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FSA criticised for rushing consultations

Nia Williams

February 14, 2011

Senior compliance practitioners have criticised the FSA for rushing out an important consultation document in the immediate post-Christmas period, giving the industry three weeks to respond.

The comments were made by the Chartered Institute for Securities & Investment (CISI) Compliance Professional Interest Forum in its feedback to the FSA Proposed Guidance on Assessing Suitability: Establishing the risk a customer is willing and able to take and making a suitable investment selection

The CISI Compliance Forum chairman, Julian Sampson, Chartered FCSI, said “The consultation was released in the immediate post-Christmas period. Industry was only given three weeks to respond. Most firms affected will not have had time to respond. Rushed consultation makes for poor guidance.”

The CISI Compliance Forum feedback states that the FSA Guidance Consultation was released on 7 January “only four days after the earliest return to work after the Christmas holidays. There were no trailing speeches or other means which would have allowed for greater preparedness by firms”.

The feedback document says that: “Over this period firms will already be in the process of responding to the Policy Statements on Remuneration Code and Competence and Ethics, themselves only released on 17th December, and on RDR (Professionalism) released on 20th January. The Guidance consultation comes at a particularly busy time.”

The Forum notes that: “The three week period given to the industry to respond to this Guidance consultation contrasts with that offered by the Guidance consultation on Financial Promotions issued on 13th January. This consultation was of six pages and had a response period of six weeks and the subject matter was less important. However, this Guidance Consultation on Assessing Suitability is of 25 pages, is controversial and yet has only a three week consultation period.”

The Guidance Consultation seems to take little account of the flexibility of the suitability rule in the FSA Handbook, which allows for the gathering of “appropriate” and “relevant” information. “We are concerned that this Guidance consultation seeks to impose a ‘one size fits all’ solution,” said Mr Sampson, “irrespective of the service offered.”

On the Guidance consultation, Mr Sampson said: “The FSA states that they see a high number of unsuitable investment selections. But failures of process do not necessarily mean that advice was unsuitable. Process failures may increase the risk that advice will be unsuitable, but it does not follow that because a process was not adequately documented that the advice was not suitable.

“It’s not the case that every last piece of customer information needs to be gathered in all circumstances. For certain services, certain elements of information will not be relevant to an assessment of suitability.”

On the issue of the “Variety of firms and services”, the Forum notes that “given the breadth of the providers, it must be the case that each will have different suitability requirements, depending on the very varied nature of the product or services that it is offering. Given this, it is perhaps not appropriate to make uniform conclusions regarding diverse services”.


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