FCA and PRA publish dear CEO letter to global equity finance businesses

The PRA and FCA have jointly published a Dear CEO letter regarding the supervisory exercise which they undertook following the default of Archegos Capital Management. The default resulted in over $10 billion of reported losses across multiple firms and prompted the PRA, FCA and other global regulators to review firms’ equity businesses, with a particular focus on counterparty risk management. The letter itself identifies the significant cross-firm deficiencies that the review identified.

Annexes to the letter set out the main observations and expectations in the areas of:

  • business strategy and organisation;
  • onboarding and reputational risk;
  • financial risk management controls and governance; and
  • liquidation and close-out.

The FCA and PRA expect firms to conduct a systemic review of their equity finance business and risk management practices and controls, using the findings in the annex as a benchmark. Firms should report their findings to the PRA and FCA, along with detailed plans for remediation where relevant, by the end of Q1 2022.


Emma Bond