At a high level, the FCA has detailed that its key priorities for 2024-2026 will be to:
- Reduce and prevent serious harm;
- Monitor and test higher industry standards under the Consumer Duty; and
- Enable more consumers to pursue their financial objectives through the Advice Guidance Boundary Review.
With regard to specific areas, the FCA has highlighted the following:
Retirement income advice
Expectations:
The FCA has highlighted the importance of compliance in this area as the retirement income market continues to grow and consumer decisions related to retirement become more complex. The expectation now is that firms will consider the "Dear CEO" letter dated 20 March 2024 and undertake the actions detailed, namely:
- Consider the findings of the FCA's thematic review in March 2024 and take appropriate steps to meet and document the requirements detailed;
- Implement the use of the Retirement Income Advice Assessment Tool (RIAAT) with consideration of accompanying FCA instructions; and
- Consider the FCA's article dated 20 March 2024 on Cash-flow Modelling (CFM) to enhance the way they use CFM in providing suitable advice and aiding consumer understanding.
Future FCA actions:
The FCA will be carrying out further work to explore the issues identified from their review of this area, with an intention to publish further commentary in Q1 2025.
Ongoing advice services
Expectations:
The FCA has detailed their concerns that firms may not always be considering the relevance and costs of ongoing advice services for all clients, and some clients may be being charged for undelivered services.
They have reiterated their expectations that firms must ensure that ongoing services are appropriate for clients’ circumstances, offer fair value, and are provided as per the agreement with clearly communicated service details, charges, and cancellation options. Firms should also avoid charging for services that are not delivered and must maintain records to ensure appropriate monitoring and evidence good outcomes.
Future FCA actions:
The FCA aims to provide an update later this year on their findings and next steps arising from its information requests to firms regarding their delivery of ongoing advice, which took place earlier this year.
Polluter pays
Expectations:
The FCA has seen a rise in liabilities falling to the Financial Services Compensation Scheme (FSCS), and is now seeking to ensure that firms responsible for these liabilities are better positioned to cover them.
As a result, the FCA has highlighted its expectations that firms and their appointed representatives must maintain sufficient financial resources to meet redress liabilities and not attempt to evade them. Firms considering selling their business or client bank should also focus on delivering good consumer outcomes, with reference to the FCA's December 2023 publication "Expectations of firms selling client banks".
Future FCA actions:
They will use past business reviews and deed polls to ensure that all liabilities are addressed. Serious consideration will be given to accountable individuals' fitness and propriety to hold an FCA approved role within another firm where previously associated firms have been unable to meet their liabilities. The FCA have also detailed their plans to provide more guidance on the Capital Deduction for Redress consultation by year-end.
Consolidation
Expectations:
The FCA has highlighted the increase in the acquisition of firms/assets during the last two years and the customer harm that this can promote if it is not undertaken in a compliant manner.
Firms continue to be expected to:
- Notify and obtain FCA approval before acquiring or increasing control in a regulated firm.
- Ensure their leadership, governance, oversight arrangements and controls are, and will continue to be, effective, adequately resourced, and commensurate with increased size/complexity of the business.
- Ensure the delivery of good outcomes is central to their culture.
- Undertake adequate due diligence of the selling firm or client bank.
- Hold adequate financial resources at all times, with credible plans to service debt and stress-tested financial projections in debt-funded acquisitions.
- Consider and take into account the FCA's "Supervision review report: Acquiring clients from other firms" (dated February 2017) and the FSA's "Assessing suitability: Replacement business and centralised investment propositions" (dated July 2012) publications.
Future FCA actions:
The FCA plans to conduct multi-firm reviews of consolidation in the market. They will assess and challenge the suitability and financial soundness of acquisitions and may use enforcement powers to block or take action against transactions completed without prior regulatory approval.
Other areas
In addition to the above areas, the FCA has said that the following areas will continue to also be a focus:
- Ensuring effective appointed representative oversight;
- The future disclosure regime for Consumer Composite Investments; and
- Environmental, social and governance priorities, including the FCA's sustainability disclosure requirements and the advisers’ sustainability group.
Supervisory approach
The priorities detailed above will be underpinned by the following supervisory approach:
Industry collaboration: Plans for increased engagement and collaboration with the sector, including in-person events and gathering industry insights.
Data-driven regulation: A focus on using data to improve industry oversight and streamline regulatory requirements. The FCA plans to issue a survey in 2025 to start to gather insights with an aim to start retiring the collection of less valuable data.
Next steps
Firm's should review the Dear CEO letter and identify the aspects relevant to them. Firms should note the next steps from the regulator which are likely to impact them and ensure the necessary preparations and considerations have been undertaken.
This letter covers a number of priority areas to focus on, and if you have any concerns or would like to discuss any of these areas with us, please reach out to your usual DWF Regulatory Consulting contact.
