Thistle Initiatives’ Consultant, Sophia Ioannou, explores the FCA’s newly launched Scale-up Unit and what it means for firms.
The FCA has launched a Scale-up Unit with the aim of building on existing support/infrastructures that support rapidly growing firms and addressing regulatory complexities. These include how regulatory requirements evolve as a firm grows and firms’ obligations when they expand into new sectors. The Scale-up Unit aims to provide support to insurers and banks.
What is the Scale-up Unit?
To overcome challenges that rapidly growing firms face, a dedicated point of contact at the FCA will help address difficulties faced by growing firms across the following areas.
- Regulated processes – Determining which regulatory processes impact their expansion plans and managing interactions with regulators before and during formal application submissions.
- Product innovation – Supporting early engagement for firms potentially introducing new products or services by discussing their plans and outlining relevant regulatory frameworks.
- Impact of new policy proposals – New policy proposals relating to scaling firms will be considered, and feedback will be implemented into the FCA’s and PRA’s policy-making processes.
- Sector engagement – Providing and facilitating ongoing communication between the firms, the regulators and the wider eco-system.
FCA Early & High Growth Oversight
The FCA launched an Early and High Growth Oversight initiative in 2022 with the aim of providing additional supervision to newly authorised firms and rapidly expanding firms to help them understand and meet their regulatory obligations.
FCA Fast-Growing Firms Review
In 2021-2022, the FCA undertook a multi-firm review of CFD providers, wealth managers and payment service firms that had grown rapidly over the last three years. The review focused on risk management, governance and financial resource adequacy, with the aim of assessing how this growth impacted the firms’ financial and non-financial resources. The FCA saw that for most firms:
- As the firms’ business activities expanded, their risk management frameworks and governance arrangements did not evolve at the same pace. There was a lack of awareness of the regulatory requirements associated with their business changes, with infrequent reviews of capital/liquidity assessments and wind-down plans and deficiencies in the implementation of the three lines of defence framework.
- There was an inadequate assessment of capital resource adequacy, as material risks and potential harm posed by new products/business activities or growth were not considered. It was found that stress testing and scenario analysis did not address the impact of reduced growth rates, and there was a lack of understanding of liquidity risks associated with firms’ business. Liquidity stress testing was not robust.
- There were inadequate wind-down plans which lacked consideration of relevant events, wind-down costs and triggers, and the impact of group dependencies.
What Does This Mean for Firms?
Recent reviews undertaken by the FCA demonstrate the increased focus and support needed for rapidly growing firms to address regulatory complexities. The launch of the Scale-Up unit will provide additional supervision and support for such firms, allowing them to grow while operating within regulatory requirements and expectations. Firms should consider enhancing their risk management framework and strengthening controls focused on consumer protection.
Meet the Expert
Sophia Ioannou, Consultant 
Sophia recently joined Thistle as a Consultant in the Investment Wholesale team. She holds a Bachelor of Science in Psychology from the University of Nottingham and brings a strong foundation in investment compliance. Before joining Thistle, she worked at a hedge fund where she supported regulatory development projects and contributed to policy reviews, giving her practical insight into how firms adapt to emerging requirements. She has also completed the CISI Introduction to Securities and Investment and Global Financial Compliance modules, which further strengthened her technical knowledge.