On September 28, 2023, the Financial Conduct Authority (FCA) sent a “Dear CEO” letter to their Financial Services Platform portfolio, outlining the FCA's supervisory strategy and key concerns, to regulated platform firm CEOs.
This letter delves into two crucial aspects of financial regulation: Operational Resilience and Consumer Duty.
In this blog, we will extract the key findings from the FCA relating specifically to these two key regulations.
The Importance of the FCA's Platforms Portfolio
The Platforms portfolio is significant, holding over £800 billion of investment assets for 8.2 million customers. Platform firms play a crucial role as gatekeepers to multiple funds and shares for advisers and consumers. The FCA emphasises the need for these firms to uphold high standards and ensure consumer confidence.
Consumer Duty Implementation
The FCA highlights that on July 27, 2022, it published the new Consumer Duty rules and guidance, setting higher standards for consumer protection across financial services. It expects all firms, including those in the Platforms portfolio, to have implemented the Consumer Duty and embedded it fully across their business. Some firms are slow to do so, raising concerns about effective implementation.
Fee Transparency and Fair Value
The FCA expresses concerns that fees and charges on platform services may not represent fair value, particularly for customers with different investment sizes. It also points out that platform fees are not adequately disclosed, making it challenging for consumers to understand what they are being charged for. This lack of transparency can hinder customers' ability to judge the value of products and services they receive.
Firms must assess fair value across the value chain, ensuring that fees charged are reasonable and proportionate to the services provided.
Operational Resilience
The letter emphasises the need for robust systems and controls to protect customers from the loss of investment savings or personal data due to fraud and cyberattacks. It warns that customers often lose access to platform services during system outages or operational failures, especially during IT upgrades, which is a significant concern.
Firms must invest in operational infrastructure, have contingency plans, and maintain cybersecurity controls to prevent service disruptions.
Expectations and Next Steps:
- Firms are expected to align their practices with the Consumer Duty and prioritise consumer outcomes.
- Governance structures should be robust, and firms should foster a culture that combats inappropriate conduct.
- Firms should continually assess their operational resilience and maintain suitable contingency plans.
- Transparency in fee structures, timely transfers, and protection against fraud should be key focus areas.
- The FCA will proactively monitor and engage with firms on these matters and may take action against outliers or non-compliant firms.
Conclusion
The FCA's letter to firms in the Platforms portfolio underscores the importance of maintaining consumer trust, transparency, and operational resilience within the financial services industry.
Platform firms are expected to take these concerns seriously, adapt to regulatory changes like the Consumer Duty, and implement necessary measures to protect consumers and markets from potential harm.
