Dear CEO: A direct call to action

The recent ‘Dear CEO’ letter delivers a direct and unambiguous message; in the view of the FCA many wealth managers are NOT putting customer’s interests and outcomes first.

So what exactly does the recent letter say? There are three key points:

1. Segmentation and alignment of products and services

1. • Firms must have a clear focus on the needs, risk profile, circumstances and objectives of their customers and products and services provided must be aligned.
   • The vulnerability status of the consumer must be considered, with the FCA highlighting that close to 50% of firms have identified no vulnerable clients.
   • Ensure clients understand their products, that firms understand the knowledge and experience of their clients, and that uprating clients to ‘professional’ status is fully justified.

2. Fair Price & Value

• Firms should closely consider the value of their products and services, and be able to evidence this value, for example ensuring and evidencing that ongoing reviews and advice occur.
• Regular assessments of the overall cost and value for money of product and service should be made and clear disclosures provided.
• Where poor value is identified, changes should be made to said products or services, their pricing, or both.

Additionally, the letter shines a spotlight on financial crime and stresses the connection to existing and would-be customers, highlighting the ‘damaging impacts’ of financial crime on consumers, as well as markets and wider society not to mention causing harm to the ‘reputation and long-term profitability of the industry’.

3. Preventing Financial Crime

1. • Effective systems and controls should be in place within firms to support a risk-based and proportionate approach to financial crime and shouldn’t be used on a ‘tick-box’ basis.
   • Ensure you understand the overall financial crime risks by fully understanding the structure of your clients, and expected transaction patterns.
   • Make sure your SMF 16/17 roles have the needed experience, are independent and  that you keep up-to-date with the Financial Crime Thematic Reviews (FCTR).

What Actions Should Firms Take?

For recipients for whom this month’s letter may have set alarm bells ringing, particularly after forewarning of ‘short notice’ or ‘unannounced’ visits, fortunately clear guidance is provided on how to avoid falling foul of the FCA’s ‘formal intervention powers’.

• Process & Systems – Firms are expected to use ‘robust and effective systems’ to help meet their obligations, deploying capital where necessary.

• Data Quality – Implicit in taking a robust, systematic approach is data. Without a clear and accurate understanding of the customer, meeting Consumer Duty obligations – and demonstrating that one has done so – sits somewhere between a challenging and impossible task. Expect more data surveys (The next is due December 2023) and so this is key.

See more on this point in our recent blog.

• Staff & Culture – Firms should invest the time and energy necessary to embed the practice of Consumer Duty and Financial Crime prevention in their culture, beginning with leadership and filtering down through all layers, with consideration to appropriate training and qualifications.

How Wealth Dynamix can help

Our reading of the recent letter provided was something of a strange case of déjà vu. The emphasis on customer interests and outcomes has parallels to another ‘Dear CEO’ letter issued 14th of June 2011, in that instance on MiFID suitability – a topic that strongly overlaps with the recent Consumer Duty regulation[1].

That event – some 12 years ago now – holds particular significance to Wealth Dynamix because it was exactly that event that drove home to our founders just how underserved the wealth management sector was in terms of technology solutions that would build regulatory compliance into the bedrock of a business.

Since early 2012, Wealth Dynamix have been delivering solutions that provide wealth management firms with rapidly deployed solutions to regulatory challenges; solutions that truly deliver ‘compliance by design’.

Why WDX?

• Turn-key regulatory compliance solutions
• Proven from wealth management boutiques through to global Tier 1s
• Delivered by industry experts
• Self-documenting audit trail & compliance evidencing
• Extendable and adaptable to cover new regulatory requirements or changes

Key Solution Capabilities

• Consumer Duty
  • Goals and objectives, stored, audited and mapped to products
  • Risk attitude & ESG attitude questionnaires
  • Vulnerable client identification & monitoring
  • Self-monitoring & improvement tools

And much more. See our recent thought leadership piece here.

• KYC
  • Rules-driven mandatory KYC data
  • Stale data & expired document alerts
  • MiFID client categorisations
  • Periodic & trigger driven reviews
  • One-off KYC remediation
  • Self-monitoring & improvement tools

And much more. Click here to find out more.

• Suitability
  • Best-practice rules-driven determination of applicability
  • Automated periodic review calendar
  • All KYC, product & service information to hand
  • Guided step-by step evidencing
  • One-off suitability remediation
  • Self-monitoring & improvement tools

And much more. See our guide to suitability here.

• Financial Crime
  • Automated screening of PEPs, sanctions, adverse media & more
  • Automated application of internal blacklists & policies
  • Intelligence-driven identity & verification checks
  • Source of wealth & source of funds
  • Person & organisational level assessment
  • Visualisation of complex networks
  • Automated, multi-factor risk score calculation
  • Embed into wider processes such as onboarding, KYC reviews or KYC remediation
  • Self-monitoring & improvement tools

Get in touch to find out more

If your firm is struggling to meet the regulatory challenges set forth in the FCA’s recent letter, or you are struggling with another regulatory issue, Wealth Dynamix can help. It’s key to note that the FCA expects to send a further survey in 2023, and more broadly for its supervision to become “more targeted, intrusive and assertive”.  

If you are one of these firms, the first words of the Dear CEO letter are perhaps the most important; ACTION REQUIRED.