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Dear Chief Executive | Release Date: 5th February 2021

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

To access the original FCA document, click here.

Long Summary

The Financial Conduct Authority (FCA) has issued a comprehensive strategy letter to Chief Executives of retail banks, emphasising the pivotal role these institutions play amidst the ongoing challenges brought on by the COVID-19 pandemic. This document outlines the supervisory strategy, pinpointing key areas of potential harm, expectations for mitigating these risks, and the proactive measures that retail banks must undertake over the next two years. The purpose is to ensure that retail banks continue to operate in a manner that safeguards the interests of consumers, particularly the most vulnerable, while also maintaining the resilience and integrity of the financial system.

Introduction to the Supervisory Strategy

Amidst the economic and social upheaval caused by the COVID-19 pandemic, retail banks have demonstrated resilience and adaptability. However, the landscape remains fraught with challenges that could potentially exacerbate risks for consumers and the banks themselves. This letter serves to guide retail banks through anticipated difficulties, reinforcing the necessity for a customer-focused approach and robust internal cultures aimed at mitigating risks effectively.

Objective of the Letter

The FCA utilises a portfolio-based supervisory approach, grouping firms with similar business models to streamline and tailor regulatory guidance. This letter specifically addresses retail banks, highlighting the broad spectrum of activities and services they offer, particularly focusing on their retail deposit-taking and regulated lending activities.

Detailed Overview of Risks and Supervisory Focus Areas

Priority Area 1: Fair Treatment of Borrowers


The pandemic may lead to heightened financial and operational pressures, potentially resulting in poor lending practices and inadequate support for borrowers facing financial difficulties.

FCA Expectations:

Banks are expected to ensure robust governance and oversight, maintaining transparency in lending practices and providing effective support as outlined in the FCA’s guidance for borrowers affected by the pandemic.

Priority Area 2: Governance and Oversight During Business Changes


Expected economic hardships may prompt significant changes in business models, which could compromise customer outcomes if not managed prudently.

FCA Expectations:

Banks should maintain stringent governance and oversight mechanisms to manage risks associated with significant business transformations, ensuring fair treatment of customers, especially the vulnerable.

Priority Area 3: Ensuring Operational Resilience


The rapid adoption of digital banking solutions and changes in operational practices might strain systems, increasing the risk of disruptions and service outages.

FCA Expectations:

Retail banks must effectively manage operational risks, ensuring systems are resilient against disruptions and that customer communications are clear during outages.

Priority Area 4: Minimising Financial Crime


The banking sector remains highly susceptible to financial crimes such as money laundering, exacerbated by the pandemic’s economic impact.

FCA Expectations:

Banks are required to strengthen their financial crime defences, ensuring systems are capable of detecting, preventing, and reporting criminal activities effectively.

Conclusion and Actionable Guidance

Strategic Imperatives for Retail Banks:

This letter is a call to action for retail banks to fortify their practices and ensure they continue to serve the needs of their customers while navigating the complex landscape post-COVID-19. It underscores the importance of strategic foresight, robust governance, and a steadfast commitment to consumer protection and operational integrity.

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