On 8 November 2023, the FCA published a Dear CEO letter setting out its expectations for wealth management and stockbroking firms.

The letter describes the FCA’s assessment of this sector’s key harms and its updated supervisory priorities, i.e. preventing financial crime and meeting Consumer Duty outcomes.

Financial crime expectations

The FCA flags that it has seen firms “launder the assets of illegitimate clients through greed or incompetence and others squander or even steal the assets of legitimate clients through frauds and scams”, and warns of the damaging impacts that both of these aspects of financial crime can have.

In response, the FCA expects firms to:

  • Not knowingly or otherwise engage or facilitate frauds, scams, or money laundering.
  • Understand their financial crime risks by identifying who their clients are, including their expected transaction patterns and corporate structure.
  • Not carry out tick box compliance exercises or outsource responsibility to third parties.
  • Ensure they have robust and effective systems and controls to counter financial crime and money laundering in a proportionate and risk-based way.
  • Ensure their SMF 16/17 holders have the required experience, skills, and independence.
  • Share and report information about wrongdoing with the FCA or relevant law enforcement agencies immediately.
  • Read and fully implement the FCA’s Financial Crime Guide: A Firm’s Guide to Countering Financial Crime risks and Financial Crime Thematic Reviews, which outline the steps firms must take to defend against financial crime.

Consumer Duty expectations

The FCA also notes that it has seen many wealth managers and stockbrokers failing to meet their obligations under the Consumer Duty to provide a service that delivers good consumer outcomes.

In response, the FCA expects firms to:

  • Have a clear focus on the needs and objectives of their target market.
  • Ensure their products and services remain aligned to their consumer’s needs, risk profile and circumstances.
  • Reassess the vulnerability status of their consumers based on the FCA’s guidance, particularly the 49% of portfolio managers and 69% of stockbrokers from the wealth data survey who identified no vulnerable consumers, even though 50% of people will be classified as vulnerable over their lifetime.
  • Ensure their consumers fully understand all aspects of their investment products and services, and that the firm does not exploit limited understanding.
  • Not uprate consumers from retail to professional unless this is supported by robust systems and controls, given the loss of protections.
  • Fully justify any complex and/or unregulated investments the firm offers, with a clear view of the suitability or appropriateness for the consumer.
  • Ensure consumers understand any limitations to the Financial Ombudsman Service /Financial Services Compensation Scheme consumer protection status and associated risks of investments.

The letter concludes by advising that the FCA’s supervision will become more targeted, intrusive and assertive. For example, its new, dedicated financial crime function for consumer investments will focus solely on identifying firms with key fraud, scams or money laundering indicators. The FCA will also increase engagement with firms on non-financial misconduct, with anecdotal evidence supported by recent cases reported to the FCA and public negative press articles.

The FCA highlights that it has already started a major drive with short notice and unannounced visits, particularly for financial crime, and it is increasing the use of its supervisory tools and powers. It plans to use the Consumer Duty to intervene quickly against potential or actual consumers harms, on an individual or multi firm level.