FCA Expectations For Wealth Management And Stockbroking
Update
On the 8th November 2023, the FCA issued a ‘Dear CEO’ letter, intended for firms that typically manage portfolios, provide retail focused stockbroking services, operate as a private bank, or provide outsourced services to wealth managers. The purpose of the letter was to set out the FCA’s assessment of the sector’s key harms, as well as provide their updated supervisory priorities. These priorities being preventing financial crime and meeting Consumer Duty outcomes.
Leadership teams of firms who received this letter are expected to fully understand the level of exposure their firm has to the risks and harms set out within the letter. Significant time is expected to be invested to manage and resolve these harms. The FCA are clear in that their supervision is shifting to become more assertive, intrusive, proactive and data driven, and have begun conducting more short-notice and unannounced visits where deemed appropriate.
Financial Crime expectations
The FCA expects firms to:
- Not knowingly or otherwise engage in or facilitate frauds, scams, or money laundering
- Understand the firm’s financial crime risks by identifying who their clients are
- Not carry out tick box compliance exercises or outsource responsibility to third-parties
- Ensure robust and effective systems and controls are in place to counter financial crime and money laundering
- Ensure the SMF16/17 holders have the required experience, skills, and independence
- Share and report information about wrongdoing
- Read and fully implement the FCA’s Financial Crime Guide.
Consumer Duty expectations
By now, firms should have implemented the Consumer Duty in full. However, the FCA have seen many wealth managers and stockbrokers showing failings in the following areas:
- Products & Services and Consumer Understanding
- Price and Value
The FCA expects firms to:
- Have a clear focus of the needs and objectives of their target market
- Ensure products and services remain aligned to their consumers’ needs, risk profile and circumstances
- Reassess the vulnerability status of consumers based on FCA guidance (particularly if they currently have zero identified vulnerable customers)
- Ensure consumers fully understand all aspects of your investment products and services
- Only uprate consumers from retail to professional if it is supported by robust systems and controls
- Fully justify any complex and/or unregulated investments they offer
- Ensure consumers understand any limitations to the Financial Ombudsman/FSCS consumer protection status
- Regularly assess the overall cost and value for money of products and services
- Make changes when poor value is identified