Firm failure can be a healthy and necessary part of competitive markets. When financial firms fail, there are risks of consumer harm, such as loss of client assets and/or threats to wider market stability.
Our outcomes were designed to make sure that these risks were managed and, where firms failed, they did so with minimal harm to consumers and wider markets.
Confidence
Outcome 1: Firms meet their financial resource requirements so that they can conduct business, wind down and, where applicable, fail without causing significant harm to consumers and market participants
| Metric code | Metric description | Source | Baseline Value | Year 1 Values | Year 2 values | Year 3 values | Latest status (year 3 value compared to baseline) |
|---|---|---|---|---|---|---|---|
| PFF1-M01 | A low and stable proportion of firms not meeting financial resources requirements | FCA data | 1.3% of firms who are subject to requirements (up to period ending 31 December 2021) | 1.7% of firms who are subject to requirements (up to period ending 31 December 2022) | 1.4% of firms who are subject to requirements (up to period ending 31 December 2023)
| 1.4% of firms who are subject to requirements (up to the period ending 31 December 2024) | Declined |
Outcome 2: Client assets and funds are appropriately held so that if the firm fails, they are returned as quickly, and as whole, as possible
| Metric code | Metric description | Source | Baseline Value(s) | Year 1 values | Year 2 values | Year 3 values | Latest status (year 3 value compared to baseline) |
|---|---|---|---|---|---|---|---|
| PFF2-M01 | A stable proportion of firms with ‘adverse’ reasonable assurance | FCA data | 9.2% (2020) We amended the baseline from the previously published figure of 5.9% (2020) by removing firms that did not hold client money at any point during the relevant period | 8.3% (2021)
| 9.3% (2022) | 9.98% (2023) | Declined |
Outcome 3: Firms subject to financial, or other, stress which may lead to firm failure are quickly identified and the firm rectifies the situation, winds down solvently or enters insolvency in a way which minimises harm to consumers and market participants
| Metric code | Metric description | Source | Baseline Value(s) | Year 1 values | Year 2 values | Year 3 values | Latest status (year 3 value compared to baseline) |
|---|---|---|---|---|---|---|---|
| PFF3-M01 | Increase in the proportion of failed firms which, in the 12-month period before entering an insolvency process, were determined by FCA supervisors to be at risk of imminent failure or were identified by FCA automated triage framework as having a low level of financial resilience | FCA data | 59% (Nov 2022 snapshot)
| N/A | 52.8% (Dec 2023 snapshot) | 51.9% (Dec 2024 snapshot) | Declined |
What the latest metric values tell us
Over our 3-year strategy we set out to:
- Retain a low and stable proportion of firms not meeting their financial resource requirements.
- Make sure that firms were holding client money and assets appropriately.
- Identify firms at risk of failure before they fail.
Overall, the metrics for these outcomes have declined. However, the movement has generally been narrow in range and we are continuing to focus our efforts on all 3 areas as we move beyond this strategy.
On firms’ financial resources requirements, the funds firms need to operate safely, we made steady progress over the 3-year period. The number of firms not meeting the requirements has reduced from 1.7% in December 2022 to 1.4% in December 2023 and December 2024. While this is slightly higher than the baseline of 1.3%, overall this means that most firms (c.98%) have met their financial resources requirements during the 3-year strategy. These firms are therefore more likely to be able to wind-down without causing significant harm.
In year 3, we reviewed more than 3,000 audits (with periods ending in 2023) of how firms hold and safeguard client money and assets. This work identified slightly more negative reviews of how companies handled client money and assets (9.98%) compared to the prior 2 years. However, the overall rate indicates that most firms have operated as we would expect them to, with less than 10% of reviews being adverse.
As at Q4 2024, our automated triage framework identified 51.9% of firms that failed as having a low level of financial resilience before they failed. This enabled us to prioritise work with those firms with greater potential harms to consumers and/or market integrity, to mitigate those harms in failure. This has declined from the prior 2 years. However, of the 48.1% that were not identified, 83% were credit brokers not subject to the automated system given they present limited consumer harm and threat to market integrity. We will continue to focus on identifying firms that present greater potential harm to consumers and threat to market integrity as we move into the new strategy. However, we will never be able to anticipate all failures.