How Should Financial Advisers Conduct Due Diligence on Platform Technology Providers?
Quick Answer
The FCA expects you to understand the technology risks of your platform providers. Learn how to conduct proper due diligence on platform technology.
Detailed Answer
This article is for informational purposes only and does not constitute financial or legal advice. You should consult with a qualified professional before making any decisions about your choice of platform.
How Should Financial Advisers Conduct Due Diligence on Platform Technology Providers?
The FCA has fired a cannonball across the bows of the platform technology industry. The recent enforcement actions against major players like FNZ and SEI are not just a warning to them; they are a wake-up call for every financial adviser in the UK. The message is clear: the technology that underpins your client’s investments is a systemic risk, and you have a duty to understand it.
For too long, financial advisers have treated platform technology as a black box. You choose a platform based on its user interface, its fund range, and its price. You do not, as a rule, look under the bonnet at the engine that powers it. That approach is no longer tenable.
When a platform technology provider fails, it is your clients who suffer. They can be locked out of their accounts, unable to trade, and exposed to financial loss. And when they ask you why you put them on that platform, “I didn’t know the technology was risky” will not be an acceptable answer.
The FCA’s New Proactive Stance
The FCA’s patience has, in their own words, “worn thin.” The regulator is now taking a far more proactive and interventionist approach to technology risk in the platform sector. The use of Section 166 “skilled person” reviews and the imposition of business restrictions on major providers is a clear signal that the FCA will not tolerate firms that pose a systemic risk to the market.
This has profound implications for your due diligence process. You can no longer simply rely on the platform’s marketing materials and their assurances that everything is fine. You need to conduct your own, more rigorous due diligence on the technology providers that sit behind the platforms you use.
A Framework for Technology Due Diligence
Your due diligence process needs to be elevated to a new level of scrutiny. It needs to be a critical assessment of the technology provider’s operational resilience, their governance, and their financial stability. Here are the key questions you should be asking:
| Due Diligence Area | Key Questions to Ask Your Platform Provider |
|---|---|
| 1. Technology & Operational Resilience | Who is your underlying technology provider? Have they been subject to any FCA restrictions or a Section 166 review? What is their plan for managing technology outages and ensuring operational resilience, in line with PS21/3? What are their service level agreements (SLAs) for uptime and issue resolution? |
| 2. Concentration Risk | How much of the UK platform market is reliant on this single technology provider? What is your firm’s contingency plan if this provider were to fail or be subject to long-term business restrictions? Are you diversifying your platform recommendations to mitigate this concentration risk? |
| 3. Governance & Accountability | Who on the platform’s board is the Senior Manager responsible for technology and operational resilience? What is their experience and expertise? How does the platform’s board oversee the risks posed by its technology provider? |
| 4. Security & Data Protection | What are the technology provider’s information security credentials? Have they had any significant data breaches? How do they protect your clients’ data from cyber-attacks and fraud? |
| 5. Exit & Transition | How easy is it for you to move your clients’ assets to another platform if you lose confidence in your current provider? What are the transfer times, and what is the process for an in-specie transfer? The FCA has stated that it should be “at least as easy to exit a product as to enter.” |
The Bottom Line: You Are the First Line of Defence
The FCA is doing its job by supervising the big technology providers. But you are the first line of defence for your clients. You are the one who is making the recommendation to place their life savings on a particular platform.
This means you have a professional and regulatory duty to understand the risks of that platform, and that includes the risks of the technology that powers it.
The days of treating platform technology as a black box are over. You need to start asking the tough questions, you need to document your due diligence, and you need to be prepared to move your clients if you are not satisfied with the answers.
Your clients’ financial wellbeing, and your own professional standing, depend on it.
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