Wealth manager Rathbones has announced that it is halting investments by high-risk clients for a year, sparking a 16% slump in its shares on Tuesday. The move comes after an internal review revealed failings in the firm's risk management processes.
According to Rathbones' statement, the decision to suspend high-risk investments will remain in place for 12 months, pending further review and improvement of the company's controls. This decision is seen as a direct result of ongoing regulatory scrutiny of wealth managers and their ability to manage risk effectively.
The UK's Financial Conduct Authority (FCA) has been increasing pressure on wealth managers to improve their risk management practices and protect consumers from potential losses. Rathbones' move is likely to be seen as a response to this growing concern, with shares in the company falling sharply in reaction to the announcement.
Rathbones operates one of the largest wealth management businesses in the UK, managing over £40 billion in assets on behalf of its clients. The firm's high-risk investment restrictions will affect thousands of customers who have been classified as high-risk due to their investment profiles or creditworthiness.
The impact of this decision is likely to be felt across the industry, with other wealth managers potentially following suit if they are deemed to be underperforming in terms of risk management. The FTSE 100 index was down by 0.5% at midday on Tuesday, with Rathbones being one of the biggest contributors to the decline.
Regulatory experts have stated that this development highlights the increasing importance of effective risk management for wealth managers and underscores the need for greater transparency in their operations. While Rathbones has maintained that it will continue to work closely with regulators to improve its practices, the firm's decision is seen as a necessary step to restore consumer trust in the industry.