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Dear CEO/Director | Release Date: 21st January 2020

To read a longer summary of this Dear CEO/Director letter, click here.

To access the original FCA document, click here.

Short Summary

The FCA’s letter to CEOs of financial advisory firms outlines key concerns and supervisory strategies aimed at mitigating risks within the sector. With financial advisers playing a crucial role in guiding consumers through complex decisions, the FCA emphasises the importance of providing suitable advice and protecting consumer interests, especially in light of increasing responsibilities on financial choices. The letter identifies several areas where consumers may face harm, including receiving unsuitable advice, exposure to scams, failures in redress mechanisms, and being charged excessive fees.

Key focus areas for upcoming supervision include ensuring the suitability of advice, especially regarding retirement income and managing risks associated with defined benefit pension transfers. The FCA has noted that despite prior warnings and tightened regulations, some firms continue to offer questionable advice on pension transfers. This will remain an area of strict oversight, with the expectation that advisers begin with the assumption that a pension transfer is unlikely to be suitable.

The letter also addresses the need for robust management of conflicts of interest and operational controls to prevent financial crime and ensure compliance with regulatory expectations. It highlights the necessity for firms to maintain adequate financial resources and professional indemnity insurance to manage and cover potential consumer harm.

Key Take-aways and Actions:

Financial advisory firms must ensure they provide advice that is in the best interests of their clients, with particular scrutiny on pension transfer advice. Firms are expected to have strong governance frameworks to identify, manage, and disclose conflicts of interest effectively. The FCA will closely monitor firms’ compliance with these expectations and will not hesitate to act where standards are not met, emphasising the need for firms to rigorously assess and enhance their advisory and compliance frameworks to avoid potential regulatory actions.

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