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Dear CEO Letter: Wealth Management & Stockbroking Firms

Dear CEO Letter: Wealth Management & Stockbroking Firms

29th July 2019

Last week the FCA published a Dear CEO Letter that was issued to Wealth Management and Stockbroking firms on 13th June 2019.

Written from the FCA’s Director for life insurance and financial advice, Debbie Gupta, the Dear CEO Letter sets out the regulator’s view of the key risks of harm that Wealth Management and Stockbroking firms pose to their customers or the markets in which they operate.

The FCA has urged Firms to consider if their firm presents these risks and to consider suitable strategies to mitigate them.

Wealth Management & Stockbroking Firms: Main Risks to Customers

According to the FCA’s Letter, there are four key ways in which Firms in this sector poses a risk to their customers, these being:

• by having reduced levels of savings and investments due to fraud, investment  scams and inadequate client money, or assets controls;
• by losing confidence in the industry’s ability to deliver their financial objectives due to mismanagement of conflicts of interest and market abuse;
• through reduced levels of savings and investments due to order handling procedures and execution processes that do not deliver best outcomes; and
• by being unable to understand the costs of services provided by firms, due to insufficient or inaccurate disclosure of costs and charges.

Main Areas of the FCA’s Supervision Strategy:

The main areas of the FCA’s supervision strategy are:

• Best execution: Firms must endeavour to obtain the best possible result for their clients when executing client orders or passing them to other firms for execution. The FCA expects Firms to have effective day-to-day execution processes, contingent arrangements for period of market distress and clear, comprehensive and effective oversight and monitoring arrangements.
• Fraud, Investment Scams & Market Abuse: Client portfolios must be aligned and managed to the risk profile of the client. The FCA expects firms to ensure suitability and not include high risk investments inappropriately.
• Costs & Disclosures: New and revised requirements for disclosing costs were introduced by MiFID II so that clients, including Professional Clients would receive more comprehensive information about costs and charges that would help them make informed decisions about their choice or product and service. The FCA expects Firms to review the Firms’ disclosures to ensure they satisfy all relevant requirements, including for both pre and post costs and charges disclosures. Particular focus should be given to the need to disclose all transaction ad incidental costs and charges to customers, which includes implicit transaction costs and performance fees.
• Brexit: The FCA urge that where EU withdrawal may impact customer relationships (such as for customers based in the EEA), the FCA expects Firms to act in their customer’s best interests and maintain clear communications throughout. If your Firm has customers in the EEA, you must decide on your approach to servicing your existing contracts with them and the FCA provides additional support on their website for Firms Preparing for Brexit.
• SM&CR: Later in the year, the Senior Managers & Certification Regime is to be extended to all FCA Solo regulated, with the aim of reducing harm to consumers and strengthening market integrity. A new standard of personal conduct will be set by SM&CR for everyone working within Financial Services thus encouraging a positive transformation of culture within the industry. Firms should ensure they are well prepared to implement the new regime when it comes into effect on the 9th December 2019.

Support for Firms

Should your firm require any support in assessing risks or determining strategies for mitigation of those risks, we can provide practical support and assistance. Our team of regulatory and compliance professionals would be happy to discuss any requirements you might have, such as planning for SM&CR or reviewing your best execution processes and monitoring arrangements.

Just drop our friendly team an email for a no obligation discussion.

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