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Dear CEO | Release Date: 23rd July 2019

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

To access the original FCA document, click here.

Short Summary

The FCA’s letter to CEOs of Wealth Management and Stockbroking firms outlines the key risks these firms might pose to their customers and the markets. The supervision strategy, covering a two-year period starting April 2019, aims to identify, diagnose, and mitigate potential harms. The letter identifies four primary risks to customers: potential financial losses due to fraud and scams; loss of confidence due to mismanagement of conflicts of interest and market abuse; diminished savings from suboptimal order handling and execution processes; and the risk of customers not understanding the costs due to poor disclosure practices.

The FCA’s focus areas include addressing fraud, investment scams, and market abuse, where trust is paramount but has been compromised by firms previously. Ensuring best execution in trading and transparent disclosure of costs and charges are also central to the FCA’s regulatory oversight. The agency stresses the importance of firms maintaining robust internal controls and clear, fair communications to prevent misleading customers.

Firms are encouraged to report any suspicious activities to the FCA’s whistleblowing team to help identify and act against wrongdoing. The FCA expects firms to review their practices, particularly in how remuneration policies might drive unhealthy cultures within the firms, and to engage actively in creating inclusive, diverse workplaces that reflect broader societal values.

Key Take-Aways and Actions:

Wealth Management and Stockbroking firms should rigorously assess and align their internal practices to prevent risks that can harm customers or undermine market integrity. Firms must ensure they manage their clients’ portfolios in accordance with the clients’ risk profiles and avoid inappropriate high-risk investments. The FCA highlights the necessity for firms to actively participate in identifying potential scams and encourages ongoing vigilance and improvement in governance, particularly in how firms handle conflicts of interest, execute orders, and disclose costs. Firms failing to meet these expectations may face regulatory actions.

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