The UK's Financial Conduct Authority has slammed wealth management and stockbroking firms over practices that the regulator claims have resulted in harm for consumers.

In a 'Dear CEO letter' published on 8 November, the regulator said some companies have lost consumers "significant sums" to scams and fraud, and have also played a role in enabling money laundering.

The FCA added that some firms have also exposed consumers to "inappropriately high-risk investments" and provided poor value for products and services.

It highlighted the scale of the sector within the consumer space, with 1.8 million portfolios and 14.3 million stockbroking accounts currently active.

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As a result, Lucy Castledine, director of consumer investments at the FCA, has called on CEOs and leadership teams to invest "significant time" and energy, and if necessary capital, to manage the risks and harms that could and have hit consumers.

She also urged them to resolve the "root cause of these harms", which she said "often arises from ineffective and/or conflicted leadership and governance, combined with ineffective systems and controls".

The regulator stressed that the resolutions should be mindful and encompassing of the recently introduced Consumer Duty, its principles and outcomes.

On the financial crime front, Castledine urged companies to review their systems, compliance mechanisms, risk management and staff training.

When it came to products and services, she said firms will be expected to ensure their consumers "fully understand all aspects of their investment products and services, and that your firm does not exploit limited understanding".

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Another area of focus was the high number of upratings from retail to professional investors, with 14% of companies making the change in the last twelve months. Castledine urged firms to be mindful consumers will be losing protections following the switch.

Additionally, any complex or unregulated investments will need to be fully justified and based on suitability and appropriateness for the consumer.

"We continue to see firms charging for services which are not delivered (such as ongoing advice), overtrading on portfolios to generate high transaction fees and providing a product or service which does not align with the needs of consumers (such as an expensive discretionary offering for a low-risk consumer)," she said. 

"Many firms are not passing on fair interest on client money balances, despite interest rates having risen. In some instances, they also charge a fee for holding these funds which can further erode value and returns.

"It is also often unclear that consumers are being rewarded fairly when they are exposed to risk. For example, many firms are not providing a fair share of revenue from securities lending, despite exposing consumers to risks," Castledine said.

As a result, she told firms they are expected to regularly assess overall costs and value for money for their products and services, and subsequently, they need to make changes where poor value is identified.

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"We have already started a major drive with short notice and unannounced visits, particularly for financial crime. And we are increasing the use of our supervisory tools and powers," she said. 

Castledine said the FCA will use the Consumer Duty to "intervene quickly" against potential or actual consumers harms, on an individual or multi firm level.

"These are strong messages precisely because firms in this sector have an important role to play, given the trust that they are afforded by consumers to grow and look after their investments and support them through key life events," she added. "We know that many firms strive to achieve and succeed in promoting good consumer outcomes.

"We also know that the harm caused by bad actors in this sector unfairly tarnish the reputation of all. So we want to work with you to pursue bad actors and poor practices, which in turn will benefit consumers, raise standards and help good firms prosper."