FCA opens enforcement operation against firm and individual over Consumer Duty breaches

According to a Freedom of Information (FOI) request sent by Investment Week, this is the only enforcement action the regulator has taken within the sector since the Duty came into force in July 2023.

The FCA said it opened the operation citing a breach or multiple breaches of Consumer Duty "in respect of an asset management or wealth management firm", although it did not specify exactly what type of business was under investigation.

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"This operation involves one investigation against a firm and one investigation against an individual," the regulator explained.

The investigation remains ongoing and the FCA confirmed that it has not closed any enforcement cases regarding breaches of Consumer Duty within the wealth and asset management space since the Duty came into effect.

In fact, the FCA has not taken any actual enforcement action concerning Consumer Duty since the regulation was launched.

Whether the FCA decides to take any enforcement action and, if so, what it will look like, will be crucial for financial services firms to understand regulatory expectations and what can result from breaching the Duty.

An industry professional, who wished to remain anonymous, told Investment Week that some of the more pressing points would be to understand how such a case came about, whether there was a complaint against the firm or individual, or if it was from a specific review into them, and whether it encompasses a mainstream service or something more unconventional.

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Keith Richards, CEO of the Consumer Duty Alliance, highlighted that, unlike any other previous regulations, having moved from a prescriptive approach to an outcomes-based one, the FCA is keeping its promise of "taking a more proportionate and collaborative approach to regulation".

"The FCA has been clear it will be focusing on any serious breaches, laggard outliers in terms of implementation, or where there is a lack of evidence or effort in meeting Consumer Duty outcomes and we would expect to see robust enforcement interventions, the use of a skilled person section 166 reviews and assertive supervision, which could lead to possible disciplinary sanctions," he continued.

However, considering there has only been a single operation opened in nearly two years within the wealth and asset management sector, Richards argued this showed that the "new era of regulation" post-Duty has begun.

Although very little detail was disclosed by the regulator in the FOI response, according to CMS partner, financial services regulatory, Elisabeth Bremner, if an investigation is opened by the watchdog into Consumer Duty breaches, "they will want to understand how the firm puts customer interests at the centre of its culture and how it satisfies itself it is delivering good outcomes".

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She explained senior managers are likely to be interviewed on their "understanding of how different parts of the business play a role in delivering the objectives of the Duty".

In its review of fund managers' value assessments in 2023, the FCA found that, although many firms had good practices in place, improvements were still required, especially around fee comparisons as well as a lack of challenges from independent non-executive directors.

Earlier this year, the regulator revealed it will launch a consultation into changing the Assessment of Value reporting requirements for asset managers, as part of its wider Consumer Duty review.

David Ogden, compliance officer at Sparrows Capital, said: "The rest of the sector will be keen to understand whether this situation is a real outlier or something from which lessons can be readily learned and applied."