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Dear CEO | Release Date: 18th April 2019

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 thematic review emphasising expectations for brokerage firms in wholesale financial markets, highlighting the risks posed to market integrity and client interests due to inadequate management of discretionary practices. The FCA notes that brokerage firms have not sufficiently kept pace with regulatory changes introduced by MIFID 2 and MAR, resulting in under-investment in necessary compliance measures and lagging behind in embedding a culture of good conduct.

The FCA’s supervisory strategy until March 2021 will address these shortcomings, with a focus on:

Compensation and Incentives: Tackling outdated remuneration models that may incentivize misconduct.

Governance and Culture: Strengthening governance frameworks to ensure effective oversight and accountability.

Operational Management: Enhancing systems to manage conflicts of interest and comply with regulatory obligations.

Risk Management: Bolstering controls to prevent market abuse and financial crime.

Brokerage firms are expected to review the FCA’s findings and assess their relevance to their operations, making necessary adjustments to align with regulatory expectations. The review also stresses the urgent need for firms to improve their governance structures and practices, particularly in managing risks associated with broker discretion and market operations.

Key Actions for Firms: Brokerage firms must critically assess and amend their practices to meet the FCA’s standards, prepare for detailed discussions with the FCA about their strategic and operational approaches, and actively engage in regulatory dialogues to demonstrate compliance and improvements. Failure to address these issues may lead to regulatory actions from the FCA, emphasising the necessity for immediate and proactive engagement in enhancing compliance and operational practices.

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