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:
- ODIM firms did not sufficiently clarify whether their service was advised, non-advised, discretionary or non-discretionary;
- some ODIM firms also compared their fee levels against peer services in potentially misleading ways;
- many ODIM firms did not properly evaluate clients’ knowledge and experience, investment objectives and capacity for loss in their suitability assessments;
- most ODIM firms were unable to show that they had adequate and up-to-date information about clients when providing ongoing portfolio management; and
- 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.