On 7 October 2024, the FCA published a Dear CEO letter aimed at financial advisers and investment intermediaries. 

The letter focuses on four key areas: 

  • retirement income advice;
  • ongoing advice;
  • the "polluter pays" policy; and
  • consolidation in the market.  

Alongside these areas, the FCA mentions increased industry engagement, and a forward-looking, data-led approach as principles underpinning these priorities. 

Retirement income advice 

The letter touches on advice in the retirement income market, referencing the FCA's thematic review from earlier this year. You can read our post on the FCA's earlier Dear CEO letter in relation to the review here. The letter states that the FCA does expect to publish further commentary on the retirement income advice market in Q1 2025. However, firms should take note of the FCA’s potential direction of travel. The FCA makes clear statements that it will be looking to how to tackle consumer harm and making sure that firms have adequate resources to meet redress obligations. 

This language echoes the kind of Dear CEOs the FCA issued to SIPP operators in 2019 and 2023, which were a prelude to the FCA taking assertive action against a number of firms, leading to redress schemes and enforcement actions. 

With this backdrop, and firms’ enhanced redress obligations under the Consumer Duty, firms should take action now to risk assess their current business model and back books. 

Ongoing advice services

The letter explains that the FCA is concerned about the delivery of ongoing advice, noting that 90% of new clients are put into these arrangements. The letter highlights the importance of not charging clients for services that are not being delivered, referring to key Consumer Duty concepts such as "fair value" and "good outcomes". This section chimes with the FCA's recent publications on Consumer Duty, in particular the Price and Value Outcome Good and Poor Practice update published in September. 

The letter states that the FCA has written to a number of firms requesting information about their delivery of ongoing advice and aims to provide a further update later this year on its findings and next steps.

The “polluter pays” policy

In the context of significant liabilities falling to the FSCS, the FCA expects firms to ensure they hold adequate financial resources to meet potential redress liabilities and plans to update firms on its Capital Deduction for Redress consultation before the end of the year. 

The FCA states that it expects firms to identify and meet any potential liabilities before it will cancel their authorisation. Misconduct in this area could also have lasting consequences for the individuals involved, with the FCA warning that where firms are unable to meet their liabilities and accountable individuals seek to move to another firm, the FCA will seriously question their fitness and propriety to hold a role that requires FCA approval.

Consolidation

An increasingly anticipated area of regulatory focus is consolidation in the advice market. The letter cites the increase in acquisitions of firms or firm assets in the preceding two years and signals that the FCA plans to undertake multi-firm review work in this area.

The letter also sets out its expectations of firms in the meantime, including that firms:

  • Ensure the delivery of good outcomes is central to the firm's culture, including leadership, governance, oversight arrangements and controls being effective, adequately resourced, and commensurate with the firm's growing size and complexity. 
  • Undertake adequate due diligence of the selling firm or client bank.
  • Hold adequate financial resources at all times, including in the context of debt-funded acquisitions and the FCA's prudential consolidation rules for investment firm groups. 

The letter reminds firms to notify the FCA and gain approval for acquisitions or increases in control. It indicates the FCA will assess and challenge the suitability and financial soundness of proposed acquisitions and use its enforcement powers where acquisitions complete without prior regulatory approval. 

Looking ahead

While grounded in what the FCA may hope will be familiar Consumer Duty themes and referencing various ongoing initiatives, the letter also looks ahead to a number of important new supervisory developments, perhaps most significantly the proposed review of consolidation in the advice market in response to recent trends. 

By Madeleine Chambers, John Roberts and Matthew Kaltsas-Walker