The FCA reveals its new strategy for supervision of wholesale brokers

30 January 2025. Published by Kristin Smith, Trainee Solicitor and Esme Watson, Senior Associate

On 24 January 2025, the Financial Conduct Authority (FCA) published a portfolio letter setting out their new strategy for supervising wholesale brokers.


The FCA has written to wholesale brokers to set out its new strategy for supervision. The letter notes the role that wholesale brokers play in sourcing liquidity, providing market access for their clients and in matching buyers and sellers. The letter goes on to note that the market faces persistent headwinds and has seen a degree of consolidation as larger firms are better able to benefit from current market conditions. 

Previous Engagement

The FCA previously issued a Dear CEO letter in January 2023 and in the intervening period has engaged with firms on liquidity risk management, financial crime, culture and non-financial misconduct (NFM). In its recent letter the FCA summarises that progress has been uneven across the market with some firms falling behind. The FCA intends to publish an observation paper showing examples of good and poor practice.

Key Risks

The key risks identified by the FCA and driving attention in the latest letter are:

  • Prudential risk management. A subset of firms were found to have unsuitable liquidity risk management and stress testing systems, but the FCA has noted that clearing brokers are generally becoming stronger prudentially.
  • Financial crime. There is concern that firms are underestimating the money laundering risks which they are exposed to. The FCA notes some improvements in risk assessment processes and oversight frameworks but also notes a failure by some firms to develop adequate methodologies for risk rating clients.
  • Remuneration and broker misconduct. Inappropriate remuneration policies place more emphasis on revenue generation and not enough on remuneration being used as a tool to address poor behaviour.

Looking Forward

The FCA has set out their strategy for the next two years – this is based around four key focus areas. The key areas highlighted are broker conduct, culture, business oversight and financial resilience. These have been chosen with the aim of ensuring that firms with a "healthy and compliant culture" are not at a disadvantage compared to firms with an unhealthy culture.

The FCA recognise the weight of bargaining power held by brokers over their employers, as they are not only the main revenue earners for a business but are also the main points of contact with clients. This raises concerns about a likelihood of firms ignoring instances of misconduct such as insider trading, market abuse, overcharging clients, abusing gifts and non-financial misconduct. For this reason, the FCA will be conducting work to assess how firms manage their brokers. If "material weaknesses" in frameworks managing broker conduct are identified, the FCA may place restrictions on firms or take enforcement action on firms or individuals.

The FCA's approach is that good culture and good conduct go hand-in-hand. The FCA have found that diverse boards provide a more effective challenge to management, leading to better decision making and success. Considering this, the FCA launched the NFM survey in 2024 to get insight into how firms identify, report and handle NFM. The FCA plans to use the results from the survey to increase proactive engagement with portfolio firms, with an increased focus on outlier firms.

The FCA has set out its intentions to test firms' risk and control oversight frameworks through their proactive work on broker conduct. Remuneration tools will be under the spotlight due to their role in handling brokers' non-compliance. Where firms fail to comply with the Remuneration Code, the FCA will use their regulatory tools, such as imposing additional capital requirements to reflect the increased risk stemming from inappropriate remuneration practices.

The FCA has emphasised the importance of wholesale brokers maintaining adequate levels of capital and liquidity in order to reduce the risk of causing market disruption should they fail. The FCA plans to test wholesale brokers' contingency funding plans and frameworks to ensure that they are adequate for potential liquidity challenges caused by stress events. Firms should continuously review their levels of liquidity to ensure that they constantly comply with the Investment Firm Prudential Regime. Where the FCA identify material weaknesses, they may impose additional capital and liquidity requirements. 

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