Practical solutions to support wealth management and stockbroking firms to meet FCA expectations

No more 'tick-box' compliance

The Dear CEO letter, issued on the 8th November 2023, landed just seven days after Nisha Arora, Director of Cross Cutting Policy and Strategy at the FCA, delivered a speech reiterating that firms must do more to demonstrate clear transitions away from ‘tick-box’, ‘once-and-done’, approaches to compliance. Once again, we find this idiom being restated as being central to the FCA’s core expectation for all firms.

The Dear CEO letter highlights key areas and work which the FCA expects firms to have completed, and issues a direct warning to CEOs and leadership teams with regards to the intensifying consequences that could result where serious misconduct is identified.

CEOs and their leadership teams are reminded that they need to 'fully understand the level of exposure their firm has to the risks and harms set out in this letter', with the FCA stating that firms will need to ‘invest significant time and energy (and if necessary, capital) to manage them’.

‘Resolving the root cause of these harms’ is also critical to satisfying FCA expectations, as the regulator asserts that, ‘in [their] experience, they often arise from ineffective and/or conflicted leadership and governance, combined with ineffective systems and controls’.

Financial crime and Consumer Duty top the billing

Financial crime and the Consumer Duty, of course, top the regulatory agenda – with the FCA also calling for more robust focus and approaches on several areas including: CASS, diversity and inclusion, and operational resilience.

Whilst the key messages outlined in the letter are relatively simple, demonstrating adherence to them – specifically in relation to financial crime and Consumer Duty – will be challenging for firms if they do not address the holistic cultural elements underpinning these key supervisory priorities – alongside the specific employee dependencies – to deliver against expectations.

The FCA is rapidly moving to a more data-driven approach to supervision, and firms can expect to see more ad-hoc information requests on key topics. In relation to Consumer Duty, for example, the FCA have openly stated that it is now an integral part of their approach and mindset at every stage of the regulatory lifecycle – including authorisations, policy development, supervision, and enforcement. Firms can – and should – expect it to be a golden thread that runs through all of your conversations with the regulator.

Be prepared to be tested

You also need to be prepared to be tested in the coming months. In December 2023, the FCA have stated that firms can expect to receive a data survey which will be tailored to risks posed by your firm’s business model. They have also stated they will continue their work across all sectors to test firms’ implementation and embedding of Consumer Duty. The regulator recently concluded their second survey measuring small firms' embeddedness of the Consumer Duty and they are planning a third survey in the new year to look at – and address – issues of concern.

In relation to financial crime, in a recent speech (6th September 2023) made by Sarah Pritchard – Executive Director of Markets and International at the FCA – the regulator warned firms that they need to take 'tougher action on proactively tackling financial crime or risk receiving a surprise visit from the City watchdog'. This should be seen as a warning. The Dear CEO letter now outlines how the FCA’s ‘supervision will become more targeted, intrusive and assertive’. With the regulator implementing a new, dedicated financial crime function for consumer investments that will focus solely on identifying firms with key fraud, scams or money laundering indicators.

How we can support your firm

At Elephants Don’t Forget, we are at the forefront of supporting enterprise and SME firms to target, improve and evidence best-in-class approaches to training, competence and – critically – compliance with regulation. For both financial crime and Consumer Duty, the FCA have made it clear that staff must possess the skills, knowledge and competence to carry out their roles and functions effectively, and that training should be tailored to their specific roles. Firms are benefiting from our continual assessment approach, which is providing them with a unique forward-facing risk radar and enables them to continually assess the effectiveness of their training on key regulatory topics and themes at a granular level. Crucially, our approach is continual – not ‘once-and-done’ – you will benefit from emotion-free, daily, lead indicators of risk and be able to demonstrate a clear transition away from tick-box approaches to compliance.

I have outlined some key takeaways and assessment questions below – alongside just a small selection of the several use cases we have demonstrating how we are supporting firms to meet increasing FCA expectations. If we can be of support to your firm – or if you would like to know more about our use cases in detail – please do not hesitate to contact our team.

Adrian Harvey
CEO, Elephants Don’t Forget

1. Consumer Duty, there is no grace period

The FCA’s message is clear: “we expect you to have implemented the Consumer Duty in full.” This work will have resulted in meaningful changes to your business, service and proposition to further drive good consumer outcomes, which you should be able to demonstrate to the FCA if asked. This letter is explicit in calling out firms who are failing to provide a service that delivers good consumer outcomes.

Key people questions to ask:

This isn’t a tick-box exercise. Embedding Consumer Duty is fundamental. What have you changed in your business – and how comfortable are you – that you achieved this? What evidence do you have that shows your people understand Consumer Duty in relation to their specific roles to facilitate the delivery of good customer outcomes?

2. Is the customer really at the heart of your business model?

Customers must understand the products on offer. The FCA “have seen” the industry not being transparent about product risks and have suggested that some firms are taking advantage of existing relationships and leveraging trust to push overly complex and unsuitable products for their target markets.

Key people questions to ask:

This is about culture, conduct and adherence to processes. Are you satisfied that your staff understand their customers’ needs and target markets, that they can apply friction when required, and possess the required competencies and behaviours to deliver against this?

3. Know your risks

The FCA state that CEOs and their leadership team(s) should fully understand the level of exposure your firm has to the risks and harms set out in this letter and invest significant time and energy (and if necessary, capital) to manage them. This also requires resolving the root cause of these harms. In the FCA’s experience, harms often arise from ineffective and/or conflicted leadership and governance, combined with ineffective systems and controls.

