Investment firms ‘fail to ensure’ products suitable for investors
Most firms unable to show they comply fully with EU guidelines, Central Bank says
The Central Bank found that not all investment firms could demonstrate that they had effective governance structures. Photograph: Niall Carson/PA Wire
“Suitability is the process by which firms take all reasonable steps to ensure that a client’s investment aligns to their investment objectives and personal circumstances,” the financial regulator said in a letter to the heads of Irish investment firms on Tuesday, following a “themed review” of the sector.
It found that “the majority of inspected firms failed to demonstrate full compliance” with guidelines from the European Securities and Markets Authority (Esma) on investment products covered by European regulations, known as the Markets in Financial Instruments Directive (Mifid).
The review found that many firms could not demonstrate that suitability policies and procedures were implemented in practice and that some application forms for products did not contain fields for the collection of required information.
In addition, not all firms could demonstrate that they had effective governance structures and appropriate tools to successfully implement and assess suitability.
“The review highlighted that firms need to improve the quality of information collected and how this information is utilised in the suitability process,” said Michael Hodson, director of asset management supervision at the Central Bank in a statement.
The introduction of higher suitability standards under incoming rules, known as Mifid II, makes the quality of information collected “all the more significant”, he said.