In 2016 the DFSA commenced a thematic review in respect of client classification and suitability, with particular focus on the approaches taken by Firms in respect of limiting the extent of suitability assessments performed on Professional Clients. In January 2018, the DFSA published the findings of the thematic review, and identified the following matters of concern:
- Failure to perform or document suitability assessments in connection with advice or discretionary transactions;
- Continued use of “suitability waivers” and other language in Client Agreements to limit liability, duties and obligations in respect of suitability; and
- Inadequacies in internal policies and procedures concerning relevant suitability obligations.
Further to the thematic review findings, in August 2019 the DFSA issued Consultation Paper No. 127 to make several amendments to the DFSA’s Rulebook to strengthen the current requirements relating to suitability, specifically in relation to the limitation of suitability assessments for Professional Clients. Proposed changes came into effect on 1 January 2020.
How do these changes impact your Firm?
The changes are not intended to have any retrospective effect however, Firms must consider what impact the changes will have on existing arrangements with Clients.
- Vague or generic language in warning notices to Professional Clients about limiting or excluding any suitability obligation of the firm; and
- Not drawing sufficient attention to the effect of the warning notices and not obtaining explicit consent.
The issue resulting from these concerns is that Professional Clients may be unknowingly providing consent to Firms limiting or excluding any duty of suitability owed to them completely without fully appreciating the consequences of what they are consenting to.
For a summary of the issues, as well as details of the key actions your Firm should take, download our Regulatory Insight article.
If you have any questions about these changes or if you are looking for support contact us now.