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Increased FCA activity

Steve Bailey, director ATEB Consulting, summarises and comments on the recent CEO letters sent out by the Regulator, which have relevance to all firms, he says.

It is only February but the FCA has been very busy writing a series of ‘Dear CEO’ letters.

I would suggest that each of the letters has content of relevance to ALL firms and so it will be of benefit to review them all.

The Financial Adviser one

On 21 January this letter was issued to adviser firms. We are aware that not all adviser firms have received the adviser letter. It is not clear why but the content is relevant to all firms so we recommend that firms do read the letter even if not received driectly to date.

The focus of the letter was:

• Suitability of advice and disclosure

Following adverse findings in previous thematic reviews, the FCA has confirmed that there will be yet another suitability review this year. And firms’ compliance with the costs and charges disclosure rules will also be looked at;

• Pension transfer advice

In particular, the regulator remains seriously concerned about the suitability of transfer advice. Firms involved in this market are under close scrutiny. There is no sign that this scrutiny will end anytime soon;

• Pension and investment scams

Scams are often closely linked with transfer advice and firms are reminded of the part they can play in protecting consumers from harm;

• Financial resources and PI cover

This is an increasing concern for the FCA. They have found many firms with insufficient financial resources and PI cover that falls short of what is required under the rules. Many firms are finding PI costs increasing at an alarming rate or indeed are struggling to obtain cover at all. ATEB is aware that the FCA is definitely focused on this whole area as absence of sufficient resources and PI cover are an obvious risk to consumers. Firms must notify the FCA in the event of capital or PI shortfalls;


A reminder;

• EU withdrawal

No surprises that the regulator wishes to ensure that firms are prepared for whatever impact EU withdrawal might have.

GI Firms

This was the first of the letters and was issued on 6 January to wholesale General Insurance firms about non-financial misconduct. We wrote about this recently, see here. It is not clear why the letter was only sent to GI firms as it seems to us that the content is relevant to all firms.

Asset Managers

On 20 January, Asset Managers were the target of a letter describing the FCA’s concerns and priorities on a number of topics including:

• Liquidity management

No doubt spurred by the Woodford Fund debacle;

• Corporate governance

Building on the extension of SM&CR in December 2019 and referring to new rules, for example requiring firms to undertake regular ‘value’ assessments on each fund ;

• Product governance

The PROD rules introduced under MiFIDII are a continued focus, with the aim of ensuring that products are designed with suitability for particular types of investor in mind;

• Cessation of LIBOR

LIBOR is being phased out following the discovery of market manipulation by participants;

• Operational resilience

There have been several examples of high profile firms caught out by hackers or malware and the FCA is keen to minimise the potential for consumer harm;

• EU withdrawal

As above.


Most recently, on 6 February, Platform Operators received their letter. The focus of this letter was:

• Technology and operational resilience

In addition to the concerns around resilience described under Asset Managers above, the FCA also flagged potential issues arising from insufficient investment or resources to maintain and upgrade platform functionality and data security. Special mention is made of the need to ensure that software upgrades are planned robustly. Over the past couple of years, virtually every platform upgrade or migration has run into severe difficulties;

• Third party outsourcing

Citing inadequate governance and oversight and unclear contractual agreements;

• Conflicts of interest

In particular, the need for platforms to offer fund lists based on objective criteria rather than on, for example, the size of discount on offer;

• Rule requirements

Platform Operators are reminded of the new rules intended to simplify transfer between platforms, and the need to have robust best execution processes. The difficult topic of aggregated costs disclosure was also mentioned. Many firms, including platforms are not getting this right and the FCA is closely monitoring this aspect;

• EU withdrawal

As above.

Our View

Looking at each of the Dear CEO letters, it is clear that there is nothing new in any of the letters so they should be taken as a sort of new year resolution, with the only difference being that the messages contained in each of the letters are serious and will not be discarded before February is out, as is typical for many new year resolutions.

We are aware that not all adviser firms have received the adviser letter. It is not clear why. Nonetheless, all firms will benefit from an honest self-appraisal of how they stand in relation to the issues indicated in the letters.

Recommended Action 

Take time to scan through all the letters as there is something in each of them that is relevant to other audiences;

Take time to really consider if you are on top of the issues that are on the FCA’s radar – if not take appropriate remedial action.

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