FCA calls on wholesale banks to keep up standards

• FCA writes to CEOs at wholesale banks about its priorities.
• Bosses told to show how their firms manage risks.
• CEOs must agree next steps within two months.

The FCA has written to all wholesale banks active in the UK. The portfolio letter, dated 8 September 2023, sets out the FCA’s key priorities for the sector and its supervisory work programme for the next two years.

The supervisory focus includes: 

Risk management.

Many firms have put in place remediation programmes in response to events over the last 18 months. The FCA will look to senior management to evidence how better risk management and oversight has been delivered and whether this is underpinned by a strong culture. Boards will also need to evidence how they are ensuring improvements are lasting. The FCA will carry out supervisory testing on the embeddedness of improvements in risk management by looking at the process through which new products and some transactions are produced.

High standards of control.

The FCA is ramping up its testing programme to look at how banks are controlling risks such as financial crime, market abuse and conflicts of interest. Assessing how firms manage conflicts of interest will be a particular area of focus. The FCA will look to test outcomes (rather than solely policies) and intend to be data-led. The FCA emphasises that control functions should play a key role in assisting senior management with its oversight of business activities and that it expects prompt notification of any identified material issues.

Operational resilience.building operational resilience and their ability to remain within their impact tolerances as soon as reasonably practicable and no later than 31 March 2025. The FCA will also assess how senior managers have learnt the lessons of operational resilience events, even if their firm has not been directly impacted.

The FCA will continue to review banks' compliance with requirements contained in the FCA's policy statement on

The FCA reminds firms that it expects and generally receive prompt notification from firms where either they, or a third party they are relying on, have been subject to a cyber-attack.

LIBOR transition. The FCA expects wholesale banks to continue actively transitioning the last of the contracts that reference USD LIBOR and not rely unnecessarily on synthetic LIBOR.

Consumer duty implementation.

The FCA will test the robustness of assessments made and actions taken to implement the consumer duty, as well as the effectiveness of the arrangements in place to identify any implications of compliance with the consumer duty that might result from changes in activity.

ESG.

Banks must be able to demonstrate that their financing activities are aligned with their own transition plans, and that product and public-facing commitments relating to ESG are delivered in practice. The FCA also encourages banks to engage early with the Transition Plan Taskforce's (TPT) framework for disclosure.

DE&I. The FCA published a joint Discussion Paper on this topic with the PRA and Bank of England in 2021, which proposed some areas for potential policy intervention. The FCA confirms it will consult on these proposals in 2023.

Next steps

The FCA expects banks to discuss this letter at board level and agree actions and/or next steps within two months.