FCA publishes insights from supervisory work involving wholesale banks

New FCA webpage on wholesale banks supervision

FCA publishes insights from supervisory work involving wholesale banks

On 7 August 2025, the Financial Conduct Authority (FCA) published a new webpage dedicated to wholesale banks supervision. In line with the regulators 5 year strategic vision (see our article on that here) and its aim to be a ‘smarter regulator’, the FCA is consolidating findings from its multi-firm reviews in one place to help to support firms’ and ensure that they are better equipped to meet the FCA’s regulatory expectations.

Together with consolidating their findings from previous multi-firm reviews, the FCA have published new findings on:

A. Share buybacks,

B. Gifts and entertainment;

C. Off-channel communications; and

D. Transaction governance.

Key themes emerging from the FCA’s findings include the management of conflicts of interest (e.g., in share buybacks and gifts/entertainment), the prevention of market abuse (e.g., off-channel communications and insider information), and the robustness of risk management frameworks e.g., transaction governance and CASS compliance). The implications for firms are significant, as the FCA’s work highlights areas where policies, controls, and cultural practices may need strengthening. For example, discrepancies in gift and entertainment registers, breaches of off-channel communication policies, and weaknesses in IT control frameworks all underscore the need for firms to enhance oversight, ensure policy clarity, and address cultural issues. Firms must also consider whether their internal controls and breach reporting mechanisms are robust enough to reflect actual business practices and regulatory requirements. Staying informed on these developments is critical for firms to mitigate risks, maintain market confidence, and avoid regulatory scrutiny.

The new webpage covers:

Managing conflicts of interest:

• Multi-firm work on share buybacks
• Multi-firm work on gifts and entertainment
• Registers and breaches

Preventing market abuse:

• Multi-firm work on off-channel communications
• Inside information

Risk management:

• Multi-firm work on transaction governance
• Client Assets Sourcebook (CASS) compliance

The FCA has also published insights from previous supervisory work including:

• Surveillance
• Operational resilience
• Non-financial misconduct
• Financial crime

A. Share buybacks

The FCA conducted a review of share buybacks in UK listed equities, focusing on the role of banks in structuring, marketing, and executing these transactions. While the FCA did not identify significant issues with the outcomes banks delivered in relation to share buybacks and no unmanaged conflicts of interest were found in structured buybacks, we have set out the key practical takeaways for firms below.

For Banks

1. Marketing and Education:

• Firms should ensure marketing materials provide a comprehensive overview of all buyback options, including:
  • Vanilla and structured buybacks.
  • Variations within structured buybacks
  • Bespoke features such as fee caps, price constraints, and early termination options.
• Firms should clearly explain:
  • How structured buybacks work, including the role of benchmarks and daily execution discretion.
  • Potential outcomes under different market conditions, using scenario-based examples.
  • The impact of volatility, dividends, and other factors on buyback outcomes.
• Firms should proactively engage with issuers to address their questions and provide tailored advice.

2. Execution:

• Firms should apply robust best execution frameworks to ensure fair outcomes for issuers.
• Use proprietary models transparently and ensure issuers understand how daily execution decisions are made.
• Be proactive in communicating with issuers during execution, especially when market conditions affect buyback patterns.

3. Conflict Management:

• Firms should identify and manage potential conflicts of interest, including:
  • Transactional conflicts (e.g., conflicting mandates).
  • Trading conflicts (e.g., principal trading or trading on behalf of clients).
  • Peral conflicts.
• Use measures such as information barriers, surveillance, and clear disclosures to mitigate risks.

4. Internal Governance:

• Firms should implement robust governance processes to ensure issuers understand the transaction, including:
  • Teach-ins and suitability assessments.
  • Supervisor sign-offs and transaction approval committees.

For Issuers

1. Understanding Buyback Options:

• Engage with multiple banks to compare proposals and pricing, using formal RFPs where appropriate.
• Seek external counsel to understand market practices and contract terms.
• Ensure banks provide clear explanations of all available buyback structures and their potential outcomes.

2. Tailoring Buybacks:

• Consider bespoke features to align buybacks with corporate needs, such as:
  • Fee caps.
  • Price or volume constraints.
  • Early termination options.
• Evaluate the trade-offs between flexibility and cost when selecting buyback structures.

3. Monitoring Execution:

• Maintain regular communication with banks during execution to understand daily trading patterns.
• Request proactive updates from banks when execution patterns deviate from expectations.

B. Gifts and entertainment

The FCA’s review focused on gifts and entertainment provided by brokers to wholesale banks, assessing the effectiveness of controls in place to manage potential conflicts of interest. The regulator did not publish a separate report on this review, we have set out the key findings and implications for firms below.

Key Findings

1. General Observations:

• Most entries on registers related to entertainment rather than gifts.
• A consistent pattern emerged where brokers reported giving significantly more entertainment to wholesale banks than the banks recorded receiving.

2. Discrepancies in Reporting:

• One wholesale bank recorded approximately 150 instances of entertainment received from brokers, while brokers reported giving around 500 instances to the same bank.
• Many of the unrecorded instances were of low value, but there were significant gaps in higher-value entertainment, for example:
  • Brokers reported 93 instances of entertainment over £100, but the bank declared only 9 of these.
  • The highest value entertainment observed ranged between £300-£400, with the possibility of higher values due to conservative assumptions in the analysis.

3. Patterns of Non-Compliance:

• Groups of employees were given the same entertainment, but none recorded it.
• Some individuals received multiple instances of entertainment without declaring any:
  • One individual received 19 separate instances of entertainment from the same broker, none of which were declared.

