FCA Dear CEO Letter on Quality of Prudential Regulatory Returns

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The FCA has published a Dear CEO Letter addressed to CEOs of IFPRU investment firms and BIPRU firms in relation to their firm’s regulatory reporting practices.

Prudential risk monitoring is a fundamental aspect of firms’ financial management practices and poor financial management can engender poor conduct outcomes for consumers and for the markets. Accordingly, data in prudential regulatory returns are important for firms and for the regulator. Nevertheless, the FCA has noted that a significant number of firms submit returns containing inaccurate and/or incomplete data. The most commonly observed issues with returns include:

  • Failure to complete the underlying templates within the COREP submissions due to inadequate understanding of the prudential rules;
  • Failure to submit certain returns, such as the Financial Reporting (FINREP) return;
  • Incorrect calculation of the total sum of risk exposures across various risk categories (i.e. market and credit risk) which results in an inaccurate figure in terms of capital requirements;
  • Inconsistent completion of COREP returns.

There are two important messages in this Letter, which are not for big organisations only.

CEOs of IFPRU investment firms and BIPRU firms should review their firm’s regulatory reporting practices and ensure they are fit for purpose, comply with the relevant reporting provisions, and produce accurate data. Minor errors can distort the outcome from analysing data of a sector or a group of firms.

From 1 October 2018, the FCA will review a sample of firms’ returns. If there is evidence that firms continue to submit materially inaccurate, incomplete, and/or poor quality data, the Regulator will consider how to improve the standards of returns.