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Are you regulated by the #FCA A #cmc soon to be #regulated #broker How to meet FCA due diligence expectations on platforms

By 2nd April 2018No Comments
Firms often struggle to understand their chosen platform model, so it is little wonder advisers have difficulty understanding how their platform operates. They may be unsure where they should direct their due diligence when deciding on their chosen platform, which must be in line with Financial Conduct Authority (FCA) expectations.

There are a number of platform models, as well as some that appear to be platforms but are not. These include white labels, platforms that arrange custody, true platforms (including custody), and execution-only brokers and virtual platforms.

White labels
A white label platform is offered by platform service providers to adviser firms, whereby the platform can be labelled to look like the adviser firm’s proposition. Some large adviser firms white label their platform and pay for bespoke services with considerable control of the proposition, without being a platform service provider.

If a firm chooses to white label its platform, it needs to ensure its clients understand who is providing the platform service and the product literature is fair, clear and not misleading.

Firms should still carry out due diligence on the platform provider and consider the custody model, outsourcing and technology provider.

A number of platform firms offer opportunities to become a platform service provider that arranges safeguarding. It may be possible to become an ISA manager while outsourcing administration to a third party and retaining responsibility to comply with the ISA requirements.

The terms and conditions have a tripartite arrangement – client money and assets are held by the custodian while the platform service provider outsources the operations to the same firm. Some of these arrangements are like virtual platforms that further outsource fund management and stockbroking.

The terms will outline whether the platform service provider is not a custodian. This is not necessarily a bad thing, as the custodian may be a well-established provider, but firms should apply their due diligence to the firm holding its clients’ assets and money.

True platforms
In its FS13/2 report, the FCA referred to platforms that provide custody of assets and hold client money as true platforms. For these types, it is still possible the back-office operations are outsourced and most of the largest life company platforms outsource their back-office operations to a single supplier.

The platform may also be a stockbroker and use its own proprietary software, although this is less likely as the big suppliers such as Bravura Solutions, GBST or IFDS Group dominate.

Execution-only brokers
In order to abolish commission payments post-RDR, execution-only brokers were brought within the platform service provider definition to offer services direct to customers.

There are many pseudo platforms that white label a proposition and look like a platform, but the small print confirms everything is provided by another firm.

It is worth checking the platform’s permissions on the FCA website, because if the platform does not arrange safeguarding, it is not a platform and just a whitewash of another firm’s services.

Due diligence
The variety of platform structures can make due diligence difficult and it is essential to read the terms and conditions. Due diligence needs to extend beyond the platform service provider to the firm that holds client assets in legal title. Firms should check the FCA register and look out for pseudo platforms.

Where a platform outsources to another company, or uses third-party technology to power their platform, firms should consider these other participants in the due diligence and prove they have understood their role in the platform service. The platform provider should be able to disclose where assets are administered and who is responsible for each part of the platform service.

Anthony Smith is director of AJS Consultancy Services.

Article is care of citywire and can be found here


Tim Kelly

Tim is a highly qualified Independent Engineer with over 20 years experience as an Engineering Assessor of damaged vehicles.

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