Key Questions for Firms

• Are policies and procedures for gifts and entertainment clear and well-understood by employees?
• Why are groups of employees failing to record entertainment received? What does this indicate about the firm's culture or controls?
• Are breaches concentrated in specific areas, and have undeclared entertainment instances led to negative outcomes for clients or markets?

C. Off-channel communications

The FCA reviewed how wholesale banks manage communications that occur outside monitored and recorded channels. The review highlights actions firms have taken to improve their frameworks, surveillance, and management information (MI) in this area, as well as the challenges they face. It aims to share insights and best practices to help firms strengthen their compliance with regulatory requirements under SYSC 10A and related internal policies.

Key Practical Takeaways for Firms

1. Policy and Frameworks:

• Ensure policies are updated to address new technologies and communication methods.
• Provide clear guidance and accessible channels for staff to self-disclose off-channel communications.
• Prohibit personal numbers in professional contexts, such as out-of-office replies.

2. Surveillance:

• Enhance surveillance capabilities to include emerging communication formats (e.g., emojis, GIFs, voice notes).
• Consider using AI and natural language processing to improve detection and reduce false alerts.
• Monitor on-channel behaviour to identify potential off-channel communication usage.

3. Corporate Devices:

• Consider providing corporate devices to client-facing staff to reinforce separation of work and personal activities.
• Ensure corporate devices are easily identifiable (e.g., brightly coloured) in restricted areas.

4. Third-Party Vendors (TPVs):

• Maintain strong oversight of TPVs to ensure service reliability and data accuracy.
• Regularly review vendor performance and address service gaps promptly.

5. Management Information (MI):

• Develop comprehensive MI frameworks that include breach tracking, trend analysis, and vendor KPIs.
• Ensure MI is tailored to the firm's size and complexity, with actionable insights for decision-making.

6. Training and Culture:

• Reinforce expectations through targeted, scenario-based training sessions.
• Foster a "speak-up" culture and ensure leadership sets a strong tone from the top.

7. Leadership and Oversight:

• Ensure senior managers have sufficient oversight of global frameworks and their implementation in the UK.
• Provide accountable executives with the right MI to oversee compliance and assess surveillance effectiveness.

8. Addressing Non-Compliance:

• Take prompt corrective action when patterns of non-compliance emerge.
• Apply proportionate disciplinary measures to address breaches effectively.

D. Transaction governance

The FCA conducted a multi-firm review of transaction governance in wholesale banks to assess how effectively wholesale banks manage transaction risks, focusing on governance frameworks, processes, and risk management practices. The findings highlight areas of strength and weakness across six wholesale banks, providing insights into best practices and areas for improvement.

What the FCA found

1. Risk Appetite:

• Stronger firms demonstrated clear risk appetite awareness and robust ownership across the first and second lines of defence.
• Financial risks were generally better covered than non-financial risks.
• Best Practices: Firms should set out detailed reputational risk appetite statements with clear escalation thresholds and monitoring.
• Areas for improvement: Some firms provided only cursory treatment of reputational risk, leading to potential inconsistencies in decision-making.

2. Overall Framework and Process:

• Transaction governance structures varied significantly across firms.
• Most firms provided organograms and process charts, but one firm’s senior officers struggled to articulate their framework.

3. Pre-Committee Stage:

• Majority of deal screening occurred at this stage, including:
  • Routine processing for straightforward transactions.
  • Extensive work on complex transactions by the first and second lines of defence.
• Best Practices: One firm stood out for its comprehensive documentation, it maintained detailed records of early-stage rejections and referrals.
• Areas for improvement: Poor documentation of early-stage informal discussions and processes.

4. Committee Stage:

• Committees were chaired by independent personnel to avoid conflicts of interest.
• Best Practices: Effective deal memos included robust risk analysis and conditions proposed by the second line of defence.
• Areas for improvement:
  • In one case, a decision was made without a quorate committee.
  • Some deal memos lacked thorough risk assessments, leading to later identification of risks.

5. Conditions:

• Many transactions were approved with conditions, and tracking of these conditions had improved.
• Use of technology, such as workflow tools, enhanced record-keeping and ensured conditions were met before execution.

6. Engagement of Senior Executives and the Board:

• Stronger firms provided comprehensive management information (MI).
• Areas for improvement: Gaps in MI on reputational risk and failures to document aggregate reputational risk.

7. Cross-Border Transactions:

• Strengthened governance for overseas-originated transactions booked into the UK.
• Areas for improvement: In one case, UK representatives were not well integrated into the overseas process.

Key Practical Takeaways for Firms

1. Risk Appetite:

• Ensure comprehensive coverage of both financial and non-financial risks, including reputational risk, in risk appetite statements.
• Define reputational risk appetite qualitatively and quantitatively, with clear escalation thresholds.

2. Governance Frameworks:

• Maintain clear and well-documented transaction governance frameworks, including organograms and process charts.
• Ensure senior officers can articulate the governance framework effectively.

3. Pre-Committee Stage:

• Document early-stage discussions and informal processes to provide valuable reference points for future transactions.

4. Committee Stage:

• Avoid procedural lapses, such as non-quorate decisions.
• Ensure deal memos include thorough risk assessments and are not treated as a tick-box exercise.
• Consider the benefits of in-person or virtual committee discussions over email approvals.

5. Conditions:

• Use technology to track and enforce conditions effectively before deal execution.

6. Senior Management Engagement:

• Provide timely and comprehensive MI on reputational risks and document aggregate risks.

7. Cross-Border Transactions:

• Ensure UK representatives are well-integrated into cross-border processes and have clear authority to impose conditions or veto decisions.