Due Diligence Thematic Review – For What?

by | Nov 4, 2014

Share this article

So We’re Getting a Long-Winded Thematic Review on Due Diligence, Says Gill Cardy? Why Now? And What Are We Supposed To Do While We’re Waiting?


In advance of launching a Thematic Review on due diligence, the FCA’s pre-judgedGillian Cardy position is that “inadequate
due diligence underpins a lot of the incidences of crystallised risk we’ve seen.”


Continuing to explain their pre-conceived conclusions, the regulators explain that advisers can reply on factual information but not on opinion, and that just filling files with template due diligence materials is not acceptable.

The FCA confirmed on 30th September that it is to launch its long-touted thematic review on due diligence for retail investment advice “later this year”, and reporting some time “well into next year”.

“Due diligence, or at least inadequate due diligence, underpins a lot of the incidences of crystallised risk we’ve seen,” said Rory Percival, technical specialist at the FCA……….Keydata, Arch Cru…so it is a key important area.”

Sounds great. But what’s new?

Well, the regulator has perspicaciously observed that there’s a distinction between fact and opinion. If the manager tells you what’s in the fund, that’s fact apparently. If he tells you that it’s low-risk, that’s opinion. Apparently we need help in distinguishing the two.

What else is in the Review? We don’t know, because the silence is still deafening. But we’re sure they’ll think of something. Watch this space.

Michael Wilson


It is simply ludicrous that the FCA is telling us the outcome of the thematic review before it has even started.  If it already knows what is right and wrong, then firstly – with its shiny new emphasis on decisive and early action – it could (should?) tell us what it expects.

It is also offensive that, if the regulators already know what they want from us, they are not being explicit right now, so that we can review our systems and processes at the earliest opportunity.  Instead, how much money – our money, of course – will be spent concluding exactly what the FCA already knows.


Don’t Hold Your Breath

They will start their review about now, and report “well into next year” – which means that it’s going to be at least a year before they can expect firms to take account of their “new” guidance.  Except it won’t be new, because they already know the answer.

Look, the FCA has reviewed enough files in its time to know its definitions of ‘acceptable’ and ‘unacceptable’ – or, in our more terminologically inexact age, ‘good practice’ and ‘bad practice’.  And if its people think they are addressing their consumer protection objective by failing to share this information with advisers at the earliest opportunity, then they are, quite frankly, not worth a pound of their salaries, let alone their bonuses.

That Risk Question Again

Similarly, being coy about what specifically is ‘acceptable’ or ‘unacceptable’ in risk-profiling tools is startlingly inappropriate.  I also learned that the FCA has a file review template.  Of course it does.  So share it with us.  If the FCA judges our advice processes, tell us by what measures we will be judged.


And I must revisit the question of risk that I raised last month.  So, according to the FCA’s latest pronouncement, definitions of levels of risk are ‘opinion, and not to be relied on’.  Great.  I’m very happy to make my own determination.

Mind-Readers Urgently Required

But my file will only be ‘acceptable’ when my definitions are just the same the regulator’s, or the ombudsman’s.  I’m very happy (kind of) to concede that I cannot take at face value a fund manager’s assertion that using currency hedging or alternatives as part of their investment strategy makes its fund low risk.

But, unless my high risk or low risk meets the same criteria as the regulator’s and the ombudsman’s, and unless we all work to agreed definitions which are known, understood and applied consistently across the whole of industry, advisers will always fail.


And if inadequate due diligence is allegedly only one of three common reasons for unsuitable advice then surely it’s imperative for the FCA and the consumers they are supposed to protect to tell us the other two as a matter of urgency.  After all, we’re only advisers, not chartered mind-readers.

Share this article

Related articles

Firms need to act on SDR says Abi Reilly

Firms need to act on SDR says Abi Reilly

As the FCA’s Consultation Paper on SDR closed this week, Abi Reilly, Funds Practice Lead at Bovill, has commented. She said: “Bovill supports the FCA’s drive to create a robust framework for sustainable investing, and there is broad agreement across the industry that...

Trending articles

IFA Talk logo

IFA Talk is our flagship podcast, designed to fit perfectly into your busy life, bringing the latest insight, analysis, news and interviews to you, wherever you are.

IFA Talk Podcast - listen to the latest episode