On 8 November 2023, the Financial Conduct Authority (FCA) sent a letter to all wealth management and stockbroking firms, setting out the key harms to the sector and updated supervisory priorities.
The FCA views these sectors as high risk and as such is committed to a supervisory approach that is now more targeted, intrusive, and assertive. The FCA highlights that it is imperative for wealth management and stockbroking firms to ensure they are meeting FCA expectations immediately and that it is of critical priority.
What are the FCA's expectations for wealth managers & stockbroking firms?
1. Financial crime expectations
The FCA identified the wealth management and stockbroking sectors as particularly susceptible to financial crime, stressing a zero-tolerance stance towards any involvement in money laundering, fraud, or scams. Firms are required to diligently understand their financial crime risks, implement effective, risk-tailored controls, and ensure competent oversight by Senior Management Functions. Any suspicions of criminal activity must be reported immediately, and firms should adhere to the guidance provided in the FCA's Financial Crime Guide and Thematic Reviews.
2. Consumer duty expectations
The FCA is demanding a cultural shift that places Consumer Duty at the core of business operations. The regulator has reiterated that embedding the Consumer Duty into the day-to-day culture and running of your firm must remain a key priority.
The regulator also noted its concern that many customers are being promoted products that are too complex for them to understand and offer low value. Firms must ensure that their products are aligned to consumer's needs, risk profile and circumstances, and fully justify any complex and/or unregulated investments with a clear view of the suitability or appropriateness for the consumer. The FCA stated that firms should reassess the vulnerability status of their customers based on the regulator's vulnerability guidance which notes that 49% of portfolio managers indicated they had no vulnerable customers against a regulatory expectation that 50% of us will be classified as vulnerable over our lifetime1.
The regulator demands that firms must regularly assess their products and services for fair value and promptly rectify any instances of poor value. Where it suspects that fair value is not being provided it will challenge firms to justify their charges.
How can Newgate Compliance help with the FCA's Financial Crime & consumer duty expectations?
Financial crime
Newgate Compliance's financial crime consulting team can advise on and help mitigate all matters relating to your firm's financial crime risk. This includes a thorough review of your current risk-based approach to financial crime mitigation including a framework review, assistance on customer due diligence and monitoring, compliance training, updates to policies and procedures and assisting on your MLRO report to the governing body and reporting to national agencies where required. Newgate's web-based compliance tool, the Gateway hosts a dedicated module for clients to provide a solution for risk-based onboarding and monitoring of client relationships, including overnight screening.
Consumer duty
The Consumer Duty has been in force for over three months and firms now need to focus on demonstrating how they are achieving good outcomes for consumers. Newgate can assist firms with a gap analysis of their current approach and support in preparation for product reviews and the annual compliance report, including the assessment of management information against the outcomes.
Other FCA priorities were also highlighted in the letter but overall, the FCA's message is clear: they expect proactive and demonstrable compliance, and anything less will not suffice. Boards are required to consider the implications of this letter and identify how the issues raised will directly impact your firm's practices.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
