Firms must plan ahead when monitoring financial resources and liquidity in current climate warns BDO

Maintaining adequate financial resources in order to comply with the FSA rules will be fundamental for both the survival and purpose of maintaining good relations with the regulator in the current economic climate, comes the warning from BDO’s Financial Services Group.

The FSA’s fourth principle states that “a firm must maintain adequate financial resources”, with the term “adequate” relating to the regulated activities a firm carries out and the quantity, quality and availability of capital the firm holds. In addition, the FSA’s new proposals for strengthening liquidity standards are likely to make these requirements increasingly onerous for many regulated firms.

Andrew Richardson, Head of Capital Markets, at BDO, says: “In the current climate many firms are not planning far enough ahead when considering the FSA’s financial resources tests.  However, the old Boy Scout motto of ‘be prepared’ has never been more appropriate.”

The end of 2008 saw the FSA bring in new proposals for stress and scenario testing which will introduce ‘reverse stress testing’.  This will require firms to consider the scenarios most likely to cause their current business model to become unviable.

“Whilst a firm might be in a robust financial position right now, this may not be the case in two, three or even six months.  It is essential that firms take action to maintain adequate financial resources now and plan ahead for the future, rather than waiting until it goes all pear shaped,” he continues.

The key to success will be anticipating the finer details of what the FSA is looking for and preparing accordingly to ensuring that the requirements are met.  For many firms this involves monitoring their financial position on a daily basis and adjusting for any risks that have arisen that day.

“We are seeing firms which are just burying their heads in the sand and hoping the current financial crisis will pass them by.  Regular monitoring of a firms’ financial position is the only way to ensure that your business will emerge from the crisis,” concludes Richardson.

ENDS

For more information, please email Dee Crooks at BDO, or telephone: 020 7893 2761/07815 172 051  

Notes to editors:

BDO’s Financial Services Group is the fastest growing sector in BDO and covers a number of areas including insurance, banking, funds, internal audit, regulatory issues, retail financial services and investment management.

BDO LLP operates across the UK with over 3,000 partners and staff. BDO LLP is a UK limited liability partnership and the UK Member Firm of BDO International. BDO International is a world-wide network of public accounting firms, called BDO Member Firms, serving international clients. Each BDO Member Firm is an independent legal entity in its own country. The Belfast Firm is operated by a separate Partnership.

BDO LLP and BDO - Belfast are both authorised and regulated by the Financial Services Authority to conduct investment business.

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• Best Workplace UK - Financial Times 2008
• 100 Best Companies to Work For - The Sunday Times 2008
• Audit Team of the Year – Accountancy Age Awards 2008
• Tax Team of the Year – Accountancy Age Awards 2008
• Corporate Finance Deal of the Year – Accountancy Age Awards 2008
• Employer of the Year – Accountancy Age Awards 2007
• The Women of Achievement Award –  Women in the City 2008
• Top 50 Where Women Want to Work - The Times 2007
• Business Superbrand - Business Superbrands 2008