FCA orders past business review over advice due diligence failings

FCA logo glass 2 620x430The FCA has ordered one firm to conduct a past business review and three more to improve processes following a thematic review of adviser due diligence.

The FCA reviewed the work of 13 advice firms, also visiting seven consultancies and three providers to assess the market.

FCA director of life insurance and financial advice Linda Woodall says: “Research and due diligence is one of the three pillars of getting advice right, which is why we have returned to this issue. Firms clearly want to get this right and all firms, regardless of size or type, can carry out good research and due diligence.

“However, there are still improvements firms need to make and we’d encourage all firms to look at our findings and ensure that they are challenging themselves to ensure they’re delivering quality due diligence for their clients.”

As part of its review, the watchdog found evidence that some firms considered the service received by them from a platform more important than the service received by the client.

In other examples, the FCA found firms were no longer reviewing platform options available, because the firms were content with the service they received from their existing platform provider.

The regulator also found one example of a firm retro-fitting platform due diligence in order to meet the outcome already decided upon.

“Many firms demonstrated inconsistent and insufficient research and due diligence in the selection of platforms. We believe this was caused in some cases by status quo bias and an ‘if it isn’t broke don’t fix it’ attitude,” says the paper.

As a result of the review the FCA instructed three firms to make improvements in their research and due diligence process, making attestations they have done so, and told one firm to complete a past business review.

Among the other findings by the FCA was that size was not an impediment to good due diligence, finding small firms, including those with a single adviser, carried out “robust research and due diligence”.

Following the review, the FCA will now provide firms with further details on its expectations to help them raise standards. More information on research of products will also be published later this year as part of the FCA’s consultation paper on Mifid II.