Are You Ready for an Unannounced Visit from the Financial Conduct Authority?

The Financial Conduct Authority (FCA) has promised to ramp up the number of short-notice and unannounced visits to firms in its recent letter to the Wealth Management and Stockbroking sector. The hard-hitting Dear CEO letter, dated 8 November, outlined the new supervisory priorities for wealth managers, stockbrokers, and private banks, and warned of greater use of regulatory intervention if firms fail to take action.
 
The refreshed strategy will focus primarily on preventing financial crime and ensuring the Consumer Duty is effectively embedded in the sector. If called upon, firms must be able to evidence that they fully understand the level of risk they are exposed to and that they have taken steps to manage these risks as well as the root causes, particularly in relation to financial crime.
 
The FCA considers the Wealth Management and Stockbroking industry to be one of the highest-risk areas of the UK's Financial Services sector, due to the sheer level of assets under management and the risk of serious harm to consumers. The FCA has seen such firms either complicity or unknowingly lose customers' assets to frauds and scams, enable money laundering, expose consumers to inappropriately high-risk or complex investments, and provide poor value products and services. Often this has been found to be the result of "ineffective and/or conflicted leadership and governance, combined with ineffective systems and controls." Now, through a more assertive and intrusive supervisory approach, the regulator will work to reduce these harms.
 
So, is your firm prepared for a surprise visit from the FCA? To find out, answer the following questions honestly and, most importantly, consider how you can evidence your response:

1. Is your governance and leadership structure conducive to a culture of compliance?
2. Do you fully understand who your clients are, their expected transaction patterns and corporate structures, and the financial crime risks they pose?
3. Are your systems and controls robust and effective in preventing financial crime and money laundering, based on the risks you have identified?
4. Do your Senior Manager Function (SMF) 16/17 holders have the necessary experience, skills, and independence to conduct their roles effectively?
5. Have you fully understood and implemented your obligations according to the FCA's Financial Crime Guide and Thematic Reviews?
6. Can you evidence full implementation of the Consumer Duty, with meaningful changes made to drive good outcomes for consumers?
7. Do you fully understand and tailor your services to your customers' needs, considering their risk profile, circumstances, and vulnerability status?
8. Are your products and services suitable, fully understood and good value for your customers?

If you answered no to any of these questions or would struggle to provide supporting evidence, you should consider taking immediate steps to rectify gaps in your compliance framework. Failing to do so may have serious consequences for your firm when faced with an unannounced visit from the FCA or its newly dedicated financial crime function. 

At Guidehouse, the Financial Crime, Fraud & Investigative Services team has the relevant expertise to assist you in understanding your regulatory obligations, assessing your compliance framework, and implementing any necessary improvements.