Would your inducement processes and procedures stand up to regulatory scrutiny?

(inducements) FSTP FCA blog postA thematic review of inducements and conflicts of interest by the Financial Conduct Authority (FCA) has challenged some of the hospitality and training events providers put on for advisers.

During 2015 the FCA launched a review into how advice firms and providers dealt with the conflicts of interest and inducement rules.

The FCA is not publishing a full thematic report into inducements, because it is taking the findings into account during further ongoing consultation around MiFID II. Although, the FCA found the outcomes of their review serious enough to warrant publishing it’s key findings and expectations of firms now.

Where are firms falling short of the FCA’s expectations?

The FCA said its findings into inducements should ‘remind firms of our expectations around the current rules’ especially given the delay to MiFID II.

The hospitality provided or received did not always appear to be designed with the enhancement of the quality of service received by the client in mind. The FCA singled out sporting events as an example of this.

‘These benefits did not appear capable of enhancing the quality of service to clients as they were either not conducive to business discussions or the discussions could better take place without these activities,’ the FCA said.

Another area of concern was hospitality logs that did not record relevant detail or were poorly maintained. In some instances benefits had not been recorded, the recipient of the benefit was omitted or there was no detail on how the hospitality would enhance the service to the client.

The FCA reinforced its expectation that advisers should take into account the likelihood of enhanced client service when receiving non-monetary benefits.

Concerns were also raised regarding the fees that some providers paid advisers in order to meet the costs of training sessions. It said that while it was okay to pay firms to attend educational or training events, in some cases ‘product providers were making payments to advisory firms in excess of the costs incurred.’

MiFID II will strengthen standards on inducements when it is fully implemented. However, are you prepared to take the risk and wait for MiFID II to overhaul your procedures and controls? We know from experience that the FCA expects firms to be proactive around these issues, and have the satisfactory processes in place well in advance of implementation dates.

(inducements) FSTP blog post on FCACan you comfortably answer ‘Yes’ to these questions?

Are your processes and procedures robust enough to ensure accurate records and audit trails?

Are your gifts and hospitality policies fit for purpose?

To access the full list of concerns raised by the FCA and their expectations please click here.

Barry Howard

Senior Associate