With new suitability requirements looming in Europe, regulators in Ireland say firms need to improve their efforts to collect and analyze client information to provide clients with appropriate investment advice.
The Central Bank of Ireland published a report Tuesday setting out the results of a review of investment firms’ compliance with existing suitability requirements, which finds that firms are generally falling short.
“The majority of inspected firms failed to demonstrate full compliance,” the report says. “Overall, the review highlighted that firms need to improve the quality of information collected and how they utilize this information in the suitability process.”
The review comes ahead of the implementation of new European regulations, known as MiFID II, which will introduce new requirements in this area, among many other changes to securities rules.
In Canada, regulators are considering their own set of possible changes to suitability requirements, along with the introduction of a best interest standard in Ontario and New Brunswick, as part of efforts to bolster investor protection.
The Irish central bank’s review found that:
- firms in that market could not demonstrate that their policies and procedures on suitability were implemented in practice;
- information collection is inadequate;
- some firms rely too heavily on clients’ self assessments; and
- effective governance structures are lacking, particularly for the identification and treatment of vulnerable clients.
“The review highlighted that firms need to improve the quality of information collected and how this information is utilised in the suitability process. With the introduction of higher suitability standards under MiFID II, the quality of the information collected is all the more significant,” says Michael Hodson, director of asset management supervision, Central Bank of Ireland, in a statement.
“Boards are reminded that they are responsible for implementing an appropriate governance framework that meets the suitability regulatory requirements and embeds a client-centric culture across the firm,” he adds. “It is critical that each board has confidence that the policies and procedures it has approved are being implemented in practice to ensure client investments align to their investment objectives and personal circumstances.”