Suitability- is your firm complying with the DFSA Rules?
The review did not hold Authorised Firms to 2020 standards in respect of transactions and client engagements occurring previously, however, where appropriate, they were informed of potential gaps between past practices and new requirements. Overall, many of the Authorised Firms subject to review in 2020 had taken strides towards enhancing their suitability frameworks to support the new rules, although none had a fully-compliant framework in place by the time of the site visit.
In 2021, the DFSA published the findings of the thematic review and identified the following areas of concern:
- Many Authorised Firms confuse client information gathered during onboarding with a suitability assessment and may not undertake proper suitability assessments in connection with advice or discretionary transactions.
- Authorised Firms’ policies and procedures frequently restate the DFSA’s rules without addressing how they will implement or ensure compliance with them. This might not provide employees with sufficient direction or guidance on how to perform a client suitability assessment.
- Authorised Firms suitability regimes often appear to be more product-driven than based on the needs of the client. Product-driven suitability controls often do not challenge, or otherwise consider the rationale behind, a particular instance of advice or discretionary transactions.
- Many Authorised Firms managing discretionary portfolios according to ‘model portfolio’ approaches, or specified strategies, often effected discretionary transactions without considering the suitability of such transactions for each c
- Authorised Firms often excluded recommendations to ‘sell’ from suitability frameworks.
- Discretionary portfolio managers often do not consider suitability beyond compliance with the client investment management agreement.
- The quality of suitability-related documentation is often weak, for example; no evidence that an assessment had been conducted, the factors were considered prior to making a recommendation, or, reliance solely on the recollection of an employee.
- Many Authorised Firms were unable to distinguish between advised or discretionary transactions from execution-only transactions.
- Many Authorised Firms often do not consider the suitability of discretionary accounts on an ongoing basis.
How does this impact your firm?
The DFSA encourages Authorised Firms to consider their business model and existing suitability framework in the light of these observations. The DFSA expects Authorised Firms to be proactive in making enhancements to systems and controls, where appropriate. This was reiterated by the DFSA in their recent annual outreach session.
How Waystone Compliance Solutions can help you
Waystone is well-positioned to support you in maintaining compliance with DFSA requirements on the topic of suitability. This may be providing you with the support that your in-house compliance resources require or alternatively providing education and training to your team on the regulatory requirements.
If you have any questions or concerns on how this impacts your firm, please contact:
Anu Singh, Director, Consultancy, Waystone Compliance Solutions
Lisa Ritchie, Manager, Waystone Compliance Solutions