September 18, 2018

September 18, 2018

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September 17, 2018

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FCA Publishes Findings From Its Review of Automated Investment Services

On May 21, the UK Financial Conduct Authority (FCA) published a webpage on its findings from its review of firms offering automated investment services. The aim of the review was to monitor developments in financial innovation to help inform the FCA’s regulatory strategy, as set out in its 2017/18 Business Plan.

The FCA reviewed the activities of seven firms offering automated online discretionary management (ODIM), where a firm has the responsibility of investing on behalf of a client, within agreed parameters, on an ongoing basis. The FCA also reviewed three firms providing retail investment advice exclusively through automated channels (auto-advice), where customers do not interact with human financial advisers.

Following its review, the FCA found that:

  1. ODIM firms did not sufficiently clarify whether their service was advised, non-advised, discretionary or non-discretionary;
  2. some ODIM firms also compared their fee levels against peer services in potentially misleading ways;
  3. many ODIM firms did not properly evaluate clients’ knowledge and experience, investment objectives and capacity for loss in their suitability assessments;
  4. most ODIM firms were unable to show that they had adequate and up-to-date information about clients when providing ongoing portfolio management; and
  5. some auto-advice firms lacked adequate fact finding and ‘know your client’ focus, and instead relied on assumptions about clients.

The FCA emphasized that while it will continue to encourage innovation in automated investment services, its rules on suitability of advice apply regardless of the medium through which the service is offered. The FCA’s webpage also reminds firms to consider the FCA’s finalized guidance on streamlined advice and related consolidated guidance (FG17/8) setting out, among other things, the FCA’s expectations regarding streamlined advice and fact finding processes.

The FCA intends to review more firms in the auto-advice market later in the 2018/19 financial year. Future reviews will also include assessments of compliance with the revised Markets in Financial Instruments Directive (MiFID II) requirements and the cumulative impact of MiFID II and the Packaged Retail and Insurance-based Investment Products Regulation (PRIIPs).

The FCA’s webpage, setting out its expectations of automated investment services, is available here.

The FCA’s FG17/8 is available here.

The FCA’s 2017/18 Business Plan is available here.

©2018 Katten Muchin Rosenman LLP

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About this Author

Carolyn H. Jackson, International Attorney, Katten Muchin law firm
Partner

Carolyn Jackson is a partner in Katten Muchin Rosenman UK LLP and is a Registered Foreign Lawyer. She provides US financial regulatory legal advice to a broad range of market participants, including commercial banks, investment banks, investment managers, broker-dealers, electronic trading platforms, clearinghouses, trade associations and over-the-counter derivatives service providers.

Carolyn guides clients in the structuring and offering of complex securities, commodities and derivatives transactions and in complying with US securities and commodities laws...

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John Ahern, Financial Attorney, London, Katten Law Firm
Partner

John Ahern, partner at Katten Muchin Rosenman UK LLP and head of the London Financial Services group, focuses his practice on banking, financial services, UK and European financial markets, and related regulations. His background in private practice and as in-house counsel at a global investment bank provides him with perspective on the unique regulatory issues facing the wholesale and private banking sectors. John advises multilateral trading facilities, broker-dealers and banks on trading, clearing and settlement as well as custody of securities—both physical and dematerialized. John counsels asset managers and investment advisors on the regulation of alternative funds in Europe. He has a particular focus on regulatory capital, and advises a number of banks and other authorized firms on the requirements and implications of the prudential regime.

He specializes in financial institutions and financial law. He is a member of the Law Society of Ireland, and is admitted to the Bar Associations in England and Wales. 

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Nathaniel Lalone, Katten Muchin Law Firm, Financial Institutions Attorney
Senior Associate

Nathaniel Lalone, a partner at Katten Muchin Rosenman UK LLP, has a broad range of experience in the regulation of financial products and financial markets, and frequently provides regulatory and compliance advice to trading venues, clearing houses and buy-side firms active in the over-the-counter (OTC) derivatives, futures and securities markets. He is actively involved in advising clients on the implementation of MiFID 2 and MiFIR in the European Union as well as the international reach of US financial services regulation. He also has significant experience with structuring...

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Neil Robson, private equity fund managers counselor, Katten Law Firm, London
Partner

Neil Robson, a regulatory and compliance partner with Katten Muchin Rosenman LLP, focuses his practice on counseling hedge and private equity fund managers and other investment advisers on operational, regulatory and compliance issues. He regularly addresses Financial Conduct Authority (FCA) and EU authorization and compliance under both the EU Alternative Investment Fund Managers Directive (AIFM Directive) and MiFID, cross-border issues in the financial services sector, market abuse, anti-money laundering and regulatory capital requirements, formations and buyouts of...

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