**London**: The Financial Conduct Authority is increasing its oversight on compliance for financial firms in 2025, stressing the need for demonstrable client value and vigilance over governance structures amidst evolving consumer expectations and heightened regulatory pressures, particularly during mergers and acquisitions.
The Financial Conduct Authority (FCA) has signalled an intensified focus on compliance and regulatory oversight for financial services firms in 2025, as expressed in a recent statement. The FCA’s strategy indicates that firms should not become complacent following a year dominated by discussions surrounding artificial intelligence (AI) and data-led supervision. Instead, they must demonstrate that they are delivering real value to clients without requiring the regulator to intervene directly.
The recent “Dear CEO” letter, issued on 7 October 2024, outlined the FCA’s concerns regarding the state of financial advice, particularly highlighted by previous reviews, including the Retirement Income Advice report. The regulator has expressed dissatisfaction with how certain firms assess the suitability of their advice. Key issues identified include a lack of personalisation in client interactions, inconsistent risk profiling, and inadequate governance that fails to ensure clients achieve optimal outcomes.
The report noted, “Consumer Duty is not a ‘once and done’ exercise,” emphasizing that this framework must be continuously upheld. Firms are being warned to expect heightened scrutiny of their governance structures, suitability assessments, and risk management practices as they transition into 2025. The FCA’s message is clear: financial firms must place clients’ needs ahead of mere profitability, especially during mergers and acquisitions.
Firms gearing up for acquisitions are reminded that their communications with clients must be clear, fair, and straightforward. The FCA’s previous guidance on acquiring clients from other firms remains relevant, highlighting the necessity for transparency in advice fees, effective service integration, and revising client agreements to reflect any changes in costs or terms.
Firms must also ensure that they are equipped to provide ongoing advice services that align with regulatory expectations. The FCA’s recent data requests signal a demand for detailed insights into how client reviews are conducted, who is receiving ongoing services, and whether clients understand the associated costs. There is growing pressure on firms that have been collecting fees without demonstrating meaningful value to reassess their business model.
The FCA has pointed out that a considerable portion of the UK population, approximately 92%, does not actively seek professional financial advice. As part of its plan to bridge this gap, the FCA is likely to leverage behavioural economics alongside technological nudges to encourage consumer engagement. This could lead to increased innovation in digital financial advice and automated guidance solutions.
To thrive in this changing landscape, financial firms must embrace new technologies and service models that maintain compliance while reducing costs. The FCA’s push for data-led supervision entails that businesses prepare for an uptick in regulatory requirements, including an increase in detailed client and data assessments.
According to Chris Davies, founder and chief executive of Model Office, firms should anticipate a surge in regulatory questionnaires and compliance checks, suggesting that reliant technology systems such as data lakes, APIs, and AI-driven compliance tools are no longer optional but critical. Outdated technological infrastructure could jeopardise a firm’s compliance posture.
The regulator’s heightened emphasis on data oversight means that firms, particularly those involved in centralised investment management or discretionary fund management, must be vigilant regarding the transparency of costs, suitability of investment strategies, and the governance of platform features.
In summary, as the financial services industry navigates increased regulatory scrutiny and evolving consumer expectations, proactive compliance management is vital. Firms must prepare their data frameworks and technologies before facing the inevitable regulatory requests from the FCA, which shows no signs of retreating from its commitment to ensuring firms provide demonstrable value to their clients.
Source: Noah Wire Services
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