On 10 March 2025, the Financial Conduct Authority (FCA) published its findings following a multi-firm review of liquidity risk management at wholesale trading firms.

This follows the recent Dear CEO letters (2023, and 2025) to sell-side firms which flagged issues with firms’ liquidity risk management, with the most recent one mentioning this review of liquidity risk management frameworks. 

The objective of the paper is to share good and poor practices identified which the FCA will expect peer firms to act on. I set out some key thinking on the paper below. 

What does the review really say

While 26 larger firms with varying business models took part, I think the FCA sets out its motivations and focus clearly. I wanted to share my thoughts on what I think these are:

Macro-messaging

The FCA emphasised that sell-side IFPR firms should not be globally systemic and therefore create significant systemic risk. 

However, firms’ central participation in key markets – such as commodities, metals, and energy – means that firms with weak risk frameworks are vulnerable to market volatility and therefore able to create risk within the UK financial system. 

The FCA is clearly placing significant focus on its statutory objectives to maintain market integrity and therefore setting clear expectations on firms that they should have sufficient liquid resources to manage unexpected shocks. 

The key message here is that any firm should be looking at the risks on the horizon, including new and emerging risks and not assuming everything will remain in a business-as-usual state. 

Attention on brokers

The FCA emphasised its concerns that disorderly failure of key participants in certain markets could amplify market shocks. 

This was a key theme in the January 2023 Dear CEO letter to wholesale brokers following the COVID pandemic, Russia/Ukraine war, and the nickel price spike. The January 2025 letter acknowledged a much-welcomed improvement in firms’ liquidity risk management frameworks but emphasised its desire to maintain momentum and highlight that work is still to be done

The multi-firm review identifies that firms continue to underestimate their intraday liquidity risk exposure and rely too heavily on immediate access to liquidity facilities which may not be available in the most volatile periods. 

Culture

The review also provides some useful insights into the FCA’s views on culture. Whilst the government seems to be focused on competition and allowing some risk into the system, the FCA seems to be continuing its focus on ensuring that firms comply with the rules as drafted and minimise risk. This extends to having a robust risk culture within the firm which addresses and minimises risk.

Common themes

The FCA identified emphasised some themes commonly identified in its multi-firm reviews, such as:

• Governance documentation: the FCA observed clearly defined qualitative and quantitative risk appetite in stronger frameworks, but also failures to put in place contingency funding plans.
• Escalation: the FCA observed clearly identified action triggers which provided a named individual to take actions with board authority, however, some firms had not considered more than one available contingency option.
• Senior management: the FCA observed good practices being led by a culture of risk management and resilience. The FCA expects senior management to deliver and oversee this as a collective executive body.

As always, these themes should be at the front of firms’ minds when it considers what it should do with the findings of a multi-firm review.

1. What to do next

Foremost, firms should engage with the findings by reflecting on their own alignment with both good and poor practices identified. 

This should be followed by any necessary remediation, as well as any improvements that can be made, acknowledging (as always) the commercial constraints to doing so.

However, there are some key actions which can be taken as part of the next steps for firms looking at the review: 

• Review the horizon risk scanning which the firm is undertaking. Make sure that the feed ins could help you identify where volatility in your market might arise.
• Review how this horizon-scanning feeds into your risk management framework. Can you consider identified risks against your risk management framework, and make sure identified risks are mitigated? It’s a stark reminder to firms that ICARAs are not a one-off document but should be a living document and updated accordingly when new risks are identified, with mitigants being prepared to allow the firm to respond in times of stress.
• Contingency funding arrangements and wind down planning which could be actioned in stressed scenarios needs to be in place. Reliance on parent entities may not be realistic in stress scenarios and therefore other scenarios should be considered.
• Assess resourcing and ensure sufficient resourcing exists across the firm to implement an effective risk culture.