Dear CEO | Release Date: 26th July 2021
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 a continuation and update of the Financial Conduct Authority’s (FCA) supervisory strategy for platforms as outlined in our initial Platforms Portfolio Strategy Letter dated 6 February 2020. The ongoing relevance of identified areas of potential harm necessitates a sustained focus, particularly in the context of the evolving challenges brought about by the COVID-19 pandemic. This document provides an in-depth update on our supervisory focus, articulates our current concerns, specifies regulatory expectations, and outlines our plans for future supervisory activities aimed at mitigating risks effectively.
Enhancing Technology and Operational Resilience
Current Concerns
The pandemic-induced volatility and surge in retail investor activity have spotlighted the crucial need for robust technological infrastructure and operational resilience across financial platforms. Notably, the significant IT outages and operational disruptions that occurred on 9 November 2020 exemplified the kind of severe but plausible scenarios that can result in considerable consumer harm and erode confidence in the market.
FCA Expectations for Technological Investments
We mandate that all platform service providers must proactively invest in and enhance their IT systems to ensure these systems are capable of handling increased loads and are fit for purpose. This includes conducting rigorous testing and analysis of all IT upgrades and migrations to pre-empt and mitigate risks associated with system outages.
Contingency Planning
Firms are required to establish and maintain effective contingency plans to manage operational disruptions. These plans must be tested regularly to ensure efficacy and should be robust enough to handle unexpected operational stress.
Regulatory Guidance on Operational Resilience
Firms are expected to comply with the FCA’s Policy Statement PS21/3, which provides comprehensive rules and guidance on building operational resilience, effective from 31 March 2022. This includes identifying critical business services, setting impact tolerances, and mapping the resources that support these services. Firms should also be prepared to produce a detailed self-assessment that demonstrates their compliance with these requirements, available to the FCA upon request.
SUP 15 Notification Requirements
Incident Reporting
We emphasise the requirement for firms to report any material service degradation or operational disruptions that meet the criteria outlined in SUP 15. Historically, compliance with these reporting requirements has been inconsistent, and we expect firms to improve their reporting practices immediately.
Monitoring Transfer Times and the STAR Initiative
Ongoing Monitoring and Review
We support the ongoing improvements facilitated by the STAR initiative regarding transfer times. We will continue to monitor these metrics closely and focus on firms that significantly deviate from performance standards. A detailed review of the progress made will be conducted in 2022, which may lead to further regulatory actions if necessary.
Adjustments Post-Brexit
Regulatory Updates
Following the end of the EU withdrawal transition period on 31 December 2020, we expect all firms to have assessed and adapted to the regulatory changes necessitated by Brexit. This includes updates to the FCA Handbook and compliance with the temporary transitional power (TTP), concluding on 31 March 2022.
Promoting Diversity and Inclusion
The Role of Diversity in Corporate Culture
We view diversity and inclusion as essential elements of a healthy corporate culture and effective governance. These aspects contribute to diversity of thought, foster innovation, and unlock potential across organisations. We engage with financial services firms to discuss ways to accelerate meaningful changes in diversity and inclusion practices and encourage firms to participate actively in our ongoing discussions as outlined in Discussion Paper 21/2.
Forward-Looking Engagement
Focus Areas
Our future engagements with your firm will specifically address the areas outlined above among other emerging issues that may pose potential harm. Regular updates will be provided to ensure firms are fully aware of new developments and regulatory expectations.
Conclusion
This detailed update serves as a directive for firms to critically assess and enhance their operational, technological, and governance frameworks in alignment with the specified FCA expectations. We will continue to monitor, review, and intervene where necessary to ensure that consumer interests are protected and market integrity is maintained.
Firms are urged to take proactive steps based on the detailed guidance provided in this letter, ensuring that they are well-prepared to meet the challenges of a dynamic financial landscape and maintain high standards of consumer protection and operational excellence.