Is the FCA set for an advice suitability crackdown?


The Financial Conduct Authority (FCA) has made it very clear that one of its main focuses is to create fairer outcomes for clients. 

In its call for input (CFI) earlier this week, the regulator sought the views of industry players on how to improve the consumer investment market, following “too many scams and scandals. 

The initiative aims to stamp out the current practice of retail investors receiving lower returns because they are given unsuitable products with very high fees. 

The regulator’s goal is to make sure clients regain trust in their planners and the advice they are given. 

This seems to be a first step towards what could become a crackdown into the suitability of advice and products provided to retail clients. 

Most of which is neatly wrapped up under Prod.

The rules 

The Product Intervention and Product Governance Sourcebook (Prod) came into force as part of Mifid II. 

But many in the advice sector were not aware of the rules and what they require of them. 

The legislation applies to both advisers and providers, which need to prove that they understand the products they are recommending and to what extent they are suitable to their clients. 

In order to evidence the criteria are met, planners should keep a written record taking into account all the considerations above, and how the fit into the singular client’s situation. 

Comprehensive segmentation is also part of the suitability practices set out in the regulation. 

Failure to do so, could be considered a breach of the Prod rules. 

The FCA investigated Mifid II compliance within the industry last year but; going forward, and global pandemics permitting, the next step could potentially be examining the sector’s adherence to the suitability requirements. 

Regulatory agenda 

Gillian Hepburn, UK intermediary solutions director, told International Adviser: “The Prod regulation, introduced with Mifid II, initially fell under the radar for many financial advisers, as the primary focus was on other areas such as transparency of charges.  

“Research indicates that advisers are increasingly embracing the regulation, reviewing or segmenting their client base and then ensuring they have a range of appropriate services and investment solutions in place to support these segments. 

“When Schroders launched the Prod guide for advisers earlier this year in conjunction with the Lang Cat consultancy, we anticipated a thematic review of the implementation of the regulations.  

“Perhaps some of the areas being covered in the CFI, such as product suitability and the requirement for the market to offer a range of products, indicates that Prod is back on the agenda?” 






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