Dear CEO letters

  

Published: 14th October 2011 by William Webster

On several occasions I have been asked about Dear CEO letters. These letters normally focus on a theme where the regulator has found weaknesses in the way firms manage their business. A formal response is often required.

How seriously should you take these letters and your response? In two words very seriously. Failure to do so may lead to a fine.

That's what happened in September 2011. Towry Investment Management Ltd was fined £494,900 for providing incorrect information to the FSA.

The FSA had set out rules regarding client monies. A Dear CEO letter was sent out asking firms to ensure they were compliant. Towry stated that it was. The FSA contended that the firm wasn't and that it had failed to properly consider its response to the CEO letter.

The FSA found the failings to be particularly serious. On the subject of CEO letters the FSA said:

"Dear CEO letters are an important regulatory tool used by the FSA to raise significant issues and firms must consider them with particular care;

The firm failed to ensure the response to the Dear CEO letter was properly considered and checked before being sent, resulting in inaccurate information being provided to the FSA".

This breached Principle 11 where firms are required to deal with the FSA in an open and cooperative manner.

There can be no doubt about the message. CEO letters require a careful and considered response. Identified shortfalls need remedial action. These letters are serious.

Treasury and Risk are also recurring themes in CEO letters. Whilst it may be tempting to assume wholesale areas will be treated with more leniency, (the Towry case involved clients' money), why cut corners and find out you are wrong?

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