Proposals set out by Mifid II make it clear responsibility for recommending suitable financial products still sits firmly with financial advisers, even if the adviser uses an automated system to make these decisions.
In a consultation paper published today (29 September), the Financial Conduct Authority stated: “Responsibility is not reduced by use of the automated system to make personal recommendations or decisions to trade.”
New proposals set out by the Markets in Financial Instruments Directive (Mifid), which expand on the existing requirements, make it clear advisers must acquire information on the client’s knowledge and experience in relation to the relevant investment field.
Both advisers and discretionary fund managers must also collect information on the client’s existing investments and the new investments, in order to analyse the costs and benefits of the switch, the paper stated.
Advisers will be required to ensure information collected about clients is reliable and kept up-to-date, and must also consider whether there are any obvious inaccuracies in the information provided.
The fresh proposals, which include more specific requirements than before, also require discretionary managers to provide periodic suitability reports.
These suitability reports, which must also be completed by advisers, can be limited to changes in the services, investments, and changes in the client’s circumstances.
The FCA said it plans to update the current suitability rules in the Conduct of Business Sourcebook (COBS), adding the changes set out by Mifid II.
The changes will apply to “Article 3” firms, which include financial advice companies.
The current COBS rules will continue to apply to businesses not affected by the Mifid rules, pending consultation on implementation of the Insurance Distribution Directive.