False starts and laggards. The FCA write to wholesale broking firms. Here we go again.
By Simon Tweddle
Back in January 2023 the phrase “False starts and laggards” was used to describe this sector, alongside other phrases such as “generally complacent” and “weak systems and controls”. We wrote a short article about it: False starts and laggards. The FCA set the tone in their latest “Dear CEO” letter to wholesale broking firms . What has changed in in the last 2 years? That’s a rhetorical question. While the language in this latest letter was perhaps not as forthright, it seems change has been patchy and in some areas it’s as if the previous letter and several other publications over the last 2 years have been ignored. Read the latest letter at this link Portfolio letter: Wholesale brokers 2025 .
As CEO, the Senior Managers and Certification Regime makes you responsible for ensuring that relevant staff at your firm understand our rules and principles for businesses and for ensuring that your firm complies with them. If your firm is not meeting those rules and standards, you must notify the FCA immediately, setting out what you are doing to remedy any breaches. By the end of March 2025, the FCA expect all CEOs to have discussed this letter with their fellow directors and/or Board and to have agreed actions and/or next steps.
FCA strategy for the next two years
“Given the uneven nature of progress made in areas which are of strategic importance to us, we will be focused particularly on ensuring that regulatory compliance and good standards of conduct are adhered to by all firms….” So we should expect more visits, multi-firm reviews and of course skilled persons reviews for the laggards. It’s been my experience that most CEOs want to do the right thing, there must be of course some recidivist individuals, at the top of some organisations that don’t. This letter and others are evidence of that.
What are the key areas the need more investment?
“Our [FCA] general observation is that firms in the portfolio are improving in these areas, but this improvement is not evenly distributed, meaning more work is needed, particularly with firms who are lagging behind the rest.” This will come as no surprise to the people who work at these firms and indeed others that were not in sample. There really isn’t anything new here.
Financial resilience and prudential risk management. The FCA, let’s use the word “encourage”, firms to think clearly about their liquidity risks in almost every letter we read. For those familiar with regulatory parlance. Liquidity needed for ongoing operations and in wind down (Assessment A and Assessment B). Stress test your requirements, set some internal thresholds and start monitoring it. Look out for the “observations paper” that was promised.
Financial crime. Read this too Money laundering through the markets | FCA and start to join up your anti-money laundering, counter terrorist / proliferation financing framework with your market abuse and conduct framework. Market abuse is a financial crime. Better governance, better management information and frankly better approaches to conducting the various risk assessments is needed. Incorporate outcome based reviews too and take the time to look at FCA’s own financial crime guide .
Remuneration and broker misconduct. I’m not going to elaborate on remuneration much. I’m just going to quote the FCA. “…some firms in scope of the rules have not yet implemented an appropriate remuneration policy; in other cases, firms skirt the rules on deferrals and non-cash variable remuneration, and their fixed and variable components of remuneration do not appear appropriately balanced…” I get it, I’ve been in this industry for 30 years (a little more in fact), I also run a business myself. Nobody wants to lose high earners, and sadly it’s not a level playing field in some markets, but the FCA are dug in on remuneration. The industry is not going to win. As for misconduct, I don’t like the term “non-financial misconduct”. It’s a euphemistic label for some quite shocking behaviours that my friends outside financial services can’t believe still go on. Come on - be better.
Business oversight and culture. “Firms need to have effective and comprehensive risk and control oversight frameworks to detect and prevent harm from occurring and penalise undesirable behaviour. The FCA intend to test firms’ frameworks comprehensively through our proactive work on broker conduct.” Will you roll the dice, or make sure you have good answers?
Summing up
Unless you’re a large and complex firm, you don’t have to spend millions to get this right. Get some good advice and challenge your current thinking on how to assess these types of risk. Don’t assume what you’ve always done is going to be good enough. Sometimes a review of what you’ve got by an external party is all you need. However, pick an external party that can evidence real knowledge of the subject matter and who can talk coherently as to the FCA’s expectations based on actual engagements. Like Shapes First of course.
