How we supervise firms - Financial Conduct Authority

How we supervise firms

Published: 20/05/2015     Last Modified: 05/04/2016
We aim to deliver a sustainable programme of supervision that is primarily focused on markets rather than individual firms. Through forward looking, judgement-based regulation, we seek to identify and head off risks before they crystallise. When things do go wrong, we robustly seek redress for consumers who suffer harm and take action to address damage to market integrity.

Conduct supervision

We regulate over 56,000 firms. Our supervision model is built upon three pillars of supervision activity:

Pillar I is a programme of proactive, firm-specific supervision for the largest firms and groups.

  • Pillar II is event-driven, reactive supervision, which is focused on dealing with crystallised or crystallising risks in accordance with our risk appetite.
  • Pillar III is our thematic approach, where we focus on risks and issues for a sector as a whole.

All authorised firms have been allocated to one of two conduct categories:

Fixed portfolio firms

Fixed portfolio firms are the largest firms and groups across both retail and wholesale markets. These firms have an ongoing proactive relationship with a dedicated team of supervisors at the FCA and are subject to an ongoing cycle of proactive supervision.

Read more about our Approach to Supervision for fixed portfolio firms.

Flexible portfolio firms

Flexible portfolio firms are supervised through thematic and market-based work, along with programmes of communication, engagement and education activity aligned to the key risks identified in the relevant sector.

Read more about our Approach to Supervision for flexible portfolio firms.  

Prudential supervision

While the Prudential Regulation Authority has prudential responsibility for all deposit takers, insurers and significant investment firms, the FCA is the prudential supervisor for most firms across the financial services industry, such as asset managers, financial advisers, and mortgage and insurance brokers.

Our approach aims to minimise the harm to consumers, wholesale market participants and market stability when firms experience financial stress or fail in a disorderly manner. Our starting principle is that, if firms are failing, they should be allowed to do so in an orderly manner, regardless of their size.

We allocate firms that are solely regulated by the FCA to one of three prudential categories:

  • P1 firms, whose failure would cause lasting and widespread financial and reputational damage to their customers, client assets and the marketplace beyond, are subject to periodic capital and, if applicable, liquidity assessment, conducted by our prudential specialists every 24 months.
  • P2 firms are those whose disorderly failure would damage consumers and client assets but are more easily dealt with than the failure of a P1 firm. They are subject to periodic capital and, if applicable, liquidity assessment, conducted by our prudential specialists every 48 months.
  • P3 firms are those whose failure, even if disorderly, is unlikely to cause any significant harm to consumers or market integrity. These firms are supervised on a reactive basis.

 

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