Supervision

Find out about our market-based approach to supervising firms.

Our priority in supervising firms is to ensure consumers are at the centre of a firm’s business. Our aim is to deliver a sustainable programme of supervision with a market-based approach, rather than just concentrating on individual firms. We seek to tackle risks before they cause harm.

We make risk-based judgements about whether the firm’s business model and how it is run results in fair treatment for consumers, and that it upholds market integrity and, for those firms that we prudentially regulate, that it is financially sound.

Conduct supervision

The FCA is responsible for supervising over 56,000 firms. We supervise the market using different approaches. The three main approaches are:

  • Pillar 1 – proactive supervision for the biggest firms.
  • Pillar 2 – event-driven, reactive supervision of actual or emerging risks according to our risk appetite.
  • Pillar 3 – thematic work which focuses on risks and issues affecting multiple firms or a sector as a whole.

We intervene early where we see poor behaviour, taking action to prevent harm to consumers and markets and secure redress where appropriate.

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

Fixed portfolio firms

Fixed portfolio firms have a named supervisor and are proactively supervised using a firm-specific continuous assessment approach. All these firms are subject to a firm-specific supervisory strategy and an underlying work programme, which are evaluated at key governance checkpoints during the regulatory cycle. Pillar 2 issues are addressed in line with risk appetites and regulatory obligations, and firms may also be included in Pillar 3 activity where appropriate. 

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

We are responsible for the prudential regulation of over 24,000 firms, including asset managers, financial advisers, and mortgage and insurance brokers. This makes us, by number of firms, the largest prudential regulator in Europe. As with our supervision of conduct, our prudential supervision goes beyond a quantitative analysis of firms’ financial resources. We consider systems and controls, governance arrangements, and risk management capabilities including the risk of misconduct.

In essence, we assess how well a firm understands the risks that it is running, and how well placed it is to manage those risks, and to avoid large, unexpected costs.

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 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 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.