Key people questions to ask:

How are you proactively identifying staff risks in the key supervisory areas highlighted – financial crime and Consumer Duty? Are you overtly reliant on lagging indicators? How can you demonstrate more robust approaches to evidencing the requirements outlined in the FCA’s Financial Crime Guidance? How are you identifying conduct, culture and behavioural barriers that could prevent the embedding of Consumer Duty and financial crime training?

4. Financial crime: get to grips with your controls

The letter explicitly mentions some key publications (Financial Crime Guide and Thematic Reviews). Firms need to understand them, need to have people who can apply them, and they need to know how to measure if their controls are or are not continually working. Firms must ensure they maintain strong KYC and CDD policies and controls in order to correctly categorise their clients and adopt the appropriate risk approach for each. These systems and controls must be frequently monitored for their quality and efficiency – and any weaknesses found should be remediated and improved. It is also necessary for firms to ensure that Compliance Officers and MLROs have the required level of skill, experience and independence to carry out their duties and other staff are sufficiently trained on the prevention of financial crime. Firms must also remember their reporting obligations regarding any wrongdoing to the relevant authorities.

Key people questions to ask:

Expectations are clear; the FCA does not expect your firm to be carrying out ‘tick-box’ compliance exercises in relation to financial crime. The competence, conduct and behaviour of your staff is central to this. Read the expectations outlined in the FCA’s Financial Crime Guide and ask yourself key questions posed by the regulator: 'how is your firm making the effort to understand or address gaps in its financial crime defences', 'how are you identifying training needs', and 'how does your MI help you to understand the key financial crime risks in which your firm is exposed?'

The value I receive as the UK MLRO is that I am not only physically able to demonstrate the provision and effectiveness of anti-money laundering training but also evidence my own oversight of the firm’s compliance with its requirements in respect of employee training.

You can have the best designed AML controls possible but if staff do not understand why they are doing something, the effectiveness of such controls will be hugely impacted.

John Clarke
Money Laundering Reporting Officer at Fidelity International

5. Embed Consumer Duty

The FCA state that you should have familiarised yourself with all aspects of the Consumer Duty, including consumer support. Embedding the Consumer Duty into the day-to-day culture and running of your firm must remain a key focus. One of the key areas that the regulator reiterates is the importance of reassessing your understanding of consumer vulnerability. The regulator cites that 49% of portfolio managers and 69% of stockbrokers from the wealth data survey identified no vulnerable consumers, even though 50% of us will be classified as vulnerable over our lifetime.

The importance of protecting consumers – and mitigating foreseeable harm – remains central to the FCA’s approach. Firms are expected to keep the communications to their clients clear, fair and not misleading. They must take the appropriate measures to categorise their clients and assess their vulnerability correctly and only offer products and services that are tailored to the client’s needs, risk profile and circumstances. Firms must make sure that clients fully understand all aspects of the products and services they are provided, and any complex or risky investments must be fully justified. The FCA also expects that charges and fees are clearly disclosed to clients and regularly assessed to ensure a balance in the overall cost and value for money offered.

Firms must also maintain a strong customer support service and ensure customers understand their rights and limitations to the Financial Ombudsman/FSCS consumer protection status and associated risks of investments.

Key people questions to ask:

How are you proactively and continually raising/assessing understanding of vulnerable customer characteristics in your firm? How are mitigating the risk of foreseeable harm as a direct result of sub-optimal competence of staff? How are supporting staff to facilitate good outcomes through training, especially in your support services?

Our work with LV=

Rachel McGann, Training Specialist at LV=, discusses how Clever Nelly has improved frontline employee competency to improve customer outcomes, reduce complaints and significantly increase vulnerable customer understanding.

Get in touch to learn how we:

Improved employee competency by 42% for customer vulnerability.
Improved service levels, with Clever Nelly contributing to a 62.5% reduction in complaints.
Reduced average call wait times from ten minutes to 1.5 minutes in specific lines of business.

Our work with Clifton Asset Management

Ian Scaife, Group Head of Compliance at Clifton Asset Management, discusses how Clever Nelly has “completely changed” their approach to employee Training & Competence, enabling them to respond quickly to FCA regulatory requirements, strengthen frontline capability and embed Consumer Duty.

Get in touch to learn how we:

Ramped up speed-to-competency in six critical training categories, resulting in a 31% average improvement.
Improved key training areas required under Consumer Duty, including vulnerable customers – resulting in a 36% improvement in employee understanding.
Support them to evidence a quicker, more robust approach to FCA initiatives using real-time data and MI.

Our work with Moneybarn

Moneybarn’s Strategy and Transformation Director – Dan Thompson – discusses how focusing on the competence of their people has resulted in reductions in average handling time, wrap time, hold time and improvements in customer outcomes – generating them 300% ROI from deploying Clever Nelly in under six months.

Get in touch to learn how we:

Supported Moneybarn to improve customer outcomes by 9%.
Improved key customer support metrics, including a 4.5% improvement in Average Handling Time and a 38% reduction in Average Hold Time.
Generated them a 300% return on their training investment in under six months.

Practical solutions to support wealth management & stockbroking firms to meet FCA expectations

If you have read the latest FCA’s Dear CEO letter issued to wealth managers and stockbrokers, you will have – no doubt – noticed a distinct shift in the regulator’s tone and approach.

Practical solutions to support wealth management & stockbroking firms to meet FCA expectations

If you have read the latest FCA’s Dear CEO letter issued to wealth managers and stockbrokers, you will have – no doubt – noticed a distinct shift in the regulator’s tone and approach.

Financial crime and Consumer Duty top the billing

Discover how Fidelity International are using AI to improve and evidence the ongoing effectiveness of their financial crime training.

Our work with LV=

Our work with Clifton Asset Management

Our work with Moneybarn

Get in touch