Wholesale brokers ignore Dear CEO letter at their peril

FCA has written a Dear CEO letter to wholesale brokers setting out its thoughts on the key harms the sector poses. The letter explains that MiFID 2 and MAR have significantly raised expectations on market participants and infrastructures but says FCA feels brokers have not kept pace with the legislative requirements and have not invested enough in compliance – unlike the other participants in the wholesale markets sector.

FCA plans a 2 year supervisory strategy that will focus on

  • compensation and incentives – to end the “eat what you kill” culture;
  • governance arrangements and culture – to ensure firms have strong boards;
  • capacity (in terms of different services and activities performed within a firm) and conflicts – FCA continues to be particularly concerned about PFOF;
  • market abuse and financial crime prevention controls. FCA is concerned that firms are complacent about the risks, despite the wholesale broking business model posing an inherently high risk of market abuse;
  • technology – in particular resilience to cyber-crime; and
  • the effects of Brexit.

FCA urges firms now to consider the issues the letter raises and take steps to mitigate any issues. It will be contacting large and small brokers over the next couple of years to explore the issues.

Emma Radmore