FCA consults on creation of baseline financial resilience regulatory return
The UK Financial Conduct Authority (FCA) is seeking views on proposed rules to introduce a new financial resilience regulatory return for solo-regulated firms.
This will replace the current FCA Financial Resilience Survey (FRS) data collection, a short survey launched in June 2020 to collect basic financial data from approximately 23,000 legal entities.
The current approach of collecting the data through ad hoc surveys places significant administrative burden on firms. The regulator is, therefore, proposing to rationalise and standardise this data collection in the form of a regulatory return.
The FCA also wants to increase the quality and consistency of financial resilience data received from solo-regulated firms. Over the last two years this data has improved FCA’s understanding of the financial resilience of a vast number of firms. In addition to reducing harm from firm failure, baseline financial resilience data is also helpful to deliver the FCA commitments of dealing with problem firms and strengthening the UK’s position in global wholesale markets.
The ability to triage firms using a data-led approach allows the FCA to reduce the likelihood of both disorderly failures and the adverse impact they have on market participants, improving general confidence in the market.
Firms that do not devote sufficient resources to financial resilience can get a short-term unfair competitive advantage over well-behaving competitors. For example, they can use the associated savings to offer lower prices to consumers. However, this comes at the cost of an increased risk of harm to consumers through an increased likelihood of firm failure. Having access to baseline financial resilience data across a significant proportion of solo-regulated firms allows the FCA to better identify firms with low levels of financial resilience that may be gaining an unfair competitive advantage while posing material risk of harm to consumers.
The FCA will accept answers to the questions in this consultation paper by Friday 2 December 2022.