During the course of 2021/2022, the FCA carried out a detailed review of 25 FCA solo-regulated firms that had experienced rapid growth over a three year period. On 10 March 2023, the FCA published the results here.
The review focused on fast-growing contract for differences (CFD) providers, wealth managers and payment services firms. However, the FCA emphasised that its findings are relevant to all regulated firms that have grown rapidly or have plans to do so. Firms submitted documentation including business plans, internal capital adequacy assessment process (ICAAP) documents and wind-down plans. The FCA used this information to assess the impact of rapid growth on the firms' financial and non-financial resources.
The review's key finding was that most firms had not sufficiently developed their risk management framework and governance arrangements to match the speed of growth in their business. Firms had also neglected to assess the adequacy of their financial resources and create appropriate wind-down plans in line with their growth. Accordingly, the risk of poor outcomes for consumers had increased, alongside the risk of harm in the event of firm failure.
The webpage explores these deficiencies further and summarises the FCA's expectations for fast-growing firms in order to mitigate these risks, including:
- Having robust plans in place to understand likely future growth, and to maintain sufficient resources to manage growth or unexpected stress.
- Updating risk management frameworks (including risk appetite and limit frameworks) and governance arrangements to ensure that they remain proportionate and fit for purpose.
- Ensuring that the assessment of adequacy of financial resources continues to be commensurate with the size, complexity and forecast growth of the business.
- Embedding a liquidity risk management framework including liquidity risk policies, controls, contingency funding plans and stress testing.
- Ensuring wind-down plans are robust.
- Providing accurate and complete data in their regulatory submissions.
The FCA emphasised that it expected all fast-growing firms to continually identify, assess and manage the risks arising from their activities and associated growth.
All firms that have grown rapidly, or have plans to do so, should read our findings and consider whether they need to make changes to their own arrangements.