The FCA has sent out a mandatory survey to authorised firms to help them better understand the impact of the coronavirus pandemic on firms’ financial resilience. It was initially sent out in June, however the FCA has extended the pool of firms to an additional 10,000 having already surveyed 13,000 firms in June 2020. The scope of the survey has extended to cover solo-regulated firms in most of the 21 portfolios that the FCA supervises which it did not capture the first-time round. The completion of this survey is mandatory, and firms must respond within 15 working days of receipt of the survey. The regulator may exercise its powers under FSMA for firms who do not respond.
Understanding firms’ financial resilience so that firms can fail in an orderly manner was one of the priority areas in the FCA’s Business Plan 2020/21 for the work they will cover over the next 1 to 3 years. This was due to the current and future economic uncertainty and immediate, unexpected financial pressures that COVID19 has imposed on financial institutions.
To assist you in your preparation of completing this survey, we have outlined the key areas the survey will focus on:
- Amount of liquidity available
- Cash needs and expected inflows over the next three months
- Impact of COVID19 on the firm’s business model
- Level of safeguarded (client) money
- Any extensions or delayed payments negotiated with creditors
- Income for the last financial year
- Whether the firm has accessed any government-backed schemes such as loans or furlough schemes
It is not yet clear what follow-up actions the regulator intends to take or how it may respond to any concerns raised by a firm’s survey responses. However, where a firm is experiencing financial distress, they should engage with the FCA as soon as possible, in line with its existing obligations under SUP 15.
The survey is part of a broader focus by the FCA on financial resilience and safeguarding consumers, balanced against the FCA’s promise of “flexibility” for firms that may be facing financial difficulties due to the pandemic. The FCA has previously said it would monitor firms’ financial strength, particularly where there might be prudential concerns, and “continue to develop its data sets and indicators to measure this”.
The FCA goal is to avoid these financial pressures giving rise to harm to customers if firms cut corners on governance or their systems and controls – for example, increasing the likelihood of financial crime, poor record keeping, market abuse and unsuitable advice and investment decisions. Market volatility could reveal previous mis-selling, increasing complaints and redress.
To assist with the completion of the survey, the FCA has added an FAQ document around the specifics of what is being asked in the survey and a link to the full set of survey questions which can be viewed separately. We anticipate the preparation for completing the survey will involve working with your Finance and Operations teams.