Dear Chief Executive | Release Date: 8th September 2023

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

To access the original FCA document, click here.

Short Summary

The Financial Conduct Authority (FCA) has issued a significant update to chief executives of all wholesale banks operating in the UK, outlining its supervisory priorities under the new integrated regulatory structure comprising Supervision, Policy, and Competition. This restructure includes the formation of the Sell-Side Directorate, which oversees the Wholesale Banks Department alongside market intermediaries and market interaction analysis areas.

The letter details the FCA’s supervisory agenda for the next two years, aimed at guiding banks in managing ongoing market stresses and external challenges, including volatile asset prices, weak global growth, rising interest rates, inflation, and geopolitical tensions. The FCA emphasises the interconnected nature of risks and the need for effective communication and operational management to maintain firm stability and market integrity.

Key areas of focus include enhancing risk management, particularly in light of recent market shocks and poor control instances such as those observed with Archegos. The FCA stresses the importance of banks updating their stress testing processes to reflect recent market conditions and ensuring robust risk management frameworks are in place.

Operational resilience remains a priority, with an expectation for banks to manage and mitigate risks associated with reliance on third-party service providers, especially in cybersecurity. The FCA will continue to scrutinise banks’ compliance with operational resilience requirements and expects banks to promptly report any significant issues.

Additionally, the FCA highlights the necessity of maintaining high standards of control to manage conduct risks effectively. This includes financial crime, market abuse, and conflicts of interest. The FCA plans to intensify its testing and supervisory assessments to ensure banks are managing these risks adequately.

The letter also touches on the ongoing LIBOR transition, the implementation of the Consumer Duty to enhance consumer protection standards, and the role of wholesale banks in supporting environmental, social, and governance (ESG) commitments.

Key takeaways and actions:

Wholesale banks are urged to critically assess and enhance their risk management and operational resilience in line with FCA guidelines. Banks should also prepare for increased regulatory scrutiny and proactive engagement with the FCA to address any emerging risks. This includes adhering to new consumer protection standards and supporting the broader financial system’s stability and integrity. Executives should discuss the implications of this guidance with their boards and take necessary actions to align with the FCA’s expectations and regulatory framework.