Anticipating FCA action
While financial crime and consumer duty dominate the narrative, the FCA has issued a reminder of broader regulatory obligations encompassing operational resilience; client money handling; market abuse prevention; environmental, social and governance considerations; and diversity, equity, and inclusion (DEI).
The ongoing DEI consultation paper seeks to introduce rules combating discrimination, bullying, and sexual harassment within the sector.
The FCA employs a data-led approach to spotlight outliers and potential trouble spots within the sector.
Supervision is more targeted, intrusive, and assertive, with a dedicated financial crime function honing in on outliers, using key indicators and data-driven decision-making models.
Firms should brace for heightened scrutiny on non-financial misconduct, spur-of-the-moment site visits, and the ramping up of supervisory tools and powers (this includes section 166 skilled person reviews, VREQs/OIREQs (voluntary asset requirement/own initiative requirement), intrusive section 165 information requests, in-person visits and a range of other tools).
The consumer duty will be wielded as a rapid response mechanism against potential or actual consumer harms, with a keen eye on addressing foundational issues such as leadership, governance, systems and controls, and conflicts of interest.
A call for collaboration
Acknowledging the sector's pivotal role and the collateral damage wrought by bad actors, the FCA has called for a collaborative ethos.
Firms are encouraged to forge alliances with the regulator to root out malpractices, safeguard consumers, elevate industry standards, and foster the prosperity of ethical firms.
Proactive communication with the FCA, particularly in response to identified issues, is deemed paramount.
Firms are reminded of their obligation to notify the regulator immediately of any issues under principle 11.
Firms that take up this collaborative approach of informing regulators of issues early should expect to be met with a more patient and collaborative regulator who can trust firms to present their own mitigation/remediation plans rather than face potential imposed actions in response.
Strategic implications
Navigating the heightened regulatory landscape outlined by the FCA holds both challenges and strategic opportunities for wealth management firms.
The imperative to fortify defences against financial crime requires a comprehensive reassessment of internal processes, leadership structures, and governance frameworks.
Firms must ensure that SMF 16/17 holders possess the requisite expertise, independence, and skills to navigate the intricacies of financial crime prevention.
On the consumer duty front, strategic considerations should encompass a thorough re-evaluation of product and service offerings.
Firms must align their portfolios with the needs, risk profiles, and circumstances of their consumers.
Transparent communication, clarity on fees, and justifications for complex or unregulated investments are crucial elements in building and maintaining consumer trust.
Firms will also want to be looking ahead towards their first annual board consumer duty report, the first of which is due in July 2024.
