Most Investment Firms in Ireland Fail Suitability Review
- The review examined investment firms' approach to the suitability process and their readiness for MiFID II.
Ahead of the implementation of the stricter MiFID II regulations in January 2108, the Central Bank of Ireland has carried out a suitability-themed review of the investment firms in the country. The review is the process by which the bank checks that firms are ensuring that their clients' investments are aligned to their own investment objectives.
The review by the bank was focused at the information gathering stage of the suitability process, and firms' Compliance Compliance In finance, banking, investing, and insurance compliance refers to following the rules or orders set down by the government regulatory authority, either as providing a service or processing a transaction. Compliance concerning finance would also be a state of being following established guidelines or specifications. This designation can also encompass efforts to ensure that organizations are abiding by both industry regulations and government legislation. Understanding ComplianceCompliance is a In finance, banking, investing, and insurance compliance refers to following the rules or orders set down by the government regulatory authority, either as providing a service or processing a transaction. Compliance concerning finance would also be a state of being following established guidelines or specifications. This designation can also encompass efforts to ensure that organizations are abiding by both industry regulations and government legislation. Understanding ComplianceCompliance is a Read this Term to the European Securities and Markets Authority (ESMA ESMA European Securities and Markets Authority (ESMA) is an independent Authority of the European Union that is responsible for the safety, security, and stability of the European Unions’ financial system and is charged with protecting the public. The European supervisory authority for the securities sector, ESMA was established on 1 January 2011. The European Securities and Markets Authority is an independent EU authority based in Paris. It aims to contribute to the effectiveness and stability of t European Securities and Markets Authority (ESMA) is an independent Authority of the European Union that is responsible for the safety, security, and stability of the European Unions’ financial system and is charged with protecting the public. The European supervisory authority for the securities sector, ESMA was established on 1 January 2011. The European Securities and Markets Authority is an independent EU authority based in Paris. It aims to contribute to the effectiveness and stability of t Read this Term) on certain aspects of MiFID suitability requirements.
The report highlighted the vulnerable areas in where the firms were failing to adopt good practices that increase the overall operational risk in the system. The majority of the firms assessed were found wanting.
The findings of the bank were:
- Firms could not demonstrate that the documented suitability policies and procedures were implemented in practice.
- Client take-on application forms did not contain specific fields for the collection of required information and/or were found to be incomplete i.e. fields left blank.
- Not all firms could demonstrate that they had effective governance structures and appropriate tools to successfully implement and assess suitability. A number of firms relied on client self-assessment of knowledge, experience and financial situation and failed to counterbalance self-assessment with an independent objective assessment.
- Dependencies on basic IT systems for the management of suitability processes increased the likelihood of human error and did not facilitate second line controls carrying out monitoring.
- Governance structures for the identification and treatment of vulnerable clients were absent or ineffective.
Regarding MiFID II preparedness, it was discovered that the top investment firms are in the process of implementing MiFID II regulations and have completed detailed gap analysis.
The report also suggested the firms review their suitability framework and implement the regulations and procedures within the firm. It said that firms should take up the good practices listed in the report in order to successfully implement MiFID II regulations, ensuring their readiness when the regulations kick in.
Ahead of the implementation of the stricter MiFID II regulations in January 2108, the Central Bank of Ireland has carried out a suitability-themed review of the investment firms in the country. The review is the process by which the bank checks that firms are ensuring that their clients' investments are aligned to their own investment objectives.
The review by the bank was focused at the information gathering stage of the suitability process, and firms' Compliance Compliance In finance, banking, investing, and insurance compliance refers to following the rules or orders set down by the government regulatory authority, either as providing a service or processing a transaction. Compliance concerning finance would also be a state of being following established guidelines or specifications. This designation can also encompass efforts to ensure that organizations are abiding by both industry regulations and government legislation. Understanding ComplianceCompliance is a In finance, banking, investing, and insurance compliance refers to following the rules or orders set down by the government regulatory authority, either as providing a service or processing a transaction. Compliance concerning finance would also be a state of being following established guidelines or specifications. This designation can also encompass efforts to ensure that organizations are abiding by both industry regulations and government legislation. Understanding ComplianceCompliance is a Read this Term to the European Securities and Markets Authority (ESMA ESMA European Securities and Markets Authority (ESMA) is an independent Authority of the European Union that is responsible for the safety, security, and stability of the European Unions’ financial system and is charged with protecting the public. The European supervisory authority for the securities sector, ESMA was established on 1 January 2011. The European Securities and Markets Authority is an independent EU authority based in Paris. It aims to contribute to the effectiveness and stability of t European Securities and Markets Authority (ESMA) is an independent Authority of the European Union that is responsible for the safety, security, and stability of the European Unions’ financial system and is charged with protecting the public. The European supervisory authority for the securities sector, ESMA was established on 1 January 2011. The European Securities and Markets Authority is an independent EU authority based in Paris. It aims to contribute to the effectiveness and stability of t Read this Term) on certain aspects of MiFID suitability requirements.
The report highlighted the vulnerable areas in where the firms were failing to adopt good practices that increase the overall operational risk in the system. The majority of the firms assessed were found wanting.
The findings of the bank were:
- Firms could not demonstrate that the documented suitability policies and procedures were implemented in practice.
- Client take-on application forms did not contain specific fields for the collection of required information and/or were found to be incomplete i.e. fields left blank.
- Not all firms could demonstrate that they had effective governance structures and appropriate tools to successfully implement and assess suitability. A number of firms relied on client self-assessment of knowledge, experience and financial situation and failed to counterbalance self-assessment with an independent objective assessment.
- Dependencies on basic IT systems for the management of suitability processes increased the likelihood of human error and did not facilitate second line controls carrying out monitoring.
- Governance structures for the identification and treatment of vulnerable clients were absent or ineffective.
Regarding MiFID II preparedness, it was discovered that the top investment firms are in the process of implementing MiFID II regulations and have completed detailed gap analysis.
The report also suggested the firms review their suitability framework and implement the regulations and procedures within the firm. It said that firms should take up the good practices listed in the report in order to successfully implement MiFID II regulations, ensuring their readiness when the regulations kick in.