On 2nd May 2023, the FCA issued policy statement ‘PS23/3 Creation of a baseline financial resilience regulatory return: Feedback to CP22/19 ‘creation of a baseline financial resilience regulatory return and final rules’. In it the FCA announced that it will be introducing a new baseline financial resilience regulatory return for solo regulated firms, ‘FIN073 – Baseline Financial Resilience Report’. This return is set to replace the current Financial Resilience Survey (FRS), previously known as the ‘COVID-19 Impact Survey’, originally issued in June 2020.
The proposed change would bring all full permission consumer credit firms in scope of FIN073. This clarification of scope is consistent with the intent of the consultation and is aligned with FCA's objective of bringing the population of FIN073 more in line with that of the FRS. A significant proportion of full permission consumer credit firms primarily undertake financial services activity, presenting a higher risk to the FCA’s objectives, and, as a result, it is considered important to have up-to-date baseline financial resilience information for these firms. FIN073 will be on the FCA’s data collection platform, RegData, and firms will be able to see the new return in their forward schedule in RegData, making it significantly easier for them to plan.
To reduce the burden on firms the FCA proposes to make FIN073 significantly shorter than FRS, however, it will be required on a quarterly basis from January 2024, as opposed to the FRS which had to be completed every six months. Firms will receive an automated reminder via RegData when the return is available for submission.
Why is the FCA doing this?
As part of the FCA’s commitment to reduce harm from firm failure under the three-year FCA Strategy, the goal is to ensure that firms subject to financial, or other stress, which may lead to firm failure are quickly identified and the situation is rectified by the firm. This links into the following three objectives:
1. Consumer Protection
The FCA relies on up-to-date financial resilience data in order to quickly assess financial resilience risks. This allows the FCA to prioritise their supervisory intervention, resulting in reduced harm to consumers. As FIN073 is system based, it allows data to be accessed easily and combined with data on other key risk indicators to form a more comprehensive view of risks to consumers.
2. Market Integrity
A data-led approach allows the FCA to ‘triage’ firms to help to reduce the likelihood of both disorderly failures and the adverse impact they have on market participants, improving general confidence in the market.
FIN073 baseline financial resilience data allows a focus on firms that are most likely to cause market disruptions. Firm financial resilience data, when combined with macroeconomic data, also allows the FCA to identify vulnerabilities in specific market segments.
3. Competition
The FCA believes firms that do not devote sufficient resources to financial resilience, can get a short-term unfair competitive advantage over well-behaving competitors. This can result in increased risk of harm to consumers through an increased likelihood of firm failure.
FIN073 baseline financial resilience data allows the identification of firms with low levels of financial resilience which may give those firms an unfair competitive advantage while posing material risk of harm to consumers.
The data from FIN073 is fundamental to achieving these outcome and is seen as a ‘key tool’ in identifying financial resilience concerns early, and where necessary, enabling swift action.
What should firms do?
Firms need to be prepared to submit the return for the first time in January 2024 and will be reminded to do so automatically through the RegData system.
The full scope of FIN073 is set to be announced in 'Summer 2023' following the closure of CP23/9 which the FCA is running simultaneously to consult on the possibility of changing the scope of FIN073 to include full permission consumer credit firms as well. The closure of CP23/9 is due to occur in June 2023 and the announcement of the full scope will be scheduled for then.
