FCA’s Fast-Growing Firms multi-firm review – Not just for FGFs!

On 10 March, the FCA published a new multi-firm review (found here) focusing on FGFs, specifically CFD providers, wealth managers and payment services providers. Firms that the FCA has identified as being an FGF should take full notice of this review.

For firms not considered part of the FGF group, the feedback is also relevant, and we have referenced a few key takeaways which should be considered when reviewing your firm’s ICARA.

1. Risk management – Firms should regularly update their risk management frameworks, including risk appetite and limit frameworks. These risks must be regularly updated as the business changes, it is exposed to new threats, or others fall away. This includes reviewing the resourcing needs of risk, compliance, and audit functions. In addition, firms should consider their second and third lines of defence, especially where these activities are outsourced.
2. Assessment of adequacy of financial resources – Firms should be conducting stress testing and scenario analysis, which is proportionate to the complexity of the business and correspond to its growth. If the firm cannot effectively forecast its liquidity and capital needs, this will be a concern for the FCA. The lack of adequate capital and liquidity needs can disrupt the ability of the business to operate as a going concern in times of stress. In addition, failing to assess financial resources adequately can lead to a penalty of a governance scalar in individual capital guidance.
3. Wind-down plans – Firms should account for a reasonable wind-down period and not underestimate the cost or time to carry out an effective wind-down. Does your wind-down plan effectively prepare the firm and its senior management to take timely and appropriate action? Are the triggers and early warning indicators effective in identifying stressed events? Are the stress tests and reverse stress tests realistic?

If you would like to discuss any of the items mentioned or have questions for our governance, risk and compliance specialists, please contact us.