Building in 'best interests' and better supervision
Since 2012, Licensees struggled first to understand, and then to operationalise, the 'best interest' duty.
While the majority of Licensees eventually embraced this fundamental new duty, some participants failed spectacularly. In a previous article we suggested Licensees should make additional refinements. In this article we discuss what those should be.
- Are you providing advice to retail clients, wholesale clients or professional investors?
- Are you advising? Dealing? Manufacturing?
- Is the extent of the 'financial products' with which you deal, clear?
- Does your marketing and regulated documents clearly explain your 'offer'?
- Are you authorised to advice and deal on the products/services for which you currently provide financial services?
- Is your proposition, and motivations clear, or are they encumbered by conflicts and legacy arrangements?
- Do you have the infrastructure, capability and competency to provide the services you are authorised to provide?
- How regularly, and how effectively, do you test your organisational competence?
- How can you effectively identify, manage, mitigate and escalate your key risks (including compliance, financial and conduct risks).
After you've identified your requirements, think about how you have operationalised these requirements and how you can demonstrate that your measures, processes and procedures are working effectively.
Culture, conduct and compliance
As a Licensee, your arrangements and your focus should be directed to building a culture that ensures good conduct and effective compliance.
Practically, we'd suggest that since you need to be able to demonstrate your capacity and competence to comply with your obligations, you should focus on the measures, processes and procedures you've put in place to protect your clients and your livelihood including those addressing:
1. Product selection and research;
2. Monitoring, supervision and training of competent representatives;
3. Fair and honest operations;
4. Managing, avoiding or disclosing conflicts of interest;
5. Effective management reporting and dispute resolution;
6. Adequate prudential obligations;
7. Key operational processes;
8. Effective business planning;
9. Integrated compliance assurance;
10. Adequate financial, technological and human resources.
The sophistication of these measures, processes and procedures (which may be paper based or integrated IT systems) will vary according to the size and sophistication of the business.
Remember that your compliance arrangements have to be appropriate for the “nature, scale and complexity” of your business. If you need assistance, seek objective and professional advice before your deficiencies are addressed in a more public manner.
PS - If you do obtain "objective and professional advice", don't ignore it. Formally consider any advice you receive particularly if the advice relates to your compliance, governance and risk frameworks. Both NSG and WRM show the dangers of ignoring written advice.
If you enjoyed this article you might like "Is your Licensee your greatest risk", "Who watches the watchers" or "What Wells Fargo taught us about culture and compliance"