In 2016, the Dubai Financial Services
Authority (DFSA) carried out a thematic review to determine how Authorised
Firms carried out client classification assessments and how they documented it.
The review followed changes to the client classification rules that came into
force in April 2015.
The review had four phases:
Phase One - A survey issued to
217 Authorised Firms. The response rate was 89%.
Phase Two - A desk-based
assessment of the survey results.
Phase Three – On-site visits to
22 Authorised Firms offering a range of financial services across each of the
DFSA licence categories. Interviews were conducted with key staff and client
files were reviewed to assess the firm’s record keeping and implementation of client
classification and suitability procedures.
Phase Four – Analysis,
observations and report write up.
Since the client classification rules came
into effect, Authorised Firms have been required to classify Professional
Clients as ‘deemed’, ‘service based’ or ‘assessed’.
The Client classification process involves a
qualitative assessment of a client’s knowledge and experience. The Authorised
Firm must document the decision-making process and record the client classification.
The DFSA’s Client Classification and
Suitability Thematic Review 2017 report highlights both good and bad practices.
The following concerns were noted
- Employees performing client classification are not receiving sufficient training and guidance.
- There is a lack of clear documentation supporting how client classifications were assessed.
- Assessments were more tick-box than detailed and qualitative.
Concerns relating to Suitability were:
- Failure to carry out or document assessments in connection with advice or discretionary transactions.
- The use of suitability waivers in Client Agreements to limit obligations, liability or duties with regards to suitability.
- Inadequacies in internal policies and procedures relating to suitability and client classification.
The DFSA provides the following
recommendations to improvement systems and controls including:
- Improve policies and procedures to ensure there is sufficient guidance on how to assess clients and record the final classification.
- Train staff on how to carry out assessments and record decision making.
- Suitability waivers should not be included in client documentation – it is not possible for a client to waive suitability obligations and responsibilities.
The full report,
which also details best practice can be read at https://www.dfsa.ae/CMSPages/GetFile.aspx?guid=1b6dfb0e-ba8f-4ff7-94ce-6615d4a61cd6
If you would like HOLT consultancy to review your client files please contact us using info@holtconsultancy.com or call +971 4 386 6360.
