Dear CEO – 2020

It is only February but the FCA has been very busy writing a series of ‘Dear CEO’ letters.

Below we summarise and comment on each of the letters and would suggest that each of the letters has content of relevance to ALL firms and so it will be of benefit to review them all.

The Financial Adviser one
On 21 January this letter was issued to adviser firms. We are aware that not all adviser firms have received the adviser letter. It is not clear why but the content is relevant to all firms so we recommend that firms do read the letter even if not received driectly to date.

The focus of the letter was:

  • Suitability of advice and disclosure
    Following adverse findings in previous thematic reviews, the FCA has confirmed that there will be yet another suitability review this year. And firms’ compliance with the costs and charges disclosure rules will also be looked at;
  • Pension transfer advice
    In particular, the regulator remains seriously concerned about the suitability of transfer advice. Firms involved in this market are under close scrutiny. There is no sign that this scrutiny will end anytime soon;
  • Pension and investment scams
    Scams are often closely linked with transfer advice and firms are reminded of the part they can play in protecting consumers from harm;
  • Financial resources and PI cover
    This is an increasing concern for the FCA. They have found many firms with insufficient financial resources and PI cover that falls short of what is required under the rules. Many firms are finding PI costs increasing at an alarming rate or indeed are struggling to obtain cover at all. ATEB is aware that the FCA is definitely focused on this whole area as absence of sufficient resources and PI cover are an obvious risk to consumers. Firms must notify the FCA in the event of capital or PI shortfalls;
  • SM&CR
    A reminder;
  • EU withdrawal
    No surprises that the regulator wishes to ensure that firms are prepared for whatever impact EU withdrawal might have.

GI Firms
This was the first of the letters and was issued on 6 January to wholesale General Insurance firms about non-financial misconduct. We wrote about this recently, see here. It is not clear why the letter was only sent to GI firms as it seems to us that the content is relevant to all firms.

Asset Managers
On 20 January, Asset Managers were the target of a letter describing the FCA’s concerns and priorities on a number of topics including:

  • Liquidity management
    No doubt spurred by the Woodford Fund debacle;
  • Corporate governance
    Building on the extension of SM&CR in December 2019 and referring to new rules, for example requiring firms to undertake regular ‘value’ assessments on each fund ;
  • Product governance
    The PROD rules introduced under MiFIDII are a continued focus, with the aim of ensuring that products are designed with suitability for particular types of investor in mind;
  • Cessation of LIBOR
    LIBOR is being phased out following the discovery of market manipulation by participants;
  • Operational resilience
    There have been several examples of high profile firms caught out by hackers or malware and the FCA is keen to minimise the potential for consumer harm;
  • EU withdrawal
    As above.

Most recently, on 6 February, Platform Operators received their letter. The focus of this letter was:

  • Technology and operational resilience
    In addition to the concerns around resilience described under Asset Managers above, the FCA also flagged potential issues arising from insufficient investment or resources to maintain and upgrade platform functionality and data security. Special mention is made of the need to ensure that software upgrades are planned robustly. Over the past couple of years, virtually every platform upgrade or migration has run into severe difficulties;
  • Third party outsourcing
    Citing inadequate governance and oversight and unclear contractual agreements;
  • Conflicts of interest
    In particular, the need for platforms to offer fund lists based on objective criteria rather than on, for example, the size of discount on offer;
  • Rule requirements
    Platform Operators are reminded of the new rules intended to simplify transfer between platforms, and the need to have robust best execution processes. The difficult topic of aggregated costs disclosure was also mentioned. Many firms, including platforms are not getting this right and the FCA is closely monitoring this aspect;
  • EU withdrawal
    As above.

Important Note: ATEB news is intended to provide general information ONLY. The content, including any views expressed or guidance provided, does not replace the need to comply fully with FCA Rules and Guidance. Unless you have discussed news article content with ATEB, and specifically how it relates to your circumstances, then ATEB disclaims all liability and responsibility and actions arising from any reliance placed upon it. For the avoidance of doubt therefore, any reliance you place on such information without our consultation is at your own risk.

ATEB Compliance offers compliance and regulatory advice.

ATEB Suitability provides report writing software for the financial services market.

Our View

Looking at each of the Dear CEO letters, it is clear that there is nothing new in any of the letters so they should be taken as a sort of new year resolution, with the only difference being that the messages contained in each of the letters are serious and will not be discarded before February is out, as is typical for many new year resolutions.

We are aware that not all adviser firms have received the adviser letter. It is not clear why. Nonetheless, all firms will benefit from an honest self-appraisal of how they stand in relation to the issues indicated in the letters.

Suitability review 2020
Meantime, we are aware that the FCA has already followed through on its stated intention to undertake yet another suitability review. Many firms will have received a letter in the last few weeks, requesting data on clients receiving income in retirement, specifically:

– the advice given;

– how the client was receiving income;

– what ongoing advice was being provided;

– what fees were charged.

The data relates to clients for whom advice on retirement income has been provided in the past two years.

We believe that the deadline for reply was 13 February.

Based on the data requested, including as it relates to fees charged, we suspect that the FCA will use the data to assess the potential harm caused by ongoing adviser charges and the use of over-complex solutions. This is entirely consistent with the concerns raised in CP19/25 and the letters sent to firms providing DB Pension Transfer advice. COBS rules require firms to take account of cost and complexity when making personal recommendations. 

Action Required By You

  • Take time to scan through all the letters as there is something in each of them that is relevant to other audiences;
  • Take time to really consider if you are on top of the issues that are on the FCA’s radar – if not take appropriate remedial action;
  • Contact your usual ATEB Consultant for additional assistance and guidance, or contact ATEB here.
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About the Author

Technical Manager - Often referred to as the Oracle or the Sage, Alistair has a wealth of financial services experience. He is our go-to Technical Manager and enjoys nothing more than a complicated conundrum. Feel free to test his renowned knowledge by getting in touch.

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