In December 2022, the FCA issued a portfolio strategy letter to the CEOs of financial advisers and intermediaries.
Following the FCA’s previous strategy letter issued in January 2020, this new letter provides an update of the regulator’s view of the key harms in this sector, its expectations of firms and a summary of the work it intends to do.
A separate communication will be sent by the FCA in the coming months explaining further the impact that the FCA’s Consumer Duty will have on financial adviser and intermediary firms and providing some examples of how the Consumer Duty outcomes will apply to firms in practice.
Advice
The FCA expresses the view that firms should be considering the potential causes of unsuitable advice and ensure they are taking necessary steps to appropriately manage or avoid the risks. Firms may consider a regular review of a sample of client files to check the quality of advice provided; external file reviews can be a useful tool for firms when considering the quality of advice that consumers received.
Firms active in providing pension transfer advice should ensure they are aware of the FCA webpage providing important information complementing the rules and guidance on defined benefit pension transfers. This includes the Defined Benefit Advice Assessment Tool (DBAAT) to assist firms in assessing the suitability of personal recommendations.
Retirement income advice will be a focus for the FCA over the next two years as it seeks to explore how firms are delivering this and whether consumers are getting suitable advice.
In addition to taking steps to maintain the quality of advice and services provided, firms should ensure they have sufficient financial protection against unsuitable advice claims. Professional indemnity insurance may provide some protection, but firms must also ensure they hold sufficient eligible capital resources to meet excesses and exclusions on the policy. The FCA handbook sets out specific minimum capital requirements. However, the FCA expects firms to assess their risks in totality and hold sufficient financial resources to cover those risks and potential liabilities, which will often be above the minimum requirements.
As highlighted in its consumer investment strategy, the FCA has continued its work to review the prudential regime for non-MIFID investment advisers and it plans to set out further details on this next year. In the meantime, through ongoing analysis of the financial data it collects from firms, it will continue to engage with individual firms that do not appear to have adequate financial resources and/or have increasing potential liabilities.
The implementation of the FCA’s Consumer Duty will be monitored across all regulated firms. The FCA may undertake further cross-firm work to explore this at a sector level and develop interventions if necessary. This may include an assessment of whether consumers are paying for ongoing services that do not meet their needs, are not delivered according to the terms of the agreement or are too costly when assessed against the content and quality.
CEOs are responsible for ensuring that their firms meet FCA requirements, and they should take all necessary actions to ensure these are met. The FCA has stated that it will use the Senior Managers and Certification Regime to engage directly with accountable individuals in firms in areas of concern.
If you’d like to know more about how we can help you with your advice (including DB pension transfer advice), capital adequacy or Consumer Duty arrangements, or any other regulatory compliance issues, our specialist team is here to help.
Contact us today on 0207 436 0630 or email info@thistleinitiatives.co.uk.