We are publishing final guidance on a framework to help financial services firms ensure they have adequate financial resources and to take effective steps to minimise harm.
Why we are publishing this guidance
In CP19/20[2] we consulted on the purpose of adequate financial resources, what we look for from firms and our expectations as to the practices firms should adopt within their assessments of adequate financial resources.
In this document, we are setting out our expectations of how firms determine they have adequate financial resources. This framework document aims to provide more clarity on:
- the role of adequate financial resources in minimising harm
- the practices firms can adopt when assessing adequate financial resources
- how we assess the adequacy of a firm’s financial resources
We are also responding to the feedback we received. This finalised guidance is relevant for Threshold Condition 2.4 and Principle 4.
This guidance does not place specific additional requirements on firms because of Covid-19, but the crisis underlines the need for all firms to have adequate resources in place and to assess how those needs may change in the future.
Who this applies to
This applies to all FCA solo-regulated firms subject to threshold conditions and/or the Principles for Businesses (PRIN).
Background to this guidance
We consulted on making our expectations of firms clearer in this area and asked for feedback. The vast majority of responses supported our proposals.
This framework explains the purpose of, and our approach to the assessment of adequate financial resources, for all FCA solo-regulated firms subject to threshold conditions and/or the Principles for Businesses (PRIN). It also provides further guidance on the meaning of ‘adequate financial resources’.
Our intention is to improve the way firms operate so they can take effective steps to prevent harm from occurring, by improving controls and/or reducing the risk in their activities and put things right when they go wrong.
Having adequate financial resources:
- allows firms to operate and provide services through the economic cycle
- allows for an orderly wind-down without causing undue economic harm to consumers or to the integrity of the UK financial system