FCA portfolio letter to wealth managers and stockbrokers

FCA has published its Dear CEO letter to wealth management and stockbroker firms setting out its supervisory priorities and expectations for the sector. The letter focuses on financial crime prevention and Consumer Duty compliance. FCA is concerned that, among the benefits the sector can provide, firms within it have also:

• been responsible for significant customer losses to scams and fraud;
• enabled money laundering;
• exposed consumers to inappropriate high risk investments; and
• provided consumers with poor value products and services.

The number of consumers in the sector and the values of their assets makes this a higher risk sector for FCA.

As a result, the letter stresses to the CEOs that they are responsible for their firms’ activities, and that while FCA’s supervision will remain holistic, it will pay particular attention to the financial crime and Consumer Duty risks. It is concerned that it has seen many wealth managers and stockbrokers failing to deliver good consumer outcomes. It reminds firms that it is conducting more short notice and unannounced visits and increasing use of its formal intervention powers. It gives as examples of particular concern:

• firms taking advantage of their established relationships with clients to obscure the risks of unsuitable portfolios;
• promotion of products that are too complex for execution-only customers to understand;
• failing properly to assess vulnerability within a firm’s client base;
• charging for services that are not delivered or overcharging to generate high transaction fees;
• inconsistent disclosures of fee or charging structures;
• failure to pass on fair interest from client balances or to reward customers fairly when they are exposed to risk.

FCA has analysed the results of a data survey on the sector which resulted in action against several firms, and will send a further, more tailored, survey, to the sector in December. It will use the results to inform its more targeted, intrusive and assertive supervisory style, including paying particular attention to outliers.