On 10 March 2023, the FCA published its findings from a fast-growing firms (FGFs) multi-firm review.
For its review, the FCA selected a sample of 25 firms that had experienced fast growth. The firms were CFD providers, wealth managers or payment services firms. The firms had undergone significant growth over a 3-year period (2018 – 2020). The FCA assessed the impact of this rapid growth on their financial and non-financial resources. The review was based on business plans, internal capital adequacy assessment process documents, write-down plans and other documents submitted by firms.
The FCA highlights the following findings from the review which are relevant to all regulated firms that have grown rapidly or have plans to do so:
- For most firms, their risk management framework and governance arrangements (including staffing in second and third line defence) have not kept pace with the growth in their business activities. While risk management practices at these firms may have been proportionate at authorisation, they had not evolved to scale with the business. This can result in an increased risk of poor outcomes for consumers.
- Firms’ assessment of the adequacy of financial resources did not consider the growth in their underlying business, resulting in financial resources assessments that were not commensurate with the size, business model and underlying risks. This can affect the financial resilience of firms, increasing the risk of disorderly firm failure.
- Wind-down plans were inadequate following the fast growth of these firms, increasing risk of harm in the event of fir failure.
Following the review, the FCA has recommended the following actions for some firms to address the concerns identified, which include:
- Updates to risk management and governance arrangements, including resourcing needs in risk, compliance and audit functions. This is to help ensure that firms have adequate resources in place to identify, assess, manage and monitor risks and potential harms.
- Updating their assessment of adequacy of financial resources and wind-down plans. This helps in reducing the likelihood of disorderly wind down, which can cause harm to consumers and markets.