Dear CEO | Release Date: 22nd March 2022

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 directive to CEOs of firms in the custody and fund services sector, emphasising the critical role these firms play in safeguarding and overseeing assets. The letter outlines key risks that need management to protect investors and maintain market integrity. These risks include operational resilience, control of client money and assets, oversight of fund managers, and the handling of high-risk or speculative investments.

Firms are urged to discuss these risks at the board level and take necessary actions to comply with FCA regulations. Particularly, the FCA highlights concerns about the operational resilience and cybersecurity of firms, stressing the importance of robust systems to prevent and respond to disruptions. The FCA expects firms to have strong measures in place to secure and protect data and to report any significant technological failures or security breaches promptly.

Additionally, the FCA points out the need for effective oversight of client assets and clear operational roles when managing collective investment schemes. It notes that poor governance, outdated systems, and inadequate understanding of regulatory impacts during changes are common issues that firms need to address.

Firms are also reminded of their responsibilities in overseeing speculative and illiquid investments, such as mini-bonds, which are unsuitable for most retail investors and often associated with high risks and scams.

Key Take-aways:

Custody and fund service firms must rigorously evaluate and enhance their operational and cybersecurity measures, ensure strict compliance with client asset protection rules, and improve oversight mechanisms. Firms should also be wary of providing services that may lend undue legitimacy to high-risk investments. The FCA will continue to monitor compliance and take action against firms that fall short of regulatory standards.