Dear CEO | Release Date: 28th September 2023

To read a longer summary of this Dear CEO letter, click here.

To access the original FCA document, click here.

Short Summary

The Financial Conduct Authority (FCA) has issued a comprehensive supervisory strategy letter directed at Chief Executives of Corporate Finance Firms (CFFs), part of a portfolio of approximately 500 firms. These firms are involved in advising corporate clients on fundraising and strategic transactions and often deal with institutional investors. Given the diversity in the services CFFs provide, the FCA’s supervisory approach is tailored to address specific risks and ensure firms comply with regulatory standards.

The FCA identifies critical areas of potential harm related to the activities of CFFs, which include market abuse and the risk of selling unsuitable products to consumers. These harms are particularly pertinent due to the roles CFFs play in capital raising for listed and unlisted companies, which can expose investors to high-risk investments and market manipulations.

Key aspects of the FCA’s supervisory strategy include:

Client Categorisation: Ensuring CFFs adhere strictly to client categorisation norms to protect investor interests and uphold market integrity. The FCA plans targeted reviews to verify compliance with these categorisations.

Market Abuse: The strategy emphasises the prevention of market abuse through effective controls and compliance with the UK Market Abuse Regulation (UK MAR). The FCA will focus on firms’ systems and controls against market abuse, including insider dealing and conflict of interest management.

Financial Crime and Financial Resilience: The letter stresses the importance of robust financial crime due diligence and maintaining financial resilience, particularly for firms that handle significant client assets or are key liquidity providers.

The Consumer Duty: Firms are reminded of their obligations under the newly enforced Consumer Duty, which requires them to prioritise consumer needs and ensure the suitability of products offered to retail clients.

The FCA expresses its intention to use its supervisory and enforcement powers actively to address any deficiencies or misconduct by CFFs. The letter mandates that CFFs review and adjust their practices accordingly and engage with the FCA to clarify any aspects of the supervision strategy or to discuss urgent strategic issues.

In summary, the key takeaways for CFFs are to rigorously manage client categorisation and product suitability, enhance controls against market abuse, and fully integrate the Consumer Duty into their operations. CFFs are expected to align their business practices with these regulatory expectations to prevent consumer harm and contribute positively to market integrity.