Dear CEO | Release Date: 11th 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 outlined a supervisory strategy for Building Societies in a recent letter, emphasising the significant role these societies play within the UK’s financial sector, especially in light of challenges posed by the COVID-19 pandemic. The letter updates Building Societies on the key risks and expectations the FCA has identified based on their supervisory framework, following a previous review in December 2018.
Key areas of risk include:
Operational resilience and IT security: Building Societies need to enhance cyber controls and operational resilience to prevent data loss or service disruption.
Management of client money and assets: There’s a need for improved oversight to prevent financial losses and ensure quick recovery of assets.
Oversight of fund managers: Depositaries must ensure funds are managed in accordance with the rules and in the best interest of investors.
Handling of high-risk investments: Societies must avoid risky investments unsuitable for retail investors and ensure they don’t inadvertently lend legitimacy to such schemes.
The FCA expects societies to discuss these risks at the board level and take necessary actions to mitigate them. They are also expected to maintain robust systems to manage these risks effectively, adhering to regulations to protect clients’ and investors’ interests. Compliance with these expectations will be checked in future engagements by the FCA.
Key Take-away:
Building Societies must prioritise strengthening their operational resilience, enhance oversight mechanisms for managing client assets, and exercise cautious judgement in their investment activities to prevent risks to investors and the integrity of the financial markets. They should be prepared for further FCA reviews to ensure compliance with these expectations.