Further reflections on the question of resilience

We wrote recently in one of these blogs about FCA’s financial resilience survey, a subject that seems worth coming back to – not least because we’ve heard from a number of firms looking for assistance around some of the issue raised.

One of the report’s headline findings was an average 30% decline in liquidity among insurance intermediaries and brokers. That’s obviously quite an eye-catching figure, but there’s plenty more food for thought in the detailed findings of the report.

It’s also worth noting that that the figures it’s based on were collected back in the early summer of 2020. Since then, we’ve seen a whole host of developments – both challenging and encouraging.

It’s certainly thought-provoking that, with Lockdowns 2 and 3 yet to come when the survey was carried out, roughly one in five brokers did not appear to be operating profitably.

The FCA said it had identified 4,000 financial services firms (predominantly SMEs) whose low financial resilience put them at heightened risk of failure. How many of these would have been insurance firms is unclear. 

The likelihood is, however, that some broking firms could be at risk of going under or selling for a fraction of the value they might formerly have anticipated. The good news is: there’s still plenty that can be done to avoid such a fate.

The key is facing the facts in good time. By taking proper stock of their financial situation and taking all available steps to ensure their fiduciary cash situation is tenable, firms can maximise their chances of avoiding any crisis, and trading through to better times and the prospect of hardening market.

Sound financial planning is crucial. So too is ensuring you’ve anticipated all potential sources of risk to your financial position (and hence potential harm to your customers) and addressed these as best you can.

The FCA is keeping a keen eye on firms’ resilience going forward and has raised the bar on how firms should monitor evolving risks. The regulator now experts firms to implement an early warning system that flags up any breach or likely breach of the relevant thresholds.

Our compliance experts can help you carry out the necessary modelling to demonstrate that you are holding sufficient capital to satisfy the relevant regulatory requirements and anticipate the likely impact of further economic adversity.

To find out more, contact a member of our expert team ASAP on 01925 765777, or email us at info@ukgigroup.com.

UKGI is a trading style of UKGI Limited and UKGI Services Limited which are wholly owned subsidiaries within UKGI Group Ltd. UKGI Limited acts in compliance services and UKGI Services Limited acts in support services. UKGI Services Limited is a wholly owned subsidiary of Total Broker Solutions Limited, which is an appointed representative of Resolution Compliance Limited, which is authorised and regulated by the Financial Conduct Authority (FCA) under reference number 421154. UKGI Limited Registered in England No. 03544014. UKGI Services Limited registered in England No. 04953835. All Registered Offices Number 22 Mount Ephraim, Tunbridge Wells, England TN4 8AS. VAT registration number 347 2664 82.