UK Regulator Warns 260 Firms of 'Widespread Failings'

The UK Financial Services Authority has written to 260 wealth managers to warn them that it has identified "significant, widespread failings" within the industry's approach to managing client risk, as it opens regulatory action against 14 firms.

Tower Bridge and City of London financial district
Source: Dominic Burke | Getty Images
Tower Bridge and City of London financial district

The FSA surveyed the client files of 16 firms and found that 14 "pose a high or medium risk of detriment to their customers," and made unsuitable investment decisions for their clients. 79 percent of the files either had a high risk of unsuitability, or their suitability could not be determined, the FSA said.

67 percent of the files deviated from the wealth manager's house investment models, did not match clients' appetite for risk or were inconsistent with clients' investment objectives, the letter said.

Some of the firms that were found to be in breach of their obligations are already putting in place "major rectification programmes," the FSA said.

The letter, headed "Dear CEO", requires that wealth managers reply to the FSA's concerns by August 9, and advises them to review their client files to ensure that they are in compliance with the regulator's "Know Your Customer" (KYC) rules, and that their advice is consistent with their client's risk appetite.

The FSA expressed concern that firms did not have adequate systems for client profiling and risk management.

A spokesperson for the Association of Private Client Investment Managers and Stockbrokers in London told that in response to the concerns it would be creating a paper on suitability, to be published by the end of the month.

APCIM's spokesperson said that, while the letter would be taken seriously, it should not necessarily be read as an indication that the industry as a whole is failing in its obligations.

"It's a thematic review of 16 organisations so I think you have to take on board what the findings are saying, and treat them very seriously and give them the attention they deserve… but I think in a lot of these cases there are issues around the recording of information, and there are a lot of things that can be done to help the situation," the spokesperson said.

"There's work to be done… It involves a lot, in needs constant review, which our industry does as par for the course."