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Dear CEO | Release Date: 6th February 2020

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

To access the original FCA document, click here.

Long Summary

This letter is directed to firms within the ‘platforms’ portfolio and outlines the Financial Conduct Authority’s (FCA) strategic approach and supervisory priorities. As platforms increasingly become integral to the delivery of investment and retirement solutions, it is crucial that these firms align their operational frameworks with regulatory expectations, particularly in light of the Senior Managers & Certification Regime (SM&CR) extended to solo-regulated firms from 9 December 2019. The FCA’s ongoing commitment to pre-emptive supervision necessitates that firms not only comply with existing regulations but also proactively engage in risk management practices to safeguard consumer interests.

Supervisory Strategy and Regulatory Expectations

Technological and Operational Resilience

In an era where technology underpins critical financial services, platforms must ensure substantial investment in their technological infrastructure and operational processes. This investment is crucial to avoid service disruptions that can adversely affect customers and advisers. The FCA emphasises the importance of diligent planning, comprehensive testing, and execution of technology upgrades and migrations, highlighting the necessity for robust change management processes to mitigate risks associated with these activities.

Expected Actions:

Third-Party Outsourcing

Effective governance and oversight of third-party outsourcing arrangements are critical to maintaining operational resilience and ensuring service continuity. Under the SM&CR, accountability for outsourced functions remains firmly with the hiring firm, necessitating detailed and enforceable contractual arrangements and continuous oversight.

Expected Actions:

Conflicts of Interest

Conflicts of interest, if not properly managed, can lead to consumers receiving suboptimal services or products, potentially harming their financial interests. Platforms must rigorously identify potential conflicts and enforce strict controls to manage and neutralise these risks effectively.

Expected Actions:

Investment Platforms Market Study (IPMS) Compliance

Following the FCA’s IPMS final report, platforms are expected to critically assess their practices and align them with the study’s findings and recommendations. Key areas of focus include simplifying customer transfers and ensuring compliance with best execution standards.

Expected Actions:

EU Withdrawal Considerations

With the UK having left the EU and the transition period in place until 31 December 2020, platforms must meticulously plan for the post-transition regulatory landscape. This preparation is vital to ensure that platform operations remain compliant and that services to EU clients are not disrupted.

Expected Actions:

Conclusion and Next Steps

Platforms must ensure strict adherence to the FCA’s guidelines and proactively engage with the regulator to demonstrate compliance. The FCA will closely monitor platform activities, focusing on areas where non-compliance poses significant risks to consumer outcomes. Firms are encouraged to integrate these guidelines into their strategic planning and operational practices to enhance consumer protection and market integrity.

Key Takeaways and Actions for Firms

Firms are expected to take these points seriously and integrate them into their governance and operational strategies. The FCA will employ a range of supervisory tools to ensure compliance and address any deficiencies identified during its supervisory activities.

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