Due Diligence Counts: FCA Publishes Report on Research & Suitability

Financial Conduct Authority Box FCAThe Financial Conduct Authority (FCA) has published a report on due diligence and assessing suitability of investments for clients. This is an important subject for traditional finance, as well as new asset classes. As all finance moves online access to investment opportunity will expand to a broader market. And it should.  Sell-side analysts have a spotty history and the evolving ecosystem of alternative finance has the chance to engender a greater degree of transparency and risk assessment for investors as their portfolio grows beyond vanilla stocks, bonds and funds.

The FCA states that while “generally firms demonstrated some good practice in this area” in making investment recommendations “many firms did not show consistently good practice across all products and services. The poor practice we identified varied from issues that are easily addressed to those that are more significant.” The FCA was “disappointed” in their findings.

UK Due DiligenceKey findings of this first report was that firms that incorporated a culture of challenge (as in challenged the firms approach) were the best.  Status quo bias was pervasive.

This is an area that Fintech is already moving in. The sooner the better. The days of the pestering broker pushing product on commission must be numbered. The FCA is laudably pursuing this theme. We would like to see them engage with firms that are providing data and review on new forms of finance too.

The document, embedded below, will be followed by second publication  on the Markets in Financial Instruments Directive (MiFID II) later in 2016. This document will also address requirements on research.

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