The Financial Conduct Authority (FCA) recognises the significant role of wealth managers and stockbrokers in assisting consumers to manage and safeguard their assets. However, the sector has also seen significant issues, such as consumer exposure to scams, fraud, and inappropriate high-risk investments. The FCA’s letter addresses these issues and outlines expectations for firms.
Key Harms and Supervisory Priorities
The FCA identifies two key harms in the sector: financial crime and failure to meet Consumer Duty outcomes. The scale of consumers in the sector, with 1.8 million portfolios and 14.3 million stockbroking accounts, underscores the importance of addressing these harms.
Financial Crime Expectations
Financial crime is a major concern in this sector, with instances of money laundering and other fraudulent activities. The FCA expects firms to:
Avoid engaging in or facilitating frauds, scams, or money laundering.
Understand financial crime risks, including client transaction patterns and corporate structures.
Avoid box-ticking exercises or outsourcing responsibility.
Implement robust and effective systems to counter financial crime.
Ensure SMF 16/17 holders are experienced and independent.
Share and report information about wrongdoing immediately.
Implement guidelines from the Financial Crime Guide (FCG) and Financial Crime Thematic Reviews (FCTR).
Consumer Duty Expectations
Firms must fully implement the Consumer Duty, prioritising consumer needs. Failings have been observed in:
Products & Services and Consumer Understanding: Firms have been promoting high-risk or complex products unsuitable for most consumers. The FCA expects firms to focus on the needs and objectives of their target market, ensure alignment with consumer needs, reassess vulnerability status, and not exploit limited consumer understanding.
Price and Value: There are concerns about firms charging for undelivered services, overtrading, and misaligned product offerings. Firms must regularly assess overall cost and value for money and make changes when poor value is identified.
Wider Expectations
Beyond these key harms, firms should be aware of all regulatory obligations, including operational resilience, Clients Asset Sourcebook (CASS) rules, market abuse prevention, Environmental, Social, and Governance (ESG) considerations, diversity, equity, and inclusion (DEI), and non-financial misconduct.
FCA Supervisory Changes
The FCA’s supervision is becoming more assertive, intrusive, proactive, and data-driven. This includes more short-notice and unannounced visits, increased use of formal intervention powers, and a dedicated financial crime function for consumer investments. Firms can expect targeted engagement based on a data-led approach to identify outliers and problem firms.
Communication with the FCA
Firms are expected to proactively inform the FCA if remedial action is taken or harm is identified. Regular communication with the FCA supervisor is encouraged, and firms should notify the regulator immediately under Principle 11 for any relevant issues.
Conclusion
This letter from the FCA emphasises the importance of wealth management and stockbroking firms in maintaining trust with consumers and adhering to regulatory requirements. The FCA aims to work collaboratively with firms to reduce harms, improve standards, and enhance the sector’s reputation.
