You may have heard the FCA released another Dear CEO letter last month.

If you’re not a wealth manager or stockbroker, you’d be forgiven for letting it pass you by. This would be a mistake, however. You really should take another look.

In our opinion, almost everything the regulator highlighted in the November 8 letter translates directly to the general advice sector and if you’re an IFA, you should definitely take note of the key learnings, which were:

  1. The FCA is going to be much more focused on the prevention of financial crime.
  2. Tick box compliance is no longer deemed sufficient or acceptable.
  3. Your SMF16/17 must have independence and autonomy.

The purpose of the letter

Yes, the headline said ‘FCA EXPECTATIONS FOR WEALTH MANAGEMENT AND STOCKBROKING FIRMS’ and we suspect after reading that, most of you outside those disciplines switched off.

The regulator believes the levels of assets under management, combined with the seriousness of the harms that have come to light, makes these sectors some of the highest risk in its jurisdiction, hence focusing its advice on them. But, when you look beyond the specifics, much of the recommendations in the letter relate to meeting Consumer Duty outcomes that impact everyone.

In a nutshell, the FCA expects leadership teams to fully understand the risk and harm to which they expose clients and invest significant time and resources to manage them. This includes resolving the route causes of harm.

A crackdown on compliance

It may sound obvious, but firms are not expected to engage in financial crime (knowingly or otherwise) including fraud, scams or money laundering.

Any self-respecting adviser will no doubt be horrified that it should even be necessary for the regulator to issue edicts about this, but it claims to have evidence of firms laundering the assets of illegitimate clients and squandering, or even stealing, those of unsuspecting consumers.

One of the ways you are expected to prevent criminal behaviour is to eliminate tick box compliance exercises and the outsourcing of responsibility to third parties. These are practises that have long been deemed acceptable – and even promoted – by the major providers dominating our sector, but hopefully, we are now at a turning point.

B-Compliant is built on the concept of tailored compliance services, as we’ve always believed the ‘one size fits all’ approach does not work, particularly for SMEs. We’re pleased to see the FCA now reinforcing our message by insisting firms have ‘robust and effective systems and controls to counter financial crime and money laundering in a proportionate and risk-based way.’

The letter also highlights that you are expected to ensure your SMF 16/17 officer has the required experience, skills and independence. This means, the employee in question must not be overridden by the board and must have the autonomy to make decisions that are right for the firm, in line with the regulations.

The FCA prefers SMF 16/17s to be a director or equivalent senior member of your firm, but this isn’t always the case. Whatever their job role, you must allow them to report directly to the board and make sure their opinions are given appropriate consideration.

Price and value

The FCA is not a price regulator, but as the Dear CEO letter demonstrates, it is prepared to force the issue of fair value, as set out in the Consumer Duty regulations. It believes firms are still charging for services they don’t deliver and not providing clear disclosures on fees.

Basically, if you say you’re going to do something for clients, you must do it – and evidence that it has taken place. You must justify your fees and make sure your service is easy to understand.

If you fall under the Consumer Duty legislation, you must ask yourself if your service and charges are in line with the rest of the sector, how your clients perceive value and if they think your offering is fair.

The FCA has made it clear it will challenge firms to justify high fees and to consider the value of their products and services. It believes too many are not including all revenue streams, across all aspects of the value chain.

Reviewing your pricing structure is not going to be a one-off thing. You will need to assess the value you offer regularly and make changes when required. If you don’t, the FCA’s intentions are clear – it is increasing the use of its supervisory powers, including formal intervention, and will crackdown on firms who pose consumer harm.

We are expecting the regulator to hold a thematic review of value assessments at some point and it will be interesting to see what it turns up. It also indicated in its letter that a survey will be held next month to find out more about the risks posed by firms’ business models.

For now, it is essential you familiarise yourself with all aspects of Consumer Duty and that they are embedded in your systems and processes. If you would like assistance or more guidance on meeting the FCA’s expectations, don’t hesitate to contact us on (0161) 521 8641 or email:

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