FCA sends Dear CEO letter to Wholesale Banks
The FCA have sent a portfolio letter to CEOs of Wholesale Banks late last week. The letter draws attention to their increasing capability (or “new integrated regulatory structure”) and their priority areas for the next two years.
Supervisory work is founded in the context of market volatility, low growth and rising interest / inflationary pressures as well as the interconnectedness of risks.
A range of concerns were identified across:
Risk management
High standards of control (financial crime, market abuse and conflicts)
Operational resilience
Organisational changes
LIBOR transition
Consumer Duty
ESG
AI
Diversity, equity and inclusion
Culture - Non-financial misconduct
Across all of these topics, wholesale banks should expect increased scrutiny. In particular, the FCA say that they will be:
Looking at senior management to demonstrate what has been done to improve risk and compliance frameworks, including how remediation has led to benefits and the impact of oversight activities. They stress that sustainable change will need to be evidenced.
Increasing supervisory testing of the embeddedness of framework improvements, including more in person supervisory assessments.
Increasing regulatory engagements and information requests.
Looking for evidence of cuts in the control framework due to external environment pressures.
Testing for clarity in responsibilities between first and second lines of defence.
Testing the robustness of assessments made in relation to a firm’s exposure to retail clients in relation to consumer duty.
Assess reports of non-financial misconduct and whether poor corporate culture has led to inadequate controls, and potentially wider weaknesses in risk management.
Assessing whether public commitments (e.g. ESG related statements) are delivered in practice and encouraging firms to ensure they have established transition plans, giving due consideration to the Transition Plan Taskforce’s framework.
Releasing a Consultation Paper in 2023 on proposals to advance regulated firm’s progress in achieving Diversity, equity and inclusion.
Wholesale banks must not be complacent. The FCA letter demonstrates an intensive two years ahead and the promise of a much more considered approach where it’s not just about the policies you can show, but about whether real outcomes are achieved and sustained. We think there are three actions all wholesale banks must complete:
Seek honest and constructive feedback from the Board on the matters raised in the letter and document your discussion and actions.
Review your Board skills and competencies framework against the future priorities for the sector as outlined in the letter.
Seek assurance on when your SMCR framework was last reviewed and how many conduct breaches have been reported to date.
Avyse Partners have extensive experience of regulatory risk and compliance issues and how best to get on the front foot with the FCA. Our ESG and sustainability, compliance and financial crime service lines mean we’ve got you covered for the coreissues raised in this letter. Get in touch if you want to work in partnership to achieve sustained, compliant and commercial systems and controls.
