Investment firms fail to meet suitability requirements standard, Central Bank review finds
Many investment firms have failed to meet the required standard following a review of suitability requirements by the Central Bank of Ireland.
Suitability requirements are there to ensure client investments align to investment objectives and personal circumstances - and firms are obliged to take all reasonable steps in this regard.
The review focused on the information gathering phase of the suitability process and firms were assessed for compliance with the European Securities and Markets Authority (ESMA) suitability guidelines.
The review found that:
* Firms could not demonstrate that suitability policies and procedures were implemented in practice.
* Application forms did not contain fields for the collection of required information and / or were found to be incomplete.
* Not all firms could demonstrate that they had effective governance structures and appropriate tools to successfully implement and assess suitability. A number of firms relied on client self-assessment of knowledge, experience and financial situation and failed to counterbalance self-assessment with an independent objective assessment.
* Dependencies on basic IT systems for the management of suitability processes increased the likelihood of human error.
* Governance structures for the identification and treatment of vulnerable clients were absent or ineffective.
"The review highlighted that firms need to improve the quality of information collected and how this information is utilised in the suitability process," Director of Asset Management Supervision, Michael Hodson, said.
"With the introduction of higher suitability standards under MiFID II, the quality of the information collected is all the more significant. Boards are reminded that they are responsible for implementing an appropriate governance framework that meets the suitability regulatory requirements and embeds a client-centric culture across the firm. Investor protection is at the core of the Central Bank’s mandate."
The Central Bank stated that where risks to consumers were identified, due to the issues outlined above, formal supervisory requirements have been imposed on the relevant firms.