Keeping up with growth

There has been lots of political talk in recent months about the need for economic growth. Has to be a good thing yes?


Well, yes and no actually. Growth needs to be robust and sustainable, otherwise this year’s growth could be next year’s problem. And that, in essence, is what a recent FCA review of firms that had grown rapidly has found.

Although primarily aimed at 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.

What did the review identify?

The review found that, for most firms:

  • The risk management framework and governance arrangements had not kept pace with the growth in business activities.
  • Firms’ assessment of the adequacy of financial resources did not consider the growth, resulting in financial resources assessments that were not commensurate with the expanded business.
  • Wind-down plans were inadequate following fast growth.

This is not a new phenomenon. The FCA has in the past censured firms for this very reason and we have seen firms expanding rapidly, often as a result of acquisitions, yet at the same time reducing their admin and compliance resource!

What needs to be done?

As mentioned above, the findings will be relevant to a large number of firms and the FCA expects all fast-growing firms to:

  • Continually identify, assess and manage the risks arising from their activities and associated growth.
  • Hold adequate financial and non-financial resources to cover these risks and mitigate potential harm.

Specifically, firms should:

  • Have robust plans in place to understand their likely future growth, and to maintain sufficient resources to manage.
  • Update their risk management framework (including risk appetite and limit framework) and governance arrangements to ensure that they remain proportionate and fit for purpose.
  • Ensure that the assessment of adequacy of financial resources continues to be commensurate with the size, complexity and forecast growth of the business.
  • Embed a liquidity risk management framework including liquidity risk policies, controls, contingency funding plans and stress testing.
  • Ensure that their wind-down plan is robust, and they have considered the wind down planning guide. This includes liquidity management for wind down as outlined in TR22/1.
  • Provide accurate and complete data in their regulatory submissions.

Important Note: ATEB news is intended to provide general information ONLY. The content, including any views expressed or guidance provided, does not replace the need to comply fully with FCA Rules and Guidance. Unless you have discussed news article content with ATEB, and specifically how it relates to your circumstances, then ATEB disclaims all liability and responsibility and actions arising from any reliance placed upon it. For the avoidance of doubt therefore, any reliance you place on such information without our consultation is at your own risk.

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About the Author

Technical Manager - Often referred to as the Oracle or the Sage, Alistair has a wealth of financial services experience. He is our go-to Technical Manager and enjoys nothing more than a complicated conundrum. Feel free to test his renowned knowledge by getting in touch.

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