Investment Services Providers Need to Improve Suitability Assessments, Says Irish C-Bank

The Central Bank of Ireland has published recently a Dear CEO Letter outlining the findings of a review of investment firms' compliance with the suitability requirements under MiFID II. The review was conducted as part of a Common Supervisory Action (CSA) coordinated by the European Securities and Markets Authority (ESMA).

When providing investment advice and/or portfolio management, firms are required to take all reasonable steps to ensure that a client's investments align to their objectives and personal circumstances. This is a key measure to protect investors from the risk of purchasing unsuitable products, according the Central Bank.

Whereas, the review identified instances where further action is required by firms. For example, firms need to take a more client focused approach, using tailored suitability assessments specific to their businesses and the needs and circumstances of their clients.

"The findings from this review show that regulated firms need to improve their performance when it comes to assessing the suitability of investment products they recommend or advise consumers to purchase," said Colm Kincaid, Director of Consumer Protection.

There is particular concern at the quality of firms' oversight of cases where a client insists on proceeding with the transaction at their own initiative against the firm's suitability advice. In such a case, clients should be clearly informed that the transaction is not considered by the firm to be suitable, including a clear explanation of the potential risks involved if the client proceeds.

The Central Bank will continue to engage with firms where specific supervisory actions have been imposed, which require firms to take specific action on foot of the findings. In addition, it is requiring all Irish authorised MiFID firms and credit institutions, who provide portfolio management and advisory services to retail clients, to conduct a thorough review of their individual sales practices and suitability arrangements. This review must be documented and must include details of actions taken to address findings in the ESMA public statement and this letter. This review should be completed, and an action plan discussed and approved by the board of each firm, by end of Q1 2022.