On 26 June, the FCA released its findings of a multi-firm review on risk management in the UK payments sector. The FCA found that none of the fourteen e-money and payment firms it examined fully met its expectations on risk management and wind-down planning. Firms must act on the findings, the FCA insists firms review their frameworks, flagging gaps that could impact market integrity and consumer protection.

Key Findings

1. Enterprise-wide risk frameworks were inadequate
   Operational staff managed their tasks appropriately but without adequate oversight or challenge. Many firms defined risk appetites using judgement rather than through business activities and failed to identify key risks related to cyber, financial crime and growth activities.
   
2. Liquidity risk management was lacking
   The FCA identified weaknesses in assessing the impact of stress events on liquidity risk, which has the potential to cause harm if not managed appropriately. Some firms relied on existing cash to mitigate liquidity risk without scenario testing to assess adequacy of resources.
   
3. Group-level risk oversight didn’t translate locally
   Parent-group frameworks often failed to reflect the specific profile and risks of each entity, something which could have an impact on financial and non-financial resources available to the regulated firm.
   
4. Wind-down plans were disconnected and untested
   Plans were disconnected from firm’s risk management framework and lacked detailed triggers, realistic timing and reliable resource modelling. Plans must consider operations, residual safeguarded funds, liquidity needs and triggers driven by the risk appetite.

Disorderly wind-downs can cause consumer and market harm, especially during tumultuous periods. As payment firms scale globally, managing risks isn’t optional but is critical to sustainable growth.

Managing Risk with RegTech

Regulatory Technology offers the perfect solution to shortcomings, as a clear and measurable action towards better risk management and wind-down planning. Taking on a bespoke suite of modules, like on the Axiol platform, can close the gaps identified by the FCA.

1. Enterprise-wide risk management
   Axiol provides a structured, real-time view of your risk landscape through comprehensive risk scoring, a transparent control framework and inherent financial impact calculations. Establish and monitor firm-wide risk appetite, set clear tolerances and ensure ongoing alignment.
   
2. Risk evaluations and control scoring
   On the Axiol platform, users can evaluate the probability and financial impact of key risks and score control effectiveness at regular, pre-defined intervals. Utilise graphs, tables and board level Management Information to monitor and track changes overtime and maintain effective risk oversight.
   
3. Risk relationship mapping
   Identify your key risks and link them to underlying risks and associated controls to effectively understand your risk relationships.
   
4. Risk ownership
   Managers can assign and user can accept ownership of a key risk, ensuring that evaluations are kept up to date.
   
5. Audit ready data
   Scoring, evaluations and regular updates create a comprehensive audit trail, with demonstrable data for regulators like the FCA.

The FCA’s expectations aren’t new. The current regulatory expectations have always been in place and firms must act. Robust frameworks build operational resilience and preserve consumer trust, maintain the ability for firms to grow. The FCA has invited firms to align their frameworks with its findings.

Discover how Axiol can help your firm manage enterprise-wide risk effectively by visiting our website and getting in contact.