In the dynamic realm of financial services, wealth management firms find themselves navigating an ever-evolving landscape shaped by the regulatory imperatives laid down by the Financial Conduct Authority.
A recent communication from the FCA (a 'Dear CEO' letter dated November 8 2023, titled "FCA expectations for wealth management & stockbroking firms") outlines the expectations for firms operating in this sector, placing a spotlight on the imperative to fortify defences against financial crime and uphold the tenets of the consumer duty.
In this CPD article we will delve into the facets outlined by the FCA and unravel the challenges and opportunities that lie ahead for wealth management entities seeking not only to comply, but to excel in this shifting regulatory landscape.
Decoding the FCA's concerns
Against the backdrop of a sector managing a staggering 1.8mn portfolios and 14.3mn stockbroking accounts, the FCA's recent communication emphasises two critical areas of concern: financial crime and consumer duty outcomes.
The sheer magnitude of this industry highlights the urgency for prompt and thorough addressing of these concerns.
Acknowledging the inherent risks of financial crime within the wealth management (and stockbroking) sector, the FCA calls for proactive measures.
These encompass client identification, implementation of robust systems and controls, and prompt reporting of any transgressions.
The letter underscores the pivotal role of leadership and governance, emphasising the need for seasoned, skilled, and independent senior management function 16/17 holders.
At RSM UK, we have seen a significant increase in the number of firms seeking our support with their financial crime prevention controls following direct engagement from the FCA.
Several firms have already received in-person onsite visits and detailed Section 165 requests. The recent political pressures surrounding fair treatment of politically exposed persons and account de-risking closures have also resulted in a number of regulatory responses.
A common theme that seems to arise is in a firm’s approach to knowing your customer and onboarding, whereby they are being asked to enhance the quality of information obtained from onboarded clients.
This includes the source of wealth and funds, applying more scrutiny and being more curious where gaps or question marks arise, and ultimately not just carrying out tick-box exercises but rather challenging where appropriate.
Another theme is having protections and education in place to better support customers who are at risk of falling for scams.
This is very much focused on the educational communications and having appropriate approval controls in place.
Financial crime is not a topic that will ever truly go away as criminals are forever looking for ways to exploit and use the financial system.
The regulator is looking for firms to embed a culture where the management of financial crime prevention and securing strong protections for consumers is a standing topic of discussion and challenged at the highest levels of the company through to the operational front lines.
Focus on consumer duty
The consumer duty puts the responsibility on firms to prioritise consumer needs and outcomes, and align products and services with their requirements.
