The Financial Conduct Authority (FCA) issued its latest Wholesale Brokers Portfolio Letter on 24 January 2025, providing a comprehensive overview of its supervisory strategy for the sector. This document outlines the FCA’s key observations, expectations, and concerns while offering insights into the challenges brokers face in aligning with regulatory standards. In this article, we summarise the key points of the letter, discuss the implications for wholesale brokers, and provide a self-assessment framework for firms seeking to evaluate their compliance and resilience.

Key Themes of the FCA’s Portfolio Letter

1. Role of Wholesale Brokers

Wholesale brokers play an integral role in financial markets by facilitating liquidity, ensuring market access, and enabling transactions between buyers and sellers. Despite global economic challenges, the sector has shown resilience. However, the FCA highlights a trend of consolidation, with larger firms acquiring smaller ones, and a number of mid-sized and smaller firms exiting the market.

2. Supervisory Focus Areas

The FCA has engaged with firms on several critical issues over the past two years, including:

  • Liquidity Risk Management: Improvements have been observed in firms’ liquidity risk management frameworks (LRMFs), with clearing brokers particularly scrutinised due to their pivotal role in wholesale commodities markets.
  • Financial Crime: The FCA remains concerned about vulnerabilities to money laundering through capital markets. A recent multi-firm assessment of Money Laundering Through the Markets (MLTM) has identified uneven progress across the sector.
  • Culture and Non-Financial Misconduct: The FCA continues to assess firms’ cultural frameworks and their effectiveness in mitigating non-financial misconduct risks.

3. Good Practices and Areas for Improvement

The FCA notes that while some firms have made significant advancements, others lag behind. An observation paper highlighting good and poor practices in liquidity risk management is forthcoming. Firms are expected to review this document to identify opportunities for strengthening their frameworks.

4. CEO Accountability

By the end of March 2025, the FCA expects all CEOs to have discussed this letter with their fellow directors and/or Boards and to have agreed on actions and/or next steps. This timeline underscores the urgency of aligning with the FCA’s expectations and ensuring that appropriate measures are in place.

Implications for Wholesale Brokers

A. Regulatory Expectations

The FCA expects wholesale brokers to adopt robust systems and controls tailored to their operational risks. Boards and senior management must engage with the content of the letter to understand its implications and take effective action.

B. Financial Crime Risks

The sector’s susceptibility to financial crime, particularly money laundering through complex market transactions, demands heightened vigilance. Firms must assess their anti-financial crime frameworks, focusing on transaction monitoring, suspicious activity reporting, and intra-group risk management.

C. Liquidity Risk Resilience

Clearing brokers, given their systemic importance, must prioritise the enhancement of LRMFs. Firms should aim to adopt industry-leading practices, ensuring that their frameworks are robust enough to withstand market volatility.

D. Organisational Culture

A strong culture is foundational for effective governance and compliance. Firms must ensure that non-financial misconduct is addressed proactively, with a focus on creating a transparent and accountable working environment.

Self-Assessment Framework

To assist wholesale brokers in evaluating their alignment with the FCA’s expectations, we propose the following self-assessment questions:

Governance and Oversight

  • Does the Board regularly review and engage with regulatory correspondence, such as the FCA’s portfolio letter?
  • Are senior management and the Board adequately equipped to interpret and act on the identified risks?

Financial Crime Framework

  • Are your anti-financial crime controls aligned with the FCA’s findings from its MLTM assessment?
  • How effectively does your transaction monitoring system detect and escalate suspicious activities?
  • Have you conducted a recent review of your policies and procedures to address vulnerabilities in capital market transactions?

Liquidity Risk Management

  • Is your LRMF in line with the best practices outlined in the FCA’s forthcoming observation paper?
  • How regularly do you stress-test your liquidity positions, and are the results informing your risk management decisions?

Culture and Conduct

  • Have you implemented a robust framework to identify and address non-financial misconduct?
  • Are employees at all levels aware of their responsibilities regarding ethical behaviour and regulatory compliance?

Monitoring and Continuous Improvement

  • Do you have a process to benchmark your practices against peers and industry standards?
  • Are you leveraging feedback from past FCA engagements to drive continuous improvement?

Next Steps for Wholesale Brokers

To meet the FCA’s expectations and strengthen operational resilience, wholesale brokers should consider the following actions:

  1. Engage the Board and Senior Management: Boards must allocate time to discuss the portfolio letter and assess its relevance to the firm’s operations. Senior management should be tasked with implementing necessary changes.
  2. Review Financial Crime Controls: Conduct a gap analysis of your anti-financial crime framework against the FCA’s findings. Pay particular attention to transaction monitoring systems and suspicious activity reporting processes.
  3. Enhance Liquidity Risk Management: Prepare for the publication of the FCA’s observation paper by reviewing and refining your LRMF. Ensure that stress testing is comprehensive and actionable.
  4. Foster a Strong Culture: Revisit your organisational culture framework to ensure it promotes transparency, accountability, and ethical behaviour. Training programmes should be updated to reflect the FCA’s concerns.
  5. Plan for the Future: Develop a roadmap for continuous improvement, incorporating lessons from FCA feedback and peer benchmarking.

Conclusion

The FCA’s 2025 Wholesale Brokers Portfolio Letter serves as a clear reminder of the regulatory challenges and expectations facing the sector. While progress has been made in certain areas, uneven compliance underscores the need for continued vigilance and proactive measures. By engaging with the themes outlined in the letter and meeting the FCA’s expectation of Board-level discussions by March 2025, wholesale brokers can strengthen their resilience, enhance their compliance frameworks, and contribute to the stability and integrity of financial markets. Through thoughtful self-assessment and a commitment to continuous improvement, firms can align with the FCA’s vision for a robust and well-governed sector.

How C&G Regulatory Solutions Can Help

C&G Regulatory Solutions is well-equipped to support wholesale brokers in meeting the FCA’s expectations. Our services include:

  • Board Engagement and Training: Facilitating discussions and training sessions to ensure Boards and senior management are fully informed and aligned with FCA requirements.
  • Financial Crime Reviews: Conducting comprehensive gap analyses of anti-financial crime frameworks, with a focus on transaction monitoring and suspicious activity reporting.
  • Liquidity Risk Assessments: Assisting firms in benchmarking their LRMFs against industry best practices and preparing for FCA scrutiny.
  • Cultural Diagnostics: Helping organisations build and sustain a robust culture that aligns with regulatory expectations.
  • Continuous Improvement Roadmaps: Developing tailored strategies to address weaknesses and drive long-term resilience.

If you are looking for expert guidance to navigate the FCA’s expectations and strengthen your firm’s compliance, contact us today to learn how we can help.

Reference Section

  1. Financial Conduct Authority. (2025). Wholesale Brokers Portfolio Letter. Retrieved from FCA website.