Firm failure is inevitable in every market. 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 are designed to make sure that these risks are managed and, where firms do fail, they do 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 |
Latest status (year 2 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)
|
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 |
Latest status (year 2 value compared to baseline) |
|---|---|---|---|---|---|---|
|
PFF2-M01 |
A stable proportion of firms with ‘adverse’ reasonable assurance |
FCA data |
9.2% (2020) We’ve 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) |
Little or no change |
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 |
Latest status (year 2 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) |
Declined |
What the latest metric values tell us
For metric PFF1-M01, we’ve seen a slight decline in the percentage of firms who aren’t meeting financial resources requirements between December 2022 and 2023 (1.4% in December 2023 compared with 1.7% in December 2022).
Whilst there is an increase comparing the 2023 value to 2021 baseline, this trend continues to reflect a low proportion of firms who are not meeting financial resources requirements. This meets our expectations of where we want firms to be and indicates that most firms are meeting their capital requirements. Firms that do so are more likely to be able to wind down without causing significant harm than those with lower financial resilience.
For metric PFF2-M01, there were slightly more adverse reasonable assurance CASS opinions for the 2022 year-end (9.3% compared with 8.3% in 2021, out of around 870 reasonable assurance audits). This indicates that most firms operate compliant CASS environments, with adverse audits representing less than 10% of firms. It is important that firms have appropriate CASS controls and a good understanding of the CASS regime so they can meet our expectations that client assets will be able to be returned quickly if a firm fails.
For metric PFF3-M01, our supervisors determined 52.8% of failed firms (as at Q4 2023) were at risk of imminent failure or identified as having a low level of financial resilience by our automated triage framework. This has deteriorated compared to the baseline value of 59%. While a decline indicated that in the 12 months to insolvency, fewer firms were identified as having low financial resilience or being at risk of failure, a substantial proportion of those firms that were not identified and failed were credit brokers, with limited consumer harm and threat to market integrity. We’re looking for this metric to increase as we become better at identifying firms at risk of failure. This is to make sure harms are minimised when they fail. However, we’ll never be able to anticipate all failures as some will be driven by external shocks.