Background
Over the past two years, the Financial Conduct Authority (FCA) has significantly increased its use of Section 165 (s165) powers under the Financial Services and Markets Act 2000 (FSMA), allowing the regulator to request detailed information from firms to support its supervisory and enforcement functions. This includes the mandatory information request under s165 issued in December 2023 (for 2024 submission), and a more recent request issued in February 2025 to the wealth management and stockbroking sectors. These information requests enable the regulator to meet its objective of being ‘data-led’, with the data being used to uncover weaknesses in systems, controls, and governance arrangements that increase the risk of consumer harm. Through its sector engagement, the regulator has been clear that there is typically a correlation between weaknesses in systems and controls and consumer harm – something firms should be sensitive to.
The FCA’s 2025 s165 request incorporates some trending areas of regulatory concern. It includes an increased emphasis on forward-looking business activity, such as consolidation plans and interest earned on client cash, as well as more granular scrutiny of investment service models, particularly execution-only and model portfolio services. Unlike previous data requests, the 2025 survey requires deeper detail across governance, charges, and oversight arrangements (covering third parties, appointed representatives and outsourcers), highlighting the regulator’s shift towards more targeted monitoring of areas which present the greatest risk of consumer harm.
It is also worth noting the short timeframe firms are given to respond. If a firm cannot produce the requested response and documentation promptly, the FCA may view this failure as an indication that the firm lacks the necessary documentation, systems, MI and controls to meet its regulatory obligations. This is a concern that could lead to deeper scrutiny and further action being taken by the regulator.
The information request trend signals the FCA’s broader move towards proactive, data-driven supervision that anticipates systemic risks and monitors these risks through ongoing analysis. The approach enforces a higher standard of transparency, alignment, and accountability across the wealth management sector, to ensure good customer outcomes in line with Consumer Duty expectations.
Areas of focus identified in recent FCA requests
Based on our review of the FCA’s Section 165 information requests issued in December 2023 (for 2024) and February 2025, we have observed a shift in the regulator’s areas of interest, moving towards deeper scrutiny of business models and heightened attention to consumer protection. This appears to be in response to a growing and changing sector, such as the evolution and variation of investment service types, the increase in firm consolidation, and the treatment of interest earned on customers’ cash balances, reflecting the FCA’s effort to adapt to better assess sector-wide risks.
Through our analysis of the information request forms, Square 4 has identified several key areas that demonstrate the FCA’s evolving focus and may be of interest to firms:
Investment service types
The FCA’s 2025 information request signals a growing focus on how firms structure and differentiate their wealth management services, particularly around discretionary, model portfolio, bespoke, and execution-only propositions. Compared to earlier requests, the latest form requires more granular data on execution-only services, including revenue breakdowns, pricing models, and treatment of cash balances, suggesting that the FCA may perceive a heightened risk of consumer harm in execution-only services. The concern likely stems from the potential for clients to receive limited support or information while still incurring fees that may not always represent fair value.
The FCA is also reviewing how bespoke and other tailored offerings are presented and delivered across the sector. For example, in February 2025, the FCA stated in its Asset Management & Alternatives portfolio letter that it will initiate a multi-firm review of Model Portfolio Services (MPS) this year to assess how firms are implementing the Consumer Duty. MPSs have seen rapid growth and increasing innovation, offering consumers greater investment choice and diversity. This aligns with a broader effort to ensure better regulation of how firms articulate and delineate their service offerings, particularly as they become more complex and tailored.
Firms need to ensure they have clear definitions and consistent categorisation of their service models. They should be able to demonstrate how differing charges and services provide value and align with client expectations and regulatory standards. As part of preparations for future data requests, firms should have robust management information (MI) and governance processes in place to reflect how these services are delivered to the appropriate target market and are monitored effectively.
Consolidation and M&A activity
The recent s165 information requests suggest that the FCA is increasingly focused on firms’ forward-looking plans, particularly acquisitions, sales, and wind-downs. This focus aligns with broader regulatory scrutiny of consolidation within the wealth management and stockbroking sectors.
These concerns were highlighted in the FCA’s Dear CEO letter to financial advisers and investment intermediaries, dated 7 October 2024. The letter acknowledged the increase in advice firm acquisition activity and outlined the FCA’s intention to conduct multi-firm work to assess the impact of consolidation on consumer outcomes. This includes assessing whether acquiring firms have the correct permissions, aligned business models, robust due diligence practices in place and a clear focus on consumer outcomes. The regulator is also particularly concerned with financial resilience, especially where acquisitions are debt-funded, and it expects firms to maintain strong governance and integration controls.
This increased scrutiny is reflected in the data points the FCA is requesting from firms. The regulator is asking for detailed information on firm expectations for the next two years, particularly around forward-looking events such as acquisitions, sales, rapid growth and winddown. This suggests that the FCA aims to identify risks to service continuity and ensure firms have robust integration and consumer protection measures in place during significant structural changes. It also signals the regulator’s intent to monitor for unauthorised changes in control and assess whether firms are managing transitions in a way that safeguards client outcomes.
Firms should be prepared to evidence the rationale and risk management behind any planned changes, maintain up-to-date wind-down and transition plans, ensure effective governance and integration processes during and post acquisition, and demonstrate how client outcomes will be protected throughout.
Ongoing Charges
The FCA’s 2025 information request places greater emphasis on ongoing charges, asking for more detailed breakdowns of fee structures, including for execution only services, compared to the previous request.
By requesting detailed breakdowns of ongoing charges, commission models, custody fees, and third-party investment charges, the FCA is assessing the transparency and fairness of firms’ pricing structures. This line of questioning is directly linked to the Consumer Duty, particularly the price and value outcome and is aimed at identifying potential consumer harm, such as hidden or excessive fees, and ensuring consistency across service types.
