Central Bank of Ireland publishes “Dear CEO” letter to investment firms with regard to suitability requirements

Maria Nikolova

With less than five months remaining until MiFID II implementation, the regulator has conducted a suitability review to observe how firms were progressing with the significant challenge of preparing for the new rules.

The Central Bank of Ireland continues with its monitoring of how the investment firms it regulates are prepared for the coming implementation of MiFID II. Recently, FinanceFeeds has reported of changes made to the Consumer Protection Code in line with MiFID II rules. The efforts of the regulator continue.

Today, the Central Bank of Ireland published a “Dear CEO” letter, in which it provides a summary of the findings of a recently completed themed review of suitability processes of investment firms.

Suitability is the process by which firms take all reasonable steps to ensure that a client’s investments align to their investment objectives and personal circumstances.

With less than five months remaining until MiFID II implementation, the review has shed some light on how firms were progressing with the significant challenge of preparing for MiFID II. MiFID II regulations apply significant changes to the suitability requirements by introducing a number of new requirements, including suitability statements, annual suitability assessments and the need to ascertain additional information from clients in relation to risk tolerance and capacity for loss.

The review focused on the information-gathering phase of the suitability process and the firms were assessed for compliance with the ESMA “Guidelines on certain aspects of the MiFID suitability requirements”.

The review has found that the majority of inspected firms failed to fully comply with the ESMA Guidelines. More precisely:

  • Firms could not demonstrate that the documented suitability policies and procedures were implemented in practice.
  • Client take-on application forms did not contain specific fields for the collection of required information and / or were found to be incomplete i.e. fields left blank.
  • Not all firms could demonstrate that they had effective governance structures and appropriate tools to successfully implement and assess suitability. Some firms relied on client self-assessment of knowledge, experience and financial situation and failed to use an independent objective assessment.
  • Dependencies on basic IT systems for the management of suitability processes raised the likelihood of human error and did not facilitate second line controls carrying out monitoring.
  • Governance structures for the identification and treatment of vulnerable clients were either absent or ineffective.

The letter also says that there are “best in class firms that have completed detailed gap analyses and are in the process of implementing MiFID II”.

The Central Bank instructs investment firms to submit this letter for discussions and consideration to their boards before October 31, 2017. Matters raised in this letter may be considered by the Central Bank during the conduct of future inspections.

Read this next

Retail FX

Prop firm The Funded Trader shuts down, claims relaunch in April

Prop trading firm The Funded Trader has ceased all operations, with claims for a relaunch in the near future.

Digital Assets

Ethereum-Based Tokenized Real Estate Platform USP Launches On Republic

How This Californian Startup Is Revolutionizing Real Estate Investment through Ethereum-Based Tokenization.

Digital Assets

Sui Spikes in Weekly DEX Volume, Joins Top 10 of All Blockchains

March DEX volume on Sui stands at over $2.88B – up more than 49% from February – with decentralized exchange Cetus and wholesale liquidity layer DeepBook leading.

Digital Assets

Prisma Finance suffers $10 million crypto exploit, attack ongoing

Liquid staking protocol Prisma Finance fell victim to a security exploit on March 28, resulting in nearly $10 million in Prisma mkUSD and wrapped stETH being stolen by hackers.

Digital Assets

Masa and LayerZero: Bridging Blockchains for Data Sovereignty

Masa Network is poised to revolutionize the personal data landscape with its upcoming launch as a cross-chain platform, making it accessible on a variety of blockchains right from the start.

Digital Assets

Big Time Generates over $100M in Revenue since Preseason

Innovative game developer Big Time Studios announces that its highly anticipated free-to-play multiplayer action/MMO RPG Big Time, has generated $100M in revenue. According to the team, players transacted a total volume of over $230M, without selling a single token.

Digital Assets

Centralized exchanges are 10 times more popular than DEXs in Western Europe

Western European traders are found to prefer centralized exchanges over decentralized ones as CEX traffic outpaces DEXs by a factor of ten.

Market News

Stock Market Analysis: Is NVDA Losing Its Leadership?

Since the beginning of the week, the S&P 500 Index (US500) has seen a modest increase of about 0.58%, whereas NVDA’s share price has experienced a decline of approximately 3.8%. This recent divergence raises concerns among Nvidia stock investors — could it signify a loss of NVDA’s market leadership?

Industry News

ESG: Australian regulator wins first greenwashing court case against Vanguard

Vanguard admitted that a notable portion of the securities within both the Index and the Fund did not undergo the promised ESG scrutiny.

<