FCA Finds 60% of Investment Portfolios Unsuitable or Unclear – The FCA’s thematic review into the suitability of investment portfolios within wealth management and private banking firms is the latest in a long line of regulatory investigations into this area.

Earlier thematic work highlighted that many firms struggled to demonstrate the suitability of their portfolios due to inadequate recordkeeping or that there was a high risk of unsuitability due to inconsistencies between the file and the client’s objectives, attitude to risk or other factors.

There have been some improvements across the industry and the FCA has highlighted a number of good practices uncovered during the review.

However, poor practices are still prevalent, with 23% of files reviewed indicating a high risk of unsuitability and 37% classified as ‘unclear’.

The key failings included:

• Portfolios not reflective of a client’s risk appetite, objectives or capacity for loss. The FCA identified that client’s with a low desire or capacity for capital loss were at particular risk in this situation;
• Inadequate processes to gather record and update customers information, meaning suitability couldn’t be evidenced;
• Inadequate governance and monitoring arrangements which hindered firms in fulfilling their regulatory obligations in relation to suitability.

All firms involved in this thematic review have been provided with individual feedback, with a number of firms potentially being required to undertake significant remediation programmes where customer detriment has been identified.

The regulator also expects all wealth management and private banking firms to review the findings and take action to remedy any shortcomings in their own practices.

The full thematic review can be found here. http://bit.ly/1ma33VP