This sentiment aligns with the findings from the FCA’s multi-firm review on ongoing financial advice services, published in February 2025. The review found that suitability reviews were delivered in around 83% of cases, with a further 15% where clients declined or didn’t respond. Fewer than 2% of cases showed no effort by firms to deliver the suitability review.
The FCA has asked all firms to reflect on these findings and take action to ensure consumers are receiving value from the services they’re paying for. This should include the maintenance of clear, well-documented pricing structures for all service types, ensuring fees are fully disclosed in client-facing materials, and regularly testing whether pricing delivers fair value. Client communications should also be reviewed to confirm alignment with consumer understanding of expectations.
Firms should be prepared for further regulatory work later in 2025 and are encouraged to improve ongoing service processes and controls, review past delivery of services back to 2018 to identify any instances of harm which might require remediation, and manage complaints appropriately.
Governance and Oversight
The FCA’s 2025 s165 information request signals a deepening focus on firms’ governance, oversight, and risk management frameworks, particularly concerning investment decision-making, outsourcing, and second-line controls.
By asking detailed questions about centralised investment committees, including meeting frequency, authority over asset allocation and security buy-lists, and cross-functional representation, the regulator is evaluating whether firms have structured and accountable investment governance in place to protect client outcomes.
In addition, the questions on outsourcing and third-party reliance (including risk tools, compliance, custody, and IT systems) aim to assess whether firms have appropriate oversight of critical services, regardless of whether they are delivered in-house or externally.
The FCA is also scrutinising portfolio monitoring practices, including the frequency of reviews, thresholds for intervention, and escalation routes. This is linked to ensuring that investment mandates remain suitable over time, are managed accordingly, and align with client risk profiles, with any deviations identified and addressed promptly.
Further, by requiring data on second-line control activity, such as the percentage of files reviewed under COBS and SYSC requirements, and follow-up actions taken, the FCA is testing the effectiveness of risk and compliance functions in actively supporting good consumer outcomes.
Firms must maintain clear, well-documented evidence of how investment decisions are governed, particularly through centralised investment committees. As well as how client risk assessments are conducted and monitored. Firms are expected to demonstrate effective oversight of asset allocations, approved security lists, and ongoing suitability against client risk profiles. Above all, firms must be ready to prove that their systems and controls consistently deliver good consumer outcomes and meet the FCA’s standards.
Interest earned on cash balances
It seems likely that the FCA is using the 2025 s165 information request to follow up on the concerns highlighted in its 12 December 2023 Dear CEO’ letter to investment platforms and SIPP operators, specifically regarding interest earned on client cash balances. By requesting detailed data on the value of client cash holdings, the percentage of interest retained, and the frequency of monitoring (across both portfolio management and execution-only services), the FCA are likely examining whether firms’ practices align with the Consumer Duty outcomes of fair value and consumer understanding.
The regulator is particularly focused on identifying firms that may be retaining excessive interest without clear justification or transparency, especially where this is combined with additional account charges (‘double dipping’). Firms must be prepared to demonstrate that any interest retention reflects fair value, is monitored regularly, and is disclosed in a way that is clear, accurate, and easy for consumers to understand. Failure to do so may indicate foreseeable harm and non-compliance with Principle 12 and COBS 2.1.1 – the client’s best interests rule.
T&C competency/qualifications of certified individuals
The FCA’s information requests place greater focus on training, competence, and qualifications across all levels of regulated roles, reinforcing the link between individual capability and client outcomes. By asking firms to detail the qualifications held by portfolio managers, front-office staff, and senior managers, particularly SMF16 (Head of Compliance) and SMF17 (MLRO), the FCA is testing whether certified individuals have the skills, knowledge, and experience needed to discharge their responsibilities effectively.
This aligns with the FCA’s 2022 publication outlining the expectations of heads of compliance and MLROs. Firms must be able to evidence that risk and compliance teams conduct regular, robust file reviews and assurance activity, and play an active role in assessing the suitability and appropriateness of advice or investment decisions. As expectations rise, firms should review and enhance their training and competency frameworks to ensure that appropriate processes are in place to ensure all certified individuals remain fit and proper, with the capacity and independence required to uphold regulatory standards. The use of third-party compliance support can strengthen a firms overall compliance framework, but it does not substitute for in-house competence. Individuals must be capable of making informed, independent compliance decisions.
Next steps
The key message for firms is clear: be prepared. The regulator has been clear that it views weaknesses in systems and controls as a risk to consumer harm. The sector has already felt increased scrutiny, and the FCA is using its VREQ and s166 powers to force improvements where weaknesses are identified, much of which has been driven by the data submitted by firms.
Firms must operate on the assumption that a s165 request could arrive at any time. To respond effectively and avoid triggering regulatory concerns, it’s essential to be able to demonstrate compliance through up-to-date governance processes and management information that aligns with FCA expectations.
If the FCA believes a firm cannot demonstrate proper systems and controls in these areas, it may initiate a broader investigation. This is a risk that no firm can afford to take lightly. Firms should act now to ensure that their systems, processes, MI and documentation are robust, well-organised, and ready to meet regulatory scrutiny.
How Square 4 can help
Get in touch if you would like to discuss what we’re seeing from the FCA, insights across the sector, or if you’d value support. We have expertise across a complement of FCA focus areas, including retail investments and pensions client assets compliance, financial crime, consumer duty, vulnerable customers and outsourcing.
If you would like to discuss the contents of this article or find out more about how we can support your firm, please get in touch with us at hello@square4.com or a member of the team below.
Simon Goryl – Advisory Director
Sara Haworth – Principal Consultant
Alice Buckley – Consultant
Luke Wootton – Client Relationship Director
Elliot Cooper – Client Partner
