What we are proposing
The assessment of adequate financial resources is an important component of our supervisory work. We aim to be clear and transparent about our work and our expectations of firms. Therefore, we are consulting on the purpose of adequate financial resources, what we look for from firms, and our expectations as to the practices firms should adopt within their assessments of adequate financial resources. This should lead to appropriate approaches that may result in the mitigation of harm to consumers and to the integrity of the UK financial system.
We aim to improve the way firms operate so that they can: prevent harm from occurring, improve controls, consider the risk in their activities, and put things right when they go wrong.
The document sets out:
- the role of assessing adequate financial resources
- what we look for from firms when assessing adequate financial resources
- the FCA’s expectations as to the practices firms should adopt in their assessment of adequate financial resources
What we look for from all firms
Proportionate and regular assessment of risks:
- Forward-looking approach to risks and how these evolve throughout the economic cycle, that is proportionate to the likelihood of risks to which the firm is exposed occurring and the amount of risk it poses. For some firms, this might be limited to demonstrating the ability to pay debts as they fall due.
- Balance between ensuring financial soundness while avoiding excessive costs.
- To be at least annual, reflecting the fact that the business environment is dynamic.
Understand the business model and strategy:
- Existing and emerging risks and vulnerabilities might affect their ability to generate acceptable returns, and have access to adequate capital to support the business, including any losses.
Prevent harm from occurring:
- Firms should be able to detect, identify, and rectify problems themselves. A sound risk management and controls framework is important.
Put things right when they go wrong:
- Identify sources of potential harm and estimate their impact, taking into consideration that not all events might occur at the same time and some might be covered by Professional Indemnity Insurance (PII) (it is not a worst case scenario).
- Consider the potential depletion of financial resources, and the inability to monetise assets in a timely manner.
Minimise harm in failure:
- Consider the scenarios leading a firm to experience financial stress and how resources are maintained whilst the firm exits the market.
Who this applies to
All FCA solo-regulated firms subject to threshold conditions and/or the Principles for Businesses.
What you need to do
Please send us your comments by 13 September 2019.
Online response form
You can also:
- email your responses to [email protected] or
- write to: Duarte Delgado, Financial Conduct Authority, 12 Endeavour Square, London, E20 1JN
We will consider your feedback and intend to publish our rules in a Policy Statement late in 2019.