work to review the approach their firms have taken to remediate problems identified in their client portfolios, and in particular whether they have taken sufficient steps in identifying and dealing with past detriment that consumers may have suffered. Following these interviews we shall consider whether we need to take further regulatory action.

The Dear CEO letter stated that we expect firms to take reasonable steps to ensure that a personal recommendation or a decision to trade is suitable. Our findings gave rise to concerns that there is an unacceptable risk of clients of wealth management firms experiencing unfavourable outcomes. The failings may point to deficiencies in the management and control architecture of firms, so wealth management businesses can expect to see continuing and increasing supervisory focus.

Since publication of the Dear CEO letter, we have maintained our focus on client outcomes when conducting assessments of firms. We have now commenced a new phase of thematic work and will, again, be making judgements on the suitability of client outcomes, but also complementing this approach with a direct assessment of firms’ systems and controls. We will be acutely interested in whether firms have heeded the warnings and concerns contained within our previous communications. We will provide further updates on this work in 2013.