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FCA issues “Dear CEO” Letter to Wholesale Brokers

FCA issues “Dear CEO” Letter to Wholesale Brokers

The UK’s Financial Conduct Authority(FCA) has issued this open letter to the CEO's of wholesale brokers, across several asset classes. The letter identifies some issues observed by the FCA at broker firms, focusing on four issues that could be causing 'harm':

  • Compensation arrangements
  • Governance arrangements
  • Dealing with conflicts of interest
  • A culture and mindset that fails to recognise the risk of abuse.
The Broker Club has surveyed its members with questions related to the recent FCA letter. The results are as follows*:
  • 90% of firms have a remuneration policy;
  • 70% have remuneration committee as part of board;
  • 20% do not have a remuneration committee;
  • 40% of brokers are measured and remunerated against based only on revenue, while 20% are measured only on quality of execution errors etc, with some measured on policy contribution, client satisfaction and adherence to policy;
  • Brokers are most commonly paid monthly, at 50%, with 30% quarterly and 20% annually;
  • All brokers, based on our sample, are paid cash only, with no equity compensation received;
  • 40% use deferred payments, half of which are paid quarterly and the remaining paid after two years;
  • If a broker leaves before their deferred payment, 75% lose their payments, with the remaining being discretional based on individual circumstances;
  • 80% of companies have a code of conduct, with some having ‘various compliance policies’.

The good news is The Broker Club is available to provide guidance.  Aside to our regular schedule of events we are also holding an interim series of round tables to address the specific concerns raised in this recent “Dear CEO”letter.

This will include round tables on the following:

  • Compensation and remuneration
  • Culture and code of conduct
  • Transaction reporting
  • Payment for order flow and conflict of interest
  • Market abuse and financial crime
  • Board reviews and assessments
  • Cyber and IT controls
  • Preparing for an FCA visit

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