When the Financial Conduct Authority issued its ‘Dear CEO’ letter to wealth managers in late 2023, labelling it an “inherently high-risk sector for enabling and/or participating in financial crime,” it sent shockwaves through the industry.
This regulatory spotlight on a sector spanning more than 1.8mn portfolios and 14.3mn stockbroking accounts forced many firms to reassess their risk and compliance approaches fundamentally.
The regulator’s concerns were unambiguous: financial crime in wealth management has “damaging impacts on consumers, markets, and wider society” while harming the industry’s reputation and long-term profitability, with potential links to “human trafficking, terrorism and child exploitation”.
For wealth managers across the UK, this marked a critical turning point in how compliance would need to be approached in the years ahead.
An evolving compliance landscape
The mood in the sector is that there is an increased need to win customer trust and make compliance a competitive differentiator.
The FCA highlights a number of specific risks in wealth management.
Some firms, it argues, have been “laundering the assets of illegitimate clients through greed or incompetence,” and others “squander or even steal the assets of legitimate clients through frauds and scams”.
More generally, there is a perception that some wealth management firms do not do enough to understand the customers they are onboarding and are not monitoring their ongoing transactional behaviour effectively.
Wealth management has always been very relationship-driven, with high-net-worth individuals brought on by relationship managers who have not always been motivated to conduct comprehensive risk assessments on these individuals, sometimes due to compensation considerations.
However, systemic factors often underpin these challenges.
The FCA pointed out that driving factors are often “ineffective and/or conflicted leadership and governance, combined with ineffective systems and controls”.
Investigators found that 49 per cent of portfolio managers and 69 per cent of stockbrokers identified no vulnerable consumers, even though 50 per cent of the population will be classified as vulnerable at some point in their lifetime.
Enhanced regulatory enforcement and strategies
The FCA has also enhanced its enforcement capabilities in recent years.
The regulator has established a new specialised financial crime unit focused on consumer investments, identifying firms with key fraud, scams, or money laundering risks.
The FCA itself describes its shifting approach as “more assertive, intrusive, proactive, and data-driven”.
An increase in short-notice and unannounced visits keeps companies on their toes.
Alongside other leading global regulators, the FCA has also developed a comprehensive data collection strategy.
This demands that firms implement sophisticated monitoring systems, requiring asset managers to deploy integrated platforms for financial crime risk management that capture and analyse customer data at scale.
FCA 2025-30 strategy: growth-friendly regulation
Fast-forward to today, policymakers are focused on the growth-enabling potential of regulation.
