Context
Although the FCA’s multi-firm review focuses on fast-growing contract for differences (CFD) providers, wealth managers and payment services firms, the observations are relevant to all regulated firms that have grown rapidly or have plans to do so.
Key points to note
During 2021-2022, the FCA conducted a multi-firm review of 25 solo-regulated firms which experienced fast growth over a 3-year period. The impact of the rapid growth was assessed against each firm’s financial and non-financial resources.
The review was based on business plans, internal capital adequacy assessment process (ICAAP) documents, wind-down plans and other documents submitted by firms. It focused on risk management practices, governance arrangements and adequacy of financial resources (capital and liquid assets) at CFD providers, wealth managers and payment services firms.
For most of the firms subject to the review, the FCA found:
- Their risk management framework and governance arrangements (including staffing in second and third line of defence) have not kept pace with the growth in their business activities. While risk management practices at these firms may have been proportionate at authorisation, they had not evolved to scale with the business. This can result in an increased risk of poor outcomes for consumers.
- Firms’ assessment of the adequacy of financial resources did not consider the growth in their underlying business resulting in financial resources assessments that were not commensurate with the size, business model and underlying risks. This can affect the financial resilience of firms, increasing the risk of disorderly firm failure.
- Wind-down plans were inadequate following the fast growth of these firms, increasing risk of harm in the event of firm failure.
Next actions
None – for information and awareness.