The UK Financial Services Authority (FSA)
remains concerned that private banks and the wealth management
industry may be mis-selling products and exposing clients to
unacceptable levels of risk.
In its 2012 Retail Conduct Risk
Outlook, the UK regulator said that the current low
interest rate environment was a strong incentive for firms to sell
products that offer higher returns without adequately disclosing
the risks.
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The FSA’s concerns come despite handing down a
series of heavy fines for providing inadequate advice last year and
a ‘Dear CEO’ letter highlighting poor practices.
In November last year, Coutts was fined £6.3m
($10.2m) for failing to provide adequate advice to clients about
the risks associated with AIG Life bonds.
In October, Credit Suisse UK was penalised
£5.95m ($9.5m) for failures related to the sale of structured
capital at risk products to private banking clients.
Sales suitability high on
agenda
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By GlobalDataThe FSA’s outlook said that some wealth
management products were initially designed to be sold to
institutional clients and were therefore more complex than those
with which most banking clients were familiar.
The regulator added that it was particularly
important that banks had regard for their treat customers fairly
obligations when seeking to grow their wealth management
business.
Two main risks were highlighted by the FSA.
Firstly, it was concerned that banks encouraged existing private
banking clients to take inappropriate risks with their savings,
with aggressive incentives for relationship managers increasing the
danger.
Secondly, the regulator highlighted that some
banks may inappropriately sell wealth management products to
affluent or mass affluent consumers, either by up-selling them into
private banking or by offering them via their retail banking
arm.
Inadequate record-keeping
The FSA added that many firms were not
gathering adequate client information to demonstrate the
suitability of the products the have sold.
“Even where the information is available,
there is a significant risk that consumers have unsuitable
portfolios,” the report continued.
The FSA took regulatory action against a
number of firms after writing a ‘Dear CEO’ letter in June last
year.
The letter ordered firms to review the advice
they gave to clients after its research had found 79% of client
portfolios had a high or undeterminable risk of unsuitability.
“While some firms appear to have taken steps
to improve record keeping and suitability, further work is needed
to ensure change throughout the industry,” the report said.
The FSA said it was continuing to engage with
regulated firms, consultancies and trade bodies to improve
standards.
