“Action Required” for wealth managers and stockbroking firms

In November, FCA sent a Dear CEO letter to firms in its wealth management and stockbroking portfolio. Firms in this sector should consider the letter carefully and ensure it is discussed at Board level (and evidence those discussions). Even firms who are not in the wealth management and stockbroking sectors should read the letter, as the points made by FCA have wider relevance.  

In the letter, FCA confirm its updated supervisory priorities in this sector are: preventing financial crime and meeting Consumer Duty outcomes.

The letter also includes a helpful visual aid which summarises the key points and should be, in our view, a mandatory agenda point for firms next Board meeting. One thing we would highlight in particular is reference to “short-notice and unannounced visits” as a supervisory tool FCA are using more and more, particularly for financial crime.

We often hear comments such as “the FCA don’t just turn up at your doorstep, do they?”, and for many firms, that has been true. However, FCA say it’s supervision is shifting to become “more assertive, intrusive, proactive and data driven” making the borrowed phrase “it could be you” more relevant than perhaps ever before.  

But when we say the letter should be discussed at a Board meeting, what should this discussion look like?  

We suggest that each section of the letter is considered, and questions are asked with honest answers provided. Below, we have listed some examples of questions that could be considered, to get the ball rolling. “We don’t know” is an honest answer, but it should trigger follow-up action to find out. If there are acknowledgements of gaps or failings, plans for remedial action should be planned and followed up by the Board (with defined actions, owners and timescales) with appropriate resource provided.

No firm is perfect, and if you sit back and claim you are, well, you are probably wrong. And you don’t want to find that out during or following a FCA visit.

FCA Dear CEO Letter for Wealth Managers and Stockbrokers: Key Questions to Ask

• Do we have all relevant policies and procedures in place? Are these up to date? For example, our firm-wide risk assessment.

• How sure are we that our controls and monitoring are effective? What MI do we currently have (or other evidence) to support this?

• Could our products be considered 'high risk' (hint: if it's not a UCITS or equivalent, probably)? Have we catered for this as part of our Consumer Duty project?

• Has our Consumer Duty project been effective? For example:

  • Do we have a list of vulnerable customers?

  • Do we have robust systems and controls for “uprating” retail customers to professional?

  • Have we considered price and value? Is this documented?

• Do we have a Conflicts of Interest Policy? Do we have a Conflicts of Interest Register (which is filled in and up to date) and considers, for example, all outside business interests and all revenue flows/remuneration.

• Have we genuinely, and recently, considered staff competency?

  • Does this include the competency at senior levels (Directors/Partners) and on compliance/financial crime topics?

  • Do we have a detailed assessment with evidence backing up our judgements of competency?

  • Are there areas of weakness which should be considered (do key individuals have a learning and development plan)?

  • Do we have tailored training for staff relevant for their needs/roles? When did we last deliver training?

• When was our wind-down plan and business continuity arrangements last reviewed?

• Are our CASS systems and controls effective?

• Are there effective controls to foster a good compliance culture?

If you need help determining what action you should take in response to the letter, please get in touch.