On 17 April 2020, the FCA published an updated statement regarding its expectations on financial resilience for FCA solo-regulated firms.
Key points in the statement include:
- capital and liquidity buffers are there to be used in times of stress. Firms that have been set buffers can use them to support the continuation of the firm’s activities. If a firm is planning to draw down a buffer, it should contact the FCA or its named FCA supervisor;
- if the firm needs to exit the market, planning should consider how this can be done in an orderly way while taking steps to reduce the harm to consumers and the markets. Firms should maintain an up-to-date wind-down plan that takes consideration of the current market impact of the COVID-19 pandemic;
- government schemes to help firms through the pandemic can be part of a firm’s plans for how they will meet debts as they fall due;
- if a firm is concerned it will not be able to meet its capital requirements, its debts as they fall due, or if its wind-down plan has identified material execution risks, it should contact the FCA with its plan for the immediate period ahead;
- the FCA expects firms and their boards to satisfy themselves that each distribution is prudent given market circumstances, and consistent with their risk appetite. The FCA would not expect firms to distribute capital that could credibly be required to absorb losses over the coming period; and
- non-bank lenders subject to IFRS9 are reminded that the standard requires that the forward-looking information used in expected credit loss estimates is both reasonable and supportable.
It is essential that the standard is implemented in a well-balanced and consistent way that reflects not only the potential impact of the coronavirus crisis, but also the support provided by governments and central banks domestically and internationally to protect the economy.