The Financial Conduct Authority (FCA) is set to examine wealth managers' and private banks' business models as it establishes a new division to scrutinise the sector.
Its risk assessment work will no longer focus on firms' controls but instead look at their business models, strategies, culture and front-line processes.
The FCA has set out its expectations of wealth management firms as it puts the finishing touches to a new division that will oversee the sector.
FCA director of supervision Clive Adamson [pictured] said the regulator will conduct further thematic reviews targeting wealth managers - it previously carried out reviews in 2010 and 2012 - but outlined the key areas firms should focus on to ensure they do not come to the attention of the FCA.
Adamson, speaking at the APCIMS Compliance Conference in London, said wealth managers - the biggest of which are usually part of wider banking groups - should ensure they deliver the services customers have signed up for, agreeing upfront the exact nature of the service they will provide and how the customer will pay for it.
Firms should identify and manage conflicts of interest, he added. "We want to see that you have thoroughly considered any potential conflicts of interest and will look, for example, at how many in-house products or products manufactured by an associate of the firm are held within individual portfolios - questioning whether this is right for the customer", he said.
Wealth managers should also ensure portfolios are consistent with customer objectives. Adamson said it was important firms explored and recorded customers' attitudes to risk and fully understood how they wanted to invest their money.
"Where we find that your records are unclear, we will question why," he said.
From 15 July, the FCA's new Wealth Management and Private Banking Department will go live, Adamson said.
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