Scenario:
A Wealth Management aggregator engaged us to undertake regulatory due diligence on a Target firm. The scope of the review consisted of reviewing the Targets:
- Business and operating model
- Governance and reporting arrangements
- SMCR and regulatory permissions arrangements
- Risk management and compliance framework
- Consumer Duty arrangements
- Onboarding and advice processes
- Investment management processes, research, and dealing controls
- T&C arrangements and remuneration
- Financial crime and AML practices and controls
- Fees and charges structures
- Client documentation and fee disclosures
- Relationships and oversight of third parties
- A sample of client files to test the suitability of the advice provided.
The review was undertaken on a ‘review and recommend’ basis and culminated in a report highlighting our findings and observations, the associated regulatory risks, categorised as high, medium or low, and any recommended remedial actions required to meet regulatory compliance.
The file sample was selected from the Target’s new business registers over a relevant period and considered customer, product, and adviser characteristics to ensure a diverse and representative sample was reviewed. We opined the suitability of the advice based on the available information and provided a set of findings and remedial actions as required for each file.
Approach:
- Document Review: Following the agreed scope of the review, we issued the Target with an information request consisting of policies, procedures, governance records, and other relevant documents aligned to the review areas outlined above. These provided an overview of the business and its control framework and supported our understanding of the business. We reviewed these documents to identify gaps, questions, and inconsistencies to further validate and test with stakeholders at the Target.
- Client File Review: Following our sample selection, we undertook a suitability assessment of the client files provided. We used our suitability assessment template to undertake the reviews, which considers areas such as; quality of information in the fact-find, client objectives, knowledge and experience, attitude to risk, income and expenditure, capacity for loss, vulnerability, research and analysis, and the basis of the recommendations made as documented in the suitability reports.
- Business Walkthrough: Following the initial document and client file review, we held walkthrough sessions with key business stakeholders in both the first and second line of defence to test and validate our findings from the document reviews and better understand the day-to-day operating model of the firm. This is a critical step in the review to ensure practices meet written policy and process and provide context and rationale as to why specific processes and controls operate the way they do.
- Reporting: The output of our review was a final report outlining our findings, the regulatory risks, and required remedial action at the Target, which informed our client’s position on the acquisition and subsequently a post-acquisition action plan to mitigate the crystallisation of further risk to both regulatory compliance and customer outcomes.
Result:
Square 4 delivered a comprehensive report clearly outlining areas of attention for our client. This was a critical exercise in acquiring the Target and informing our client on the amount of work required post-acquisition to meet regulatory compliance. Following our report, our client agreed to proceed with the acquisition subject to certain conditions, including the Target supporting with some transitional activity and delivery of the post-acquisition action plan.
Testimonial:
“Hi Paul, thanks for sending over the draft report. We’ve had a chance to properly review it on our side, and we’re really impressed. Very clear and exactly what we were looking for, so thanks to you and Simon for the hard work”. CFO – Discretionary Fund Management, Wealth and Asset Management firm
