FCA publishes FGF’s multi-firm review

The FCA has published its findings and expectations of FCA solo-regulated fast-growing firms to identify, assess and manage the risks arising from their activities. In particular, this multi-firm review of 25 FCA solo-regulated firms focused on fast-growing contract for differences (CFD) providers, wealth managers and payment services firms. It assessed the impact of rapid growth over a 3 year period on their financial and non-financial resources. The scope of the review covered risk management practices, governance arrangements and adequacy of financial resources (capital and liquid assets) at firms across these three business models.

The FCA’ s main observations for most of the firms were:

  • risk management frameworks and governance arrangements had not kept up with the growth of the business activities;
  • growth in the firm’s underlying business was not accounted for within the firms’ assessment of the adequacy of financial resources; and
  • the firms had inadequate wind-down plans following their rapid growth.

The FCA considered that the above could result in increased risk of unfavourable outcomes for customers, poor financial resilience of firms, and greater risk of harm in the event of firm failure.

The review also made recommendations to address the above issues, which included:

  • making updates to risk management and governance arrangements, including resourcing needs in risk, compliance and audit functions; and
  • updating their assessment of adequacy of financial resources and wind-down plans.

The summary observations made by the FCA are relevant to all regulated firms with, or that have plans of, rapid growth. The FCA encourages such firms to read the findings and consider making changes to their arrangements accordingly where necessary.

FIN. Team