Importance of FCA 'Dear CEO' letters should 'not be underestimated' - SimplyBiz's Ken Davy

On 20 January, the regulator sent a ‘Dear chief executive' letter to asset managers, outlining its view on the key risks of harm asset managers pose to their customers. The letter, which was written by FCA director of wholesale supervision Marc Teasdale, said asset managers must act in the best interests of their clients.

Then, on 21 January the FCA published a ‘Dear CEO' letter, which said firms' inability to compensate consumers via their professional indemnity insurance was "unfair." FCA director of life insurance and financial advice supervision Debbie Gupta said the transfer of compensation costs to other market participants via the Financial Services Compensation Scheme (FSCS) levy placed an unnecessary burden on other firms.

In response to the letters, Davy (pictured) said the FCA was reminding the sector of its powers of enforcement: "The FCA is setting out its stall early in 2020, with this double-barrelled shot across the bows of the sector, and the importance of these letters should not be underestimated," he said. 

Davy said the letters were in line with the financial watchdog's objective to protect clients against financial harm and while the "'Dear CEO' letter did nothing to lessen [advisers] responsibilities, it contains no unpleasant surprises."

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The chairman mused meeting the FCA's objectives may pose more of a challenge for asset managers than advisers: "Given the events of last year, worries about liquidity management are at the forefront of many asset managers', and advisers' and clients' minds, and this is likely to be a major area of focus for all," he added. 

Davy said the FCA's 2020 focus was "firmly fixed" and not going away.  He continued: "Advisers should be fine as they are almost certainly using the systems needed to demonstrate suitability, along with having the processes in place to comply with the other aspects of the letter.

"Asset managers, however, will need to dust off the product intervention  and product governance sourcebook (PROD) rulebook and decide whether they are doing enough to meet the needs of an increasingly forceful regulator."

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