FCA publishes fast-growth firms multi-firm review

The FCA has published its fast-growing firms ("FGFs") multi-firm review, setting out its expectations of FCA solo-regulated fast-growth firms to identify, assess and manage the risks arising from their activities. The results highlight an increased risk of poor outcomes for consumers and disorderly firm failure.

On 10 March 2023 the FCA published its findings and expectations of FCA solo-regulated FGFs. The review was conducted during 2021/2022 across 25 FGFs that had experienced rapid growth over a 3-year period from 2018 to 2020 and focuses on fast-growing contract for differences providers, wealth managers and payment services firms. However, the FCA has confirmed that its findings are relevant to all regulated firms that have grown rapidly or have plans to do so.

The review was conducted as a result of the FCA's concern that some firms with very fast growth presented an increased risk of harm to customers and other market participants. It focused on the impact of this rapid growth on the FGFs' financial and non-financial resources, including their risk management practices, governance arrangements and adequacy of financial resources. The FGFs were required to provide the FCA with documents including, business plans, internal capital adequacy process documents, wind-down plans and financial projections for review.

The FCA has published the results in considerable detail, however the two key findings are that FGFs tend to have risk management and governance frameworks that don't keep pace with their rapid growth, and FGFs’ own assessment of the adequacy of their financial resources also didn’t reflect their increased size and scale. The effect is that there is an increased risk of poor outcomes for consumers and disorderly firm failure.

The FCA has provided detailed feedback to the FGFs and have put in place remediation plans where appropriate. 

The publication further sets out the FCA's expectations for FGFs to mitigate against risks, which include:

• Having robust plans in place to understand their likely future growth, and to maintain sufficient resources to manage growth or unexpected stress.

• Updating their risk management framework (including risk appetite and limit framework) 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 that their wind-down plan is robust.

• Providing accurate and complete data in their regulatory submission.

The FCA says that it expects all FGFs to continually identify, assess and manage the risks arising from their activities and associated growth. They must also hold adequate financial and non-financial resources to cover these risks and mitigate potential harm.

The key takeaway from all this is that firms that are particularly successful should ensure that they take as much care to improve their risk management, governance and financial security as they take to improve their bottom line.

Similarly, insurers of firms that appear to be growing rapidly should take particular care to ensure that the firms are meeting the FCA's expectations.  Nothing is more likely to derail a runaway success story than an FCA intervention.