Dear CEO: FCA’s new warning

‘Our supervision will become more targeted, intrusive and assertive’ is what the FCA has to say to Wealth Managers and Stockbroker firms in its latest “Dear CEO” letter dated 8 November 2023.

The FCA has called for firms to pay attention to all of their regulatory obligations, such as those concerning financial crime and Consumer Duty, as well as focusing on products and services and consumer understanding, and price and value. The letter is aimed at wealth management and stockbroking firms, highlighting the FCA’s assessment of the sector’s key harms and its updated supervisory priorities to prevent financial crime and meeting Consumer Duty outcomes.

The letter acknowledges that the sector is experiencing a time of significant regulatory change, but that the scale of consumers in the sector is substantial, making it one of the higher risk sectors of financial services firms in England and Wales.

The FCA covers its expectations in relation to several areas, and here are a few of its points:

  • Products and services and consumer understanding – the need to avoid discrediting the industry as a whole where highly profitable firms can be loss-making for consumers themselves. Amongst the FCA’s expectations is for firms to ensure products and services remain aligned to consumers’ needs, risk profile and circumstances, and to reassess the vulnerability status of consumers.
  • Price and value – the FCA has seen firms charging for services which are not delivered, overtrading on portfolios to generate high transaction fees, and providing a product or service which does not align with the needs of consumers. The FCA expects firms to regularly assess the overall cost and value for money of their products and services, and make changes when poor value is identified.
  • Consumer Duty – the FCA wants firms to familiarise themselves with all aspects of Consumer Duty, including for consumer support, making Consumer Duty part of the day-to-day workings of the firm and making this a key focus.
  • Financial crime – the FCA highlights that it expects firms to (i) not knowingly or otherwise engage in or facilitate frauds, scams or money laundering, (ii) understand the financial crime risks to which the firm is exposed, (iii) ensure robust and effective systems and controls are in place for countering financial crime and money laundering, (iv) ensure that SMF16/17 role-holders have the requisite skills, experience and independence, (v) appropriately report any wrongdoing and (vi) fully implement the requirements of the Finance Crime Guide and the Financial Crime Thematic Reviews.

The FCA stresses that those highlighted in the letter are not the only key priority harms, and that firms need to remind themselves of all regulatory obligations. They are going to identify outliers and problem firms which cause the greatest harm in the sector, and they have said that their supervision will become more targeted, intrusive and assertive.

In summary, we recommend that wealth management and stockbroking firms urgently review and reinforce their compliance frameworks including regarding financial crime and  Consumer Duty. Failure to satisfy FCA regulations in these areas could pose significant legal, financial and reputational hazards.

If you would like to discuss more about the latest Dear CEO letter, please contact us to speak to a member of our Commercial Team.

Mark Chapman
Partner, Commercial
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This reflects the law and market position at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought in relation to a specific matter.

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