FCA Portfolio letter- wholesale brokers

FCA has written a portfolio letter to the wholesale broking sector. The letter notes that although generally brokers do not aim to take market risk in their core activities, there have been significant periods of sustained volatility since its last letter, such that the financial, credit and operational risks have heightened. FCA is concerned that the liquidity risk management and stress testing of some firms has not been fit for the current environment.

Alongside this, it has found gradual improvement in inherent conduct risks, but with exceptions. Generally, wholesale brokers are behind other types of firm in stopping poor conduct and improving culture.  FCA gives as an example its recent study that found that not many wholesale brokers turn away clients on the basis of money laundering risk, and also that brokers often seem willing to hire individuals who have not shown good standards of conduct at previous firms.

Going forwards, FCA will focus on:

  • financial resilience;
  • remuneration structures;
  • governance and culture; and
  • control functions.

It expects all sector CEOs to have discussed the content of its letter with their boards and senior managers and to have agreed appropriate next steps.

Emma Radmore