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June 29, 2011updated 05 Jun 2017 11:36am

UK regulator to scrutinise series of mis-selling and management failings

The UK wealth management industry is bracing itself for an unprecedented bout of regulatory scrutiny over its poor treatment of clients. In one case, a Top Five global wealth manager, with an extensive British presence, may be fined tens ofms of pounds over mis-selling and management failings in ensuring know-your customer (KYC) and client suitability standards were maintained, according to a source who did not want to be named. The extent of the industry-wide problem has just been underlined by the Financial Services Authority (FSA) in a damning report on standards in the wealth industry.

By PBI Editorial

The UK wealth management industry is bracing itself for an unprecedented bout of regulatory scrutiny over its poor treatment of clients.

In one case, a Top Five global wealth manager, with an extensive British presence, may be fined tens of millions of pounds over mis-selling and management failings in ensuring know-your –customer (KYC) and client suitability standards were maintained, according to a source who did not want to be named.

The extent of the industry-wide problem has just been underlined by the Financial Services Authority (FSA) in a damning report on standards in the wealth industry.

It ordered 260 firms to review advice given to clients or face disciplinary procedures.

 

Managers put clients into high-risk investments

Wealth managers are accused by the FSA of putting their clients into inappropriate or high-risk investments, according to a ‘Dear CEO’ letter written by the City watchdog to heads of the firms.

The harsh warnings follow a review of 16 wealth managers by the UK watchdog.

Fourteen out of 16 firms targeted by the FSA– which the regulator refused to identify – posed a “high or medium-high risk of detriment to their customers”, with 79% of files having a high risk of unsuitability.

Two-thirds of reviewed files were not consistent with one or more of the following: the firm’s house models; the client’s documented attitude to risk; and the client’s investment objectives.

 

Problems endemic

Those being monitored ranged from small independent wealth advisers to the UK arms of global banks, suggesting that problems are endemic in the industry.

Margaret Cole, managing director of the FSA’s conduct business unit, warned firms to collect more information on customer needs and to make sure their advice is compatible with that data.

Key areas of concern, according to the FSA letter, were the inability of firms to demonstrate that client portfolios and/or portfolio holdings were suitable.

These included an absence of basic KYC information, inadequate risk-profiling and the failure of some firms to implement Markets in Financial Instruments Directive client classification requirements.

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