On Jun. 13, FCA proposed guide on adequate financial resources.
FCA explains purpose of, and approach to assessment of, adequate financial resources.
Also provides guidance on the meaning, in threshold conditions/principles for business.
Adequate Resources
Assessment of adequate financial resource is important part of FCA supervisory work.
Aim to be clear and transparent about its work, and expectation for financial resource.
This should lead to appropriate approaches which may result in the mitigation of harm.
Guidance to improve way firms operate so that they can prevent harm from occurring.
Also improve controls; consider risk in activities; put things right when they go wrong.
Contents
Content Includes the role of assessing adequate financial resources; what the FCA look for from firms when assessing the financial resources; what it looks for from all firms.
Proportionate and Regular Risk Assessment
Use forward-looking approach to risks and how evolve throughout the economic cycle.
Approach is to be proportionate to the likelihood of risks, to which the firm is exposed.
For some firms, may be limited to demonstrating the ability to pay debt as it falls due.
The balance between ensuring financial soundness, while avoiding excessive costs.
Perform at least annually, reflecting the fact that the business environment is dynamic.
Business Model and Strategy
Existing and emerging risks and vulnerabilities might affect their ability to generate acceptable returns, and to have access to adequate capital to support the business.
Prevent Harm
Firms should be able to detect, identify, and then rectify any problems themselves.
Put Things Right
Identify sources of potential harm/estimate their impact, taking into consideration that not all events might occur at the same time and some might be covered by PII.
Consider potential depletion of financial resources, and inability to monetize assets.
Minimize Harm in Failure
Scenarios leading a firm to stress and how its resources are maintained during exit.
Consultation Period
Comments to be received by Sep. 13, 2019.
Jun. 11, 2020 Final Guidance
On Jun. 11, 2020, UK FCA issued finalized guidance on adequate financial resources.
For FCA solo-regulated firms subject to threshold conditions/principles for businesses.
To help them ensure adequate financial resources and take steps to minimize harm.
Outlines the practices firms can adopt when assessing adequate financial resources.
FCA expectations on determining resources, covers threshold condition 2.4/principle 4.
No additional requirements due to Covid, which stresses need for adequate resources.
Document also provides further guidance on meaning of adequate financial resources.
