On 21 January 2020, the FCA published a Dear CEO letter to financial advisers setting out its approach to tackling key areas of concern and summarising the actions expected of financial advice firms to undertake:
- assessing suitability of advice and disclosure review. The FCA will be conducting a second assessing suitability review focusing on initial and ongoing advice to consumers on taking an income in retirement. Firms need to ensure that advice provided is suitable, costs and charges are disclosed early and that they act in the best interests of clients. Conflicts of interest must be identified and where they cannot be prevented, disclosed and managed;
- defined benefit (DB) pension transfer advice. The FCA is concerned that DB pension transfer advice is not at an acceptable standard, especially advice recommending consumers transfer out of their DB pensions schemes, despite those transfers being unsuitable for most clients. The FCA plans to publish finalised Handbook rules and guidance in Q1 2020 regarding proposed changes to charging models. The FCA expects firms to start from the assumption that a pension transfer is not likely to be suitable for a client;
- pension and investment scams. The FCA has identified key areas of risk where: authorised firms have received introductions from introducers or lead generators; authorised firms delegate regulated activities; principal firms have inadequate oversight of their appointed representatives; authorised firms fail to undertake adequate due diligence on products and services they recommend; and investments are recommended that contain non-standard assets, complex structures and high charges. Firms need to be aware of the current risks and ensure advice processes and systems are robust enough to avoid them;
- adequate financial resources and professional indemnity insurance (PII). Financial advisers must meet the financial resources requirements set out in Chapter 3 of the FCA’s Interim Prudential sourcebook for investment businesses. This includes a requirement to maintain compliant PII. Firms must maintain a valid PII for past and current business and must not be subject to conditions or exclusions that unreasonably limit its cover;
- speculative mini-bonds. In November 2019, the FCA announced temporary product intervention measures for 12 months from 1 January 2020 to address risks of consumer harm from the promotion of speculative mini-bonds to retail investors. For further information, see our previous blog. Firms should consider whether the steps they have taken in approving financial promotions in the past are sufficient to ensure they have satisfied the FCA’s requirements. The FCA request firms to inform them of the approval of any financial promotions of unauthorised persons in the last 12 months by emailing Section21Approval@fca.org.uk;
- senior managers and certification regime. The FCA expects firm’s senior managers to have a clear understanding of their roles and responsibilities and that staff, including senior managers and certified staff, have the appropriate skills and capabilities needed to deliver good customer outcomes. The FCA reminds principal firms that they will remain fully responsible for ensuring appointed representatives and networks comply with FCA rules, including the approved persons regime; and
- Brexit. Firms are expected to consider how the end of the implementation period will affect them and their customers and what action is required to be ready for 1 January 2021.
In terms of next steps, the FCA expects firms to consider and discuss the Dear CEO Letter at a board level and agree what further action they should take. The FCA also expects principal firms to share the letter with their appointed representatives.