Earlier this month the FCA published a review of its findings and expectations of FCA solo-regulated fast-growing firms.
The review was conducted as the regulator had identified that some firms with very fast growth presented an increased risk of harm to customers and other market participants.
These firms could also have poor financial resilience.
As such, the review looked at 25 FCA solo-regulated firms focused on fast-growing contract for differences (CFD) providers, wealth managers and payment services firms who underwent rapid growth over a 3 year period from 2018 - 2020. Metrics used to assess growth rate included revenue, total balance sheet assets, client number and custody assets.
The regulator looked at the impact of rapid growth on these firms' financial and non-financial resources, including their risk management practices, governance arrangements and adequacy of financial resources. Key observations of most firms were as follows:
Risk management frameworks and governance arrangements had not kept up with the growth of the business activities despite being proportionate at authorisation.
Firms’ assessments of the adequacy of financial resources did not consider the growth in their underlying business. As a result firms did not have capital and/or liquid assets commensurate with their size.
Firms had significant deficiencies in their wind-down plans, including a lack of operational analysis and resource assessment following their rapid growth, both of which increased the risk of harm in the event of firm failure.
Recommendations therefore include firms updating their risk management and governance arrangements to help ensure they have adequate resources in place to identify, assess, manage and monitor risks. Firms are also expected to update their assessment of adequacy of financial resources and wind down plans.
All regulated firms that have grown rapidly, or have plans to, are encouraged to familiarise themselves with these findings and consider if changes are needed to their current arrangements.
Read the full review here
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