"Advisers should be fine as they are almost certainly using the systems needed to demonstrate suitability"
Ken Davy, chairman of The SimplyBiz Group, has described recent warnings from the FCA as a "double-barrelled shot across the bows of the sector".
Following the FCA’s ‘Our Asset Management Supervision Strategy’ letter, sent to asset managers on 20 January, and its ‘Portfolio strategy letter for financial advisers’, sent to advice firms on the 21st January, Davy has suggested the regulator is ‘showing its teeth’ and reminding the sector of its powers of enforcement.
He said: “The FCA is setting out its stall early in 2020, with this double-barrelled shot across the bows of the sector, and the importance of these letters should not be underestimated. They are clearly in line with the regulator’s often stated objective to protect clients against financial harm; an objective with which the industry passionately agrees.
“I have often spoken about the regulatory burden shouldered by the adviser community and, whilst the recent ‘Dear CEO’ letter does nothing to lessen their responsibilities, it contains no unpleasant surprises. In fact, I am sure that most advisers will find their priorities are already aligned with those of the regulator, and that they have been complying with the points raised for many years. Suitability, of course, is a major focus of the regulator, and rightly so. Fortunately, the technology solutions and streamlining of processes now available means that fulfilling the requirements of suitability is now a much less arduous task. It is rare to find an adviser who is not using technology to help generate appropriate suitability reports based on their meaningful conversations with their clients.
“Having some insight into both sectors, I do however worry that fully meeting the regulator’s objectives may pose more of a challenge for asset managers than advisers. Whilst many of the issues touched upon in last week’s letter were based upon MiFID II rules, I am not entirely sure that asset managers currently have the necessary level of preparedness to operate fully to the expectations of MiFID II. Given the events of last year, worries about liquidity management are at the forefront of many asset managers’ – and advisers’ and clients’ – minds, and this is likely to be a major area of focus for all. I feel that product governance, appropriateness testing and TMAs have the potential to cause asset managers a real headache. My concern is that a lack of data and real consumer insight might make complying with the Dear CEO letter a difficult and daunting task.
“What we now know for certain is that the regulator’s 2020 focus is firmly fixed and is not going away. Advisers should be fine as they are almost certainly using the systems needed to demonstrate suitability, along with having the processes in place to comply with the other aspects of the letter. Asset managers, however, will need to dust off the PROD rulebook and decide whether they are doing enough to meet the needs of an increasingly forceful regulator.”