Digitising investment suitability

For private banks and wealth managers, investment suitability is a hot regulatory topic and should be at the heart of front-office digitisation efforts. Increasingly, supervisors are expecting private banks and wealth managers to strive for good customer outcomes and demonstrate that their decision-making processes are centred on an understanding of customer needs.

Recent regional developments include the introduction of regulation on the offline distribution of complex products by the Hong Kong Monetary Authority in October 2018, and the Financial Service Agency of Japan’s Principles for Customer-Oriented Business Conduct, which were finalised in March 2017.

Although regulatory specifics differ between jurisdictions, the underlying fundamental principle remains consistent: an investment product ought to be aligned to a customer’s risk profile and appetite, and can be assessed through a five-stage investment suitability process. In instances where the product is considered to be unsuitable, such as where there is a high probability of unacceptable losses, the obligation is on the banks to control the selling process and protect the customer.