The UK's Financial Conduct Authority is setting up a new department for monitoring wealth management and private banking firms, set to launch on 15 July.

Speaking at the Association of Private Client Investment Managers and Stockbrokers Compliance Conference, the FCA director of supervision, Clive Adamson, said that the new supervision model would focus more on looking at the business models of firms, strategies, culture and front-line processes, rather than the traditional approach of focusing on controls.

"Essentially, it is a shift from looking at how a firm controls itself to how it runs itself. The reason for this is that we believe these areas are some of the primary drivers of poor behaviours," Adamson said.

In his speech, Adamson warned of further thematic reviews and also highlighted a number of key areas that wealth management and private banking firms needed to focus on, including oversight arrangements, the recording of up-to-date consumer information and identifying and managing conflicts of interest.

"Firms must deliver the services customers have signed up for, agreeing upfront the exact nature of the service they provide and ensure that their customers’ wealth is legitimately acquired," Adamson said.

Adamson also explained that firms needed to ensure portfolios were consistent with customer objectives and record and keep up-to-date consumer information in order to ensure their individual portfolios continue to be suitable for them.

Rebecca Prestage, head of policy at The Consulting Consortium, said there was a real danger of consumer detriment if firms did not address the issues that had been identified.

“It’s vital that the right corporate culture transcends the entire firm and that senior management set the tone for the rest of their staff. Firms must make sure that they can demonstrate that their business model, strategy and culture puts the customer first," Prestage said.

Laurence
Lieberman, partner in the disputes and resolution team at Taylor Wessing, says wealth management firms can expect a more
intrusive, challenging and proactive approach by the regulator to
supervision.

“The
FCA has again turned the spotlight on wealth management, outlining
plans to increase scrutiny of the sector, with the launch of a new wealth management and private banking department, planned for 15 July. Essentially it will seek to illuminate the broader
picture and consider firms' business models, culture, front-line
experience and what outcomes are being achieved for customers rather
than a narrow focus on whether a firm complies with rules," he said.   

“As
a result, firms can expect more thematic reviews and the use by the FCA
of more data and intelligence to make sure `markets work well for
consumers'. Wealth managers are advised to heed Adamson's warning that
while the FCA is in the final stages of setting up the new department
and pending further thematic reviews, firms should focus on a number of
key areas. These include ensuring that they deliver the services
customers have signed up for, ensuring the exact nature of the service
they will provide is agreed and recorded at the start of the
relationship, and keeping all information current and relevant.  He
emphasised the importance of portfolios being consistent with consumer
objectives, noting that if a customer's attitude to risk is unclear or
inadequately recorded, we will question why," he added.   

The FCA took over as the UK's financial regulator earlier this year following the break up of the Financial Services Authority.