Broking Business Winter 2020/2021: Dear CEO: reading between the lines
Read time: 21 mins
Service: Audit & assurance Sector: Financial services
The FCA had concerns about the handling of client money. So last September it issued a “Dear CEO” letter to insurance intermediaries that addressed the subject.
The letter dealt with several elements of client assets and continued from other FCA communications sent since the start of the pandemic. The FCA was direct in its approach, saying it expected the letter to be discussed at board level. It also wanted firms to be able to demonstrate actions taken as a direct response.
Reactions to the letter
We anticipated a certain level of activity in the market related to the letter’s content and were ready to help with subsequent remediation plans rolled out by firms.
We noticed that several larger firms carried out internal reviews to satisfy themselves that they met the requirements. And many firms responded positively to the commentary we released, setting out our interpretation of the FCA’s letter.
These firms were typically our regular client base who want to get things right and, at times, even go above and beyond to ensure client money is protected. If we’re honest, these firms were likely not the real targets of the Dear CEO letter.
What has surprised us is that we haven’t seen a deluge of enquires from non-clients, nor has our network of lawyers and compliance advisors in the market.
What are the difficulties?
So why is this? We think the obstacle may be that, although the FCA’s letter covered a wide variety of important and fundamental compliance points, it was drafted at a relatively high level. Whilst this is positive, as it lets firms interpret the requirements based on their size and type, it may have meant that some smaller firms missed what the FCA was really getting at.
Firms that don’t have sophisticated finance and compliance teams and perhaps don’t yet have a firm grasp of the CASS rules on client money, may well have been unable to link together the FCA’s comments and the underlying rules.
Since the letter has come out, our firm has carried out several CASS due diligence exercises and taken on new CASS audits. And we haven’t seen a noticeable change in client money environments. In fact, we’ve seen little evidence of any acknowledgement of the Dear CEO letter within these engagements. This leads us to wonder if the messaging has been lost.
What can be done?
Perhaps the FCA would benefit from a more prescriptive approach in order for firms to properly address the points covered in their letter? In our view it would be helpful if the FCA did get more specific and provided examples of what it intends firms to do in response. This may be the only way to resolve the mismatch between expectation and reality.
If your firm is one that has struggled with the contents of the letter, or if it’s passed you by and you’d like more guidance, we’d encourage you to use your advisor to help you read between the lines. Alternatively, please contact John Needham from our Financial Services team for guidance.