Relaunch Investment Suitability

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3.5 Financial Service Provider Supervision Financial service providers not subject to prudential supervision According to FINMA, a consistent implementation of codes of conduct and information requirements at the POS is only possible if all financial service providers fulfil the requirements with regard to organization and training. In order to prevent the possible over- regulation of wealth managers unregulated to date, FINMA suggests a division of financial services providers as follows: The first group includes institutions subject to a comprehensive prudential supervision, while the second includes those subject solely to compulsory registration and occasional examination. Unlike the MiFID, FINMA abstains from licensing and monitoring requirements for all financial service providers; the expenses related to this are considered unreasonable. • Germany: Has made use of relevant exemptions from the MiFID to shield its investment advisory and brokerage activities with respect to collective investment schemes from licensing and compulsory monitoring. • Great Britain: Also makes use of the exemption to ease licensing and compulsory monitoring; however, only certain companies authorized by the Financial Market Supervisory Authority can benefit from these exemptions. • Hong Kong: Various activities are regulated, including advisory services relating to securities, futures contracts, corporate finance and asset management, among others; distinction between licensing and registration. • Singapore: A “financial advisor” license is required for all investment advisory services, which may differ based on the type of services and products offering. Trend Those who make investment recommendations regarding securities or related financial instruments in the countries studied require licensing or registration. FINMA attempts to create a balance in relation to foreign regulations with the proposed subdivision of service providers and compulsory registration. The trend is toward regulation of investment advice, which is already standard in other countries. 16 Ernst & Young Relaunch Investment Suitability Know-how and experience of investment advisors FINMA welcomes the introduction of requirements for training and further education as well as experience required of those responsible for financial services provision in the fields of prudential and non-prudential supervision. The MiFID contains no explicit regulations concerning the above, although individual countries have created specific regulations; a graphic representation is omitted in this instance. • Germany: The Investor Protection Act, adopted in February 2011, stipulates the introduction of a national register for bank investment advisors, whereby the professional experience requirements for qualification have been increased to up to five years (training or recognised qualification is required). These regulations do not apply to independent investment advisers; regulations for independent investment advisors will follow in the course of this year. • Great Britain: In January 2011, the Financial Market Supervisory Authority confirmed that retail investment advisers must possess a so-called “statement of professional standing” if they wish to provide advisory services after 2013. This recognized qualification aims to provide proof to clients that investment advisors (i) are subject to ethical codes of conduct, (ii) are qualified to give advice, and (iii) continually update their know-how. • Italy: Investment advisers must have a recognized diploma and pass an accreditation examination. Furthermore, companies are required to provide continuing education programs for all investment advisers; those who fail to fulfil this obligation may lose their registration as recognized financial intermediaries.
• France: Investment advisers must possess sufficient qualifications and know-how. The Financial Market Supervisory Authority requires ongoing training. • Hong Kong: Sufficient know-how and experience are required of investment advisors. • Singapore: Regulations concerning the further education of investment advisors; knowledge of products and their risks and whether they fall into certain asset classes. Trend Investment advisors must possess the necessary training and/or experience in investment advisory. This principle has been enacted or is currently being implemented in all the countries studied. The principle is also recognized in Switzerland. In future, the focus will be placed increasingly on the complexity and degree of difficulty of financial instruments; the more complex and risky products are, the more investment advisers must know about them. Ernst & Young Relaunch Investment Suitability 3.6 Regulations for Monitoring the Suitability of a Recommendation Pan-European convergence exists regarding the requirement that suitability tests should be performed prior to the provision of an investment recommendation. The legal position regarding suitability monitoring of a recommendation is different. Neither the FINMA discussion paper nor the MiFID contain explicit provisions regarding whether or in which form investment recommendations must be reviewed and updated. This point is addressed in the MiFID consultation paper. The EU Commission suggests that investment companies must track relevant client-specific conditions as well as the development of the recommended financial instruments for the duration of their investment terms. On this basis, the client should be advised that the recommended financial instruments are still suitable at least once a year. Individual countries have also established regulations on this subject, e.g. Great Britain (“treating customers fairly” regulations) and Italy (in the form of advisory contracts with retail clients). Singapore has also issued detailed regulations on this matter and stipulates that clients must be informed of further developments in product performance after the contract’s conclusion. Trend There are signs that financial market regulators are urging continuous monitoring of the suitability of investment recommendations. Investors must be periodically informed of the results of this monitoring. 17
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