Regulation  

FCA refuses to authorise adviser over suitability concerns

FCA refuses to authorise adviser over suitability concerns

The Financial Conduct Authority has refused permissions for a firm seeking to offer investment advice on contracts for difference, equities and commodities as well as execution-only services.

VIP Wealth, based in Birmingham, was refused permission because the FCA could not be satisfied that the company would meet its threshold conditions, particularly in relation to suitability and the availability of appropriate resources.

Among the FCA's concerns was the ability of the person the firm was proposing to carry out the compliance oversight and money laundering reporting functions.

Article continues after advert

During the application process, the FCA found this person - referred to as Employee A - had "limited past experience or relevant qualifications" for either of these roles.

In its final notice, the FCA said: "The interview panels considered that Employee A was unable to demonstrate the expected level of knowledge in key areas, including being unable to provide a response to a number of important questions.

"On a number of occasions, Employee A was only able to provide responses to questions that should have been within her knowledge by referring to written material brought with her to interview."

Earlier this year the FCA uncovered "areas of serious concern" after carrying out a review of the contracts for difference (CFD) market.

The regulator recently assessed 19 firms which provide CFDs, which are essentially contracts between an investor and an investment bank or a spread-betting firm.

At the end of the contract, the parties exchange the difference between the opening and closing prices of a specified financial instrument, including shares or commodities.

They are deemed particularly risky because investors can invest with a small stake but as the CFDs are often highly leveraged they can lose many times over their original investment.

In the course of its review, which covered the period July 2015 and June 2016, the FCA also found 76 per cent of retail consumers who bought CFD products on either an advised or discretionary basis lost money.

In the final notice, the FCA added: "During the second interview, Employee A was asked questions about VIP’s CFD product (which she confirmed was one of two 'key products' for the firm), and her knowledge of CFDs generally.

"Employee A was asked what the underlying markets would be for VIP’s CFDs, but was unable to answer this question.

"Taking into account the fact that this is one of the firm’s ‘key products’, and the risks associated with this product, the authority considers that it is of particular concern that Employee A did not demonstrate knowledge of a basic aspect of one of the firm’s ‘key products’ (which then raises concerns as to whether she has an in-depth knowledge and understanding)."

VIP Wealth had applied for permission for advising, arranging and making arrangements with a view to transactions in investments.

The European Securities and Markets Authority is currently considering whether to restrict the marketing, distribution and sale of CFDs, which the FCA has said are complex and high-risk.