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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 updated its supervisory strategy for Chief Executive Officers of firms within its Platforms portfolio, which manages over £800 billion in investment assets for 8.2 million customers. This portfolio includes platform services that provide access to various funds and shares for advisers and consumers, emphasising the crucial role these platforms play in the retail investment value chain.

Key Concerns and Expectations

The FCA has identified several areas of concern:

Fee Transparency and Fair Value: There is a lack of clarity around platform fees, complicating consumers’ ability to assess service value. The FCA stresses the importance of fair value assessments, especially under the new Consumer Duty requirements.

Operational Resilience: Platforms need robust systems to protect against data loss from cyber-attacks and ensure continuity during IT upgrades or outages.

Due Diligence and Non-Standard Assets (NSAs): Inadequate due diligence on NSAs could expose consumers to unsuitable high-risk investments.

Emerging Risks: Issues like ‘gamification’ in online trading apps may encourage risky trading behaviors. Platforms must maintain controls to protect consumers.

Regulatory Developments

The FCA references the Consumer Duty Policy Statement (PS22/9) and Finalised Guidance (FG22/5), mandating higher standards of consumer protection. Platforms are expected to implement these duties, focusing on governance and risk management.

Supervisory Actions

The FCA will actively supervise the implementation of Consumer Duty, focusing on fair value and transparency in fees and charges. It will monitor platforms’ handling of NSAs and operational resilience, particularly their ability to manage IT risks and cyber threats.

Expectations Moving Forward

Platforms must continuously review and improve fee structures and operational processes to align with the Consumer Duty, protecting consumer interests effectively. This includes ensuring transparent fee disclosures and maintaining sufficient financial and operational resilience.

Next Steps

Firms must demonstrate how they have incorporated the FCA’s guidance into their operational and strategic planning. The FCA will use the Senior Managers & Certification Regime to hold individuals accountable for any shortcomings in addressing these issues.

In summary, platform firms must enhance consumer protection practices, particularly around fee transparency, operational security, and product suitability. They must rigorously implement the Consumer Duty requirements, ensuring their services act in the best interests of customers, aligning with broader FCA regulations aimed at maintaining market integrity and protecting consumer outcomes.

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