An Introduction To And Current Issues Facing Investment Platforms

The platform sector has grown rapidly over recent years and is likely to continue this form. The FCA has intense focus on ensuring that the very highest of standards apply in an environment where consumers can invest with confidence, understand the risks they face and are clear about the availability of regulatory protections if things go wrong

The "platform" is a simple concept. It is a tool to provide access to investment products through an online portal. The platform sector has grown rapidly over recent years and is likely to continue this form. Online services play an increasingly central role in the provision of investment and retirement services to consumers. Recent data from the FCA suggests that the platforms hold over £800bn of investment assets for over 8mn customers¹.

The hot topics prevalent in this area of financial services will come as no surprise. The FCA has intense focus on ensuring that the very highest of standards apply in an environment where consumers can invest with confidence, understand the risks they face and are clear about the availability of regulatory protections if things go wrong.

The FCA currently has sharp focus on good governance. Platform providers will not escape the FCA's gaze and should expect to be able to demonstrate clear lines of accountability within senior management, a clear understanding of roles and responsibilities, and a sound understanding of the firm's exposure to risk. Those who are accountable under SM&CR will be expected to form a governing body that provides a firm with appropriate and sufficiently diverse expertise, effective and robust oversight, and a healthy and strong workplace culture.

Other key considerations for firms include:

• Implementation of the Consumer Duty which delivers clear and strengthened standards of consumer protection across the industry requiring firms to deliver good outcomes for retail customers. The FCA will expect to see platform firms fully engaged with the Duty on a substantive level, that it has been implemented and embedded across the business, that fees and charges represent fair value and are appropriately disclosed, that customers are holding suitable investments that meet their needs and are adequately informed of risks, and that platform transfer times are reasonable and in line with market norms.
• The FCA will expect to see evidence of adequate investment in business continuity including in technology and operations so that downtime and outages, which could risk harm to consumers and impact negatively on market confidence, are minimal. Firms should consider their third-party providers, particularly any that are critical to the business, making sure that there is contractual clarity, good governance, clear oversight, and good risk management around these to safeguard operational resilience and minimise the potential for disruption to clients. IT upgrades and maintenance should be planned, timed and tested so as to cause minimum disruption to customers and any fixes should be resolved quickly where required. To achieve these ends platforms firms must ensure they are sufficiently invested in IT to keep pace with growth, with demand for services and provide suitable contingency plans for when things go wrong. Firms must be able to react quickly and effectively to disruption.
• Firms should offer robust protection to customer data and assets in an environment where the threat of cyber-attacks and financial crime is ever increasing. The FCA will expect to see clear responsibility for reporting incidents such as cyber-attacks and cyber-crime supported by robust systems and controls to protect customers including: adequate investment in operational infrastructure including: preventative and detective controls, and appropriate systems and controls to mitigate harms.

• The FCA will expect firms to demonstrate an awareness of the current and ever-changing economic environment including interest rates and the cost of living. Firms will need to consider how these factors might impact on the outcomes that their customers derive from their services and adapt accordingly.

The general theme is clear, customers should receive good outcomes, good value for money and products and services that are suitable for their needs. To meet the required standard, platform providers will need to be fully engaged with the substantive components of the consumer duty. A high-level approach will not be sufficient to meet the expectations of the FCA.

However, platform providers need to be aware of all the regulatory hot topics as they will be subject to scrutiny in the same way as the traditional financial services firms. For instance, platforms are no less likely to be in the spotlight on retention of accrued interest on customer cash balances than a high street bank, especially in the current economic circumstances.

The FCA's recent portfolio letter evidences its vigour in these areas and platforms firms should take note that the FCA will be continuing to sample firms through 2023 into 2024 to assess systems and controls, ensure that transfer times improve across the industry and that consumers receive good outcomes.

This article was written by KerryBerchem.

Footnote

1 Our platforms supervision strategy: portfolio letter (fca.org.uk)

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.