UK Conduct Regulator Publishes Dear CEO Letter on its Wealth Management and Stockbroking Supervision Strategy

The U.K. Financial Conduct Authority has published a "Dear CEO" letter addressed to wealth management and stockbroking firms, identifying the key areas of focus for its two-year Wealth Management and Stockbroking supervision strategy. In the letter, the FCA identifies the four key types of harm for customers in this sector as: (i) reductions in savings and investments due to fraud, investment scams and inadequate client money or assets controls; (ii) loss of confidence in the industry due to mismanagement of conflicts of interest and market abuse; (iii) reductions in savings and investments due to substandard order handling procedures and execution processes; and (iv) inability to understand the costs of services provided by firms as a result of insufficient or inaccurate disclosure.

To address these areas of potential harm, the FCA sets out the key focus areas of its supervision strategy as:
 

• Fraud, investment scams and market abuse – the letter emphasizes that client portfolios must be aligned to the risk profile of the client; the FCA intends to prioritize identification of non-compliant firms and to take appropriate action where necessary;
• Best execution – firms must try to obtain the best possible result for their client when executing client orders; weaknesses have been identified in execution processes, in particular with trade execution systems such as the Retail Service Provider; in the letter, the FCA requests that firms consider whether their best-execution arrangements are aligned with the FCA's expectations; the letter states that the FCA may consider supervision work in this area;
• Costs and charges disclosures - the FCA has examined firms' ex-ante costs and charges disclosures in light of the new MiFID II costs disclosure requirements; it found that firms were interpreting the disclosure rules in different ways and were better at disclosing their own costs than those of relevant third-parties; the FCA expects that firms review their disclosures to ensure they are compliant with MiFID II requirements and states that it may conduct further assessments of firms' costs disclosures;
• Senior Managers and Certification Regime - the letter highlights the requirements of the new SM&CR, which comes into effect from December 9, 2019, and notifies firms that the FCA may assess the submissions firms make under the SM&CR following its implementation; and
• EU Withdrawal - firms are expected to act in their customers' best interests in situations where EU withdrawal may impact customer relationships; the letter advises that firms must prepare for how they will service EEA customers following EU withdrawal.

The letter also emphasizes the FCA's continuing focus on improving the process by which consumers who use investment platforms can find and switch to a more appropriate platform.

View the FCA's Dear CEO Letter.

You may like to view our article, "The UK's Expanded Senior Managers and Certification Regime: Key Issues and Action Plan for Brokers, Advisers and Asset Managers".

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