FCA Financial Advisers Information Request
Following its Coronavirus Financial Resilience Survey, conducted in November 2020, the FCA is investigating the key drivers of harm. During December 2020, the FCA has engaged with firms (specifically, with financial advisers) to better understand, by issuing a Financial Advisers Information Request, the challenges presented by Covid-19 related pressures. The FCA is also interested in understanding what measures are being put in place to mitigate these challenges.
It is apparent from this FCA project that threshold conditions and the assessment of adequate financial resources remain important components of the FCA’s supervisory work. In December 2020, firms have been asked to provide information in respect of potential consumer liabilities that may crystallise for them, including potential customer redress or legal cases.
What is a Financial Advisers Information Request and what do you need to do?
The FCA has requested firms’ most recent assessment of their capital adequacy (including how they expect to meet capital requirements of the coming weeks and months), the twelve-month capital plan for the firm and if relevant the intercompany current and forecast position. Other items requested from firms have included;
- A copy of the firm’s management accounts (cash flow, balance sheet and income statement/profit and loss) with the year to date actuals and monthly projections covering twelve months.
- A copy of the current wind-down plan. At a minimum, this should include information on the triggers, time period and the costs to wind down the business in an orderly manner as well as any insolvency advice taken.
- Details of any strategic decisions already made or underway resulting in reductions to staffing (for example furloughing) and/or strengthening the financial position of the firm.
- Firms have also been asked to provide further qualitative detail on the following;
- The impact Covid-19 is having on their business and revenue model,
- How their ability to meet liabilities as they fall due has been impacted by Covid-19 and what the impact was of any management actions to continue to meet liabilities,
- How they ensure they have sufficient liquidity to meet liabilities as they fall due in the next 12 months.
One of the reasons firms have been contacted is that they have outstanding cases requiring redress and cases being investigated by the Financial Ombudsman Service.
Although generally speaking firms are not required to have wind-down plans, the FCA issued guidance on 9 July 2020 that requires all payment service providers, including authorised payment institutions and e-money institutions, to have a wind-down plan in place to manage liquidity and resolution risks. This forms part of prudential risk management requirements for the sector, covering governance and controls, ongoing capital adequacy calculations, liquidity, capital stress testing and risk management procedures and is a condition for the authorisation of these types of firms.
According to the FCA guidance, the wind-down plan should facilitate the orderly winding-down of the firm’s business under different circumstances, including under solvent and insolvent scenarios. In particular, the plan should address the following:
- funding to cover the solvent wind-down of the firm, including the return of all customer funds,
- realistic triggers to start a solvent wind-down, including triggers for a transition to third-party providers or continued services after the wind-down,
- the need and time for any counterparties (i.e. merchants) to find alternative providers,
- realistic triggers to seek advice on entering an insolvency process, and
- information that would help an administrator or liquidator to quickly identify customer funds and return them as a priority
The plan should be subject to a minimum annual review and be prepared on a solo-firm basis.
How can we help?
For more information about how we can help with an FCA Financial Advisers Information Request or our services on capital adequacy assessments and wind-down planning, call 0207 436 0630 to speak to a member of our expert team or email firstname.lastname@example.org.