Key facts
- Rathbones Group Plc is undergoing a compliance transformation due to identified gaps in financial crime oversight.
- The Financial Conduct Authority (FCA) prompted a review that found shortcomings in the UK wealth arm's implementation of Consumer Duty and compliance arrangements.
- Rathbones expects total operational costs and business changes of approximately £60 million over two years.
- The firm has paused onboarding new clients requiring enhanced due diligence for up to twelve months.
- Shares of Rathbones Group PLC fell 16.5% following the announcement of the review's findings and associated costs.
Rathbones Group Plc is undertaking a significant compliance overhaul after a review, prompted by the Financial Conduct Authority (FCA), identified systemic gaps in its financial crime oversight and consumer protection implementation. The wealth management firm anticipates incurring approximately £60 million in operational costs and business changes over the next two years to address these deficiencies.
As part of the remediation efforts, Rathbones has voluntarily suspended the onboarding of new clients who require enhanced due diligence, a measure expected to last up to twelve months. This segment of clients generated gross inflows of about £370 million in the past year. Additionally, the firm has halted some inflows into general investment accounts from existing higher-risk clients, impacting roughly 4,700 individuals, or 4% of its total client base, which had contributed approximately £530 million in gross inflows over the same period.
The review, conducted by a skilled person and overseen by the FCA, flagged weaknesses in the group's compliance, oversight, and assurance arrangements, as well as in the implementation of the Consumer Duty rules for retail clients. The £60 million in expected costs, after accounting for insurance recoveries, will be recognized as non-underlying expenses over the two-year remediation period. Furthermore, Rathbones will cease charging management fees on cash held in clients' discretionary portfolios starting July 1, a move projected to reduce underlying pre-tax profit by approximately £9 million annually from 2026.
Despite these challenges, Rathbones stated that its dividend policy remains unchanged, and a £20 million share buyback program, approved by the Prudential Regulation Authority, is set to commence shortly. Chief executive Jonathan Sorrell expressed that the ongoing work is aimed at supporting the firm's ambition to be the leading UK wealth manager and that its overall strategy remains consistent.