On 7 October 2024, the Financial Conduct Authority (FCA) wrote a Dear CEO letter to financial advisers and investment intermediaries. The Letter provides an outline of the FCA’s priorities and expectations for these firms. Over the next two years, the FCA’s priorities are to:
- reduce and prevent serious harm;
- monitor and test higher industry standards under the Consumer Duty; and
- enable more consumers to pursue their financial objectives through the Advice Guidance Boundary review.
This article summarises the key messages within the Letter and provides next steps for firms to take in light of the planned upcoming supervision of the sector.
Retirement Income Advice
The Regulator highlighted the impact caused by poor advice given to consumers approaching or in retirement. The FCA expects that firms in this sector should use the findings of their March 2024 thematic review to evaluate and update their current advice models. The findings outline good and poor practices. In particular, some poor practices included inconsistent risk profiling and incorrect suitability processes. In the Dear CEO Letter, the FCA confirmed that they will be following up on the findings of the thematic review with firms and carrying out further work to explore the scale of any issues identified and tackle any harms found.
Ongoing Advice Services
The FCA has concerns that firms may not be adequately considering the relevance and costs of these services for all clients and that some clients are being charged for services that are not delivered. Firms must ensure that the service offered is appropriate for their clients’ circumstances, providing fair value and delivered within the terms of the agreement. Earlier this year, the FCA wrote to firms requesting information about their delivery of ongoing advice. The findings of this information request will be published this year.
Redress Liabilities
Significant liabilities have fallen to the Financial Services Compensation Scheme (FSCS) where firms who have created liabilities were unable to pay them. The FCA has reiterated the importance of holding adequate financial resources to meet potential redress liabilities. In particular, the regulator has highlighted instances of firms selling their business or client bank in order to avoid redress liabilities. Where firms are unable to meet their liabilities and accountable individuals seek to move to another firm, this will negatively impact their fitness and propriety to hold a role that requires FCA approval.
Consolidation
Increasing acquisition of firms or their assets can cause various types of harm, when not done in a prudent manner with effective controls to promote good outcomes. Firms must undertake adequate due diligence of the selling firm or client bank and always hold adequate financial resources. Where acquisitions are funded by debt, firms should have a credible plan to service the debt. The FCA confirmed plans to undertake multi-firm work to review consolidation within the market.
What Next?
Financial advisers and investment intermediaries should ensure that they review the Dear CEO Letter in full and implement the changes necessary in anticipation of the upcoming planned supervisory work the FCA has confirmed it will undertake on the sectors. Moving forward, firms will have no excuse to still fall foul of poor practices highlighted in previous working groups.
How Complyport can help:
- Helping you to deliver on the FCA’s standards for good consumer outcomes.
- Implementing the Consumer Duty rules to ensure firm-wide compliance.
- Ensuring that robust financial crime prevention is in place.
- Establishing solid anti-market abuse mechanisms and controls.
- Identifying specific risks relevant to the client and assessing mitigation.
- Creating of a firm-wide regulatory risk framework that aligns with the relevant client’s business model and risk appetite.
- Establishing solid operational resilience.
- Delivering training in person or virtually to staff and senior management to satisfy the FCA’s training requirements.
- Authorising and assessing of Senior Management roles, certified to provide retail financial services.
- Ongoing advisory services for ad-hoc questions or queries that may arise in the natural course of business.
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