The UK’s Financial Conduct Authority (FCA) issued a warning to wholesale firms, highlighting broker misconduct as a major risk to market integrity. In its latest “Dear CEO” letter, the regulator laid out concerns about insider trading, market abuse, and non-financial misconduct, urging firms to tighten their controls.
According to the regulator, brokers occupy a unique and powerful position in wholesale firms. As revenue drivers and primary client liaisons, they hold significant influence over their employers.
However, the watchdog highlighted the risks that come with this mandate. This includes the fact that brokers handle sensitive market information, including supply-demand dynamics and client trading intentions, which could be exploited for personal gain.
The FCA also highlighted risks related to poor oversight, such as conflicts of interest and firms ignoring misconduct from high-performing brokers.
These issues, if unchecked, could reportedly lead to insider trading, manipulation of market liquidity, overcharging clients, and even fostering toxic workplace cultures.
The FCA has vowed to intensify its scrutiny of broker conduct. Firms must now ensure robust controls to detect and address misconduct. If weaknesses persist, the regulator may impose severe penalties, ranging from operational restrictions to enforcement actions against individuals.
One of the FCA’s priorities is addressing non-financial misconduct, such as workplace harassment and discrimination, which often goes unchecked among top-performing brokers.
The FCA noted that“Healthy workplace cultures are essential,” the FCA noted, emphasizing that firms must foster an environment where employees feel safe reporting misconduct.
Financial Crime and Prudential Risks
The regulator also expressed concern about financial crime risks linked to wholesale brokers. Despite some progress, firms continue to underestimate their exposure to money laundering. The FCA’s recent multi-firm review found inconsistencies in risk assessments and client due diligence practices, leaving gaps that could be exploited.
In addition, the FCA urged firms to strengthen their financial resilience. Wholesale brokers must maintain sufficient capital and liquidity to avoid disruptions during market stress. Those failing to comply with prudential standards face potential capital requirements and restrictions.
The stakes are high as the FCA moves to protect the integrity of UK financial markets. Firms that lag behind in compliance not only risk regulatory penalties but could also face reputational damage in an increasingly competitive sector.
