FCA Widening Financial Resilience Requirements for Solo-regulated Financial Services Firms
The Financial Conduct Authority (FCA) has announced that it will require solo-regulated financial services firms to provide a base level of information about their financial resilience. The return, which will be known as the Financial Resilience Survey (FRS). This was due by 31 March 2023.
The FRS will collect data on a range of topics, including:
Capital and liquidity
Funding
Operational resilience
Governance and culture
Risk management
The FCA says that the FRS will help it to understand the financial resilience of solo-regulated firms and to identify any areas of concern. The data collected will also be used to inform the FCA's supervisory activities.
The FRS will apply to all solo-regulated financial services firms, with the exception of small firms and those that are subject to the European Market Infrastructure Regulation (EMIR). Firms will be able to complete the FRS online.
The FCA says that it is committed to promoting financial resilience in the financial services sector. The FRS is a key part of this commitment. The FCA says that it will use the data collected to identify any areas of concern and to take action to address them.
The FRS is a welcome development. It will help the FCA to understand the financial resilience of solo-regulated firms and to identify any areas of concern. The data collected will also be used to inform the FCA's supervisory activities. This is all good news for consumers and for the financial system as a whole.
The FCA is committed to protecting consumers and ensuring the stability of the financial system. The FRS is a key part of this commitment. The FCA says that it will use the data collected to identify any areas of concern and to take action to address them. This is all good news for consumers and for the financial system as a whole.
The FCA has a number of tools at its disposal to promote financial resilience, including:
Conduct regulation: The FCA's conduct regulation is designed to ensure that firms treat their customers fairly and that they take steps to manage their risks.
Prudential regulation: The FCA's prudential regulation is designed to ensure that firms have the financial resources to withstand shocks and to continue to provide services to their customers.
Enforcement: The FCA has the power to take enforcement action against firms that fail to comply with its rules.
The FCA's financial resilience framework is designed to help firms build and maintain their financial resilience. The framework covers a range of topics, including:
Governance and culture: The FCA expects firms to have strong governance and a culture that is focused on risk management.
Risk management: The FCA expects firms to have robust risk management systems in place.
Capital and liquidity: The FCA expects firms to have sufficient capital and liquidity to withstand shocks.
Funding: The FCA expects firms to have a sustainable funding structure.
Operational resilience: The FCA expects firms to have robust operational resilience arrangements in place.
The FCA's financial resilience framework is a valuable tool for firms. It can help firms to build and maintain their financial resilience, which is essential for the stability of the financial system and for protecting consumers.
What is financial resilience?
Financial resilience is the ability of a firm to withstand shocks and continue to provide services to its customers. A firm that is financially resilient is able to absorb losses, maintain its operations, and continue to meet its obligations to its customers.
Why is financial resilience important?
Financial resilience is important for a number of reasons. First, it helps to protect consumers. When a firm is financially resilient, it is less likely to fail, which means that consumers are less likely to lose their money. Second, financial resilience helps to stabilize the financial system. When a firm fails, it can have a knock-on effect on other firms, which can lead to a financial crisis. Third, financial resilience helps to promote economic growth. When firms are financially resilient, they are more likely to invest and grow, which benefits the economy as a whole.
How can firms improve their financial resilience?
There are a number of things that firms can do to improve their financial resilience. These include:
Strong governance and culture: Firms should have strong governance and a culture that is focused on risk management. This means having a board of directors that is independent and that is able to challenge management, and having a management team that is committed to risk management.
Robust risk management: Firms should have robust risk management systems in place. This means having a clear understanding of their risks, and having systems in place to monitor and manage those risks.
Sufficient capital and liquidity: Firms should have sufficient capital and liquidity to withstand shocks. This means having enough capital to absorb losses, and having enough liquidity to meet their obligations.
Sustainable funding structure: Firms should have a sustainable funding structure. This means having a mix of funding sources that can withstand shocks.
Operational resilience: Firms should have robust operational resilience arrangements in place. This means having systems in place to keep their operations running in the event of a disruption.
By taking steps to improve their financial resilience, firms can protect themselves from shocks, continue to provide services to their customers, and contribute to the stability of the financial system.
https://www.fca.org.uk/publication/consultation/cp22-19.pdf
