What can Wealth Managers do to stay off the FCA’s naughty list?


Rob Sargent

Rob Sargent

Financial Services Regulatory Senior Manager


In early December, the FCA played Scrooge to Wealth Management and Stockbroking firms in the form of its Dear CEO letter. It left no-one in doubt about some of the frustrations that the FCA has about the sector, and that it is planning to really dial up its proactive and invasive supervisory action on these firms. Hardly the Christmas present firms were hoping for.

Just as interesting is how the FCA is advertising for jobs in Wealth Management Supervision. The first line of an Associate Supervisor job advert is:

“Say goodbye to financial crime, frauds, scams, and the chaos at wealth management and stockbroking firms. Be part of the team that puts consumer interests their priority.” 

Once again, the FCA is not leaving much to the imagination. Calling out “chaos” at these firms is again clearly signalling its intent, and potentially encouraging existing and new colleagues, to – in their own words – intrusively and assertively supervise these firms.

But what does this all really mean?

As senior leaders within this sector, you are going to have to be able to explain your position – possibly with little or no notice – on how you are:

  • Identifying and treating vulnerable customers;
  • Demonstrating positive customer comprehension;
  • Pricing your products and passing fees onto customers;
  • Managing financial crime risks; and
  • How your business model, culture and governance framework generally, is set up to operate embracing the spirit of Consumer Duty.

Diving into some of the detail, the FCA showed its clear and obvious frustration – and not just with a small portion of the sector – when referencing the “49% of portfolio managers and 69% of stockbrokers from the wealth data survey who identified no vulnerable customers, even though 50% of us will be classified as vulnerable over our lifetime”.

Are you comfortable that you have identified – and continue to identify – your vulnerable customers, how do you then treat them, and can you evidence this? We know that the FCA has been clear that there are a huge number of reasons and circumstances such as financial, emotional, health related and more, that can cause temporary or permanent vulnerability, and the FCA clearly expects firms to track, manage and monitor this more proactively.

The FCA’s view is clearly that these two statistics cannot correlate. The FCA has stated its intention to be more data-driven, and this is a clear example. Moreover, it has been very clear about how firms need to be more proactive and broader in their consideration and identification of vulnerability. This is a clear indication that Firms need to move past collecting and considering singular metrics on customers, and effectively mapping these together to generate meaningful intelligence on customers that can help deliver positive outcomes.

Are you collecting and analysing enough information to meet your obligations to regulators and your customers? Do you know why a customer is wanting to crystalise their investment and have you explained and checked that the customer understands the potential repercussions of this?

The specificity that the FCA went into – on numerous occasions – was particularly notable. Identifying overtrading, uprating customers, and drawing it back to the wealth data survey demonstrates that the FCA has clearly got a clear action plan in place for its supervisory approach for the sector. And just as clearly, it shows that it expects firms to move beyond data and metrics, and effectively identify opportunities to intervene to prevent potential harm. This includes instances of overtrading, and identifying particularly high-risk customers, especially when these customers are interacting with high-risk products. Firms must be mindful that customer comprehension varies significantly depending on the customer and product.

You’ve written your list… better check it twice!

Again, the FCA was clear in its letter that it is upping the ante with its “targeted, intrusive and assertive” supervision, and “has already started a major drive with short notice and unannounced visits.” And, over time, this will move past being focused on Financial Crime, and will likely be short notice broader supervisory visits.

Firms – and their senior leaders – will need to act quickly and proactively to be ready for any potential information requests or visits from the FCA. Failure to be prepared could be significant.

Ultimately, this boils down to the FCA not yet having adequate trust in Wealth Managers and Stockbrokers to do the right thing, without meaningful intervention. The FCA has recently spoken about trust between Firms and consumers (which Ewen Fleming spoke about last week), but just as important is that the FCA has signalled that it is willing to act if it does not trust its regulated firms to do the right thing for their customers.

Get in touch

Our team of former regulators, consultants and executives can help you get ready for these visits. We can run mock supervisory interviews, review your current policies and procedures, and provide independent assurance that your operations are effective, and you are acting in the spirit of Consumer Duty. Please do contact Ewen Fleming, Darren Mascarenhas or myself to find out more.


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