a firm’s contingent and prospective liabilities;
1The liabilities referred to in the general solvency requirement exclude liabilities that might arise from transactions that a firm has not entered into and which it could avoid. This could include, for example, taking realistic management actions such as ceasing to transact new business after a suitable period of time has elapsed.
1Risks may be addressed through holding capital to absorb losses that unexpectedly materialise. The ability to pay liabilities as they fall due also requires liquidity. Therefore, firms should consider both capital and liquidity needs in assessing the adequacy of their financial resources. A firm should also consider the quality of its financial resources, such as the loss-absorbency of different types of capital and the time required to liquidate different types of asset.
1The amounts in (2) will typically represent the FCA’s assessment of the firm’s general solvency requirement. However, in some cases, it may be specified on a different basis (such as by reference to a specific component of the general solvency requirement or to a particular risk or harm).
1The FCA may choose to conduct reviews of the regulated funeral plans activities sector, or aspects of it. In such cases, the FCA may subsequently choose to issue guidance on a sectoral basis or to impose additional requirements on all, or only a subset of, the entities included within that review. The guidance or requirement may relate to:
1The FCA will determine whether a requirement or guidance is more appropriate. Where the FCA chooses to issue guidance, this will normally explain how the FCA will approach supervising the general solvency requirement in relation to the firm. The FCA expects that the firm would normally confirm to the FCA that the firm will hold the amounts specified in that guidance going forward (and will therefore hold the relevant capital and or liquidity resources to comply with the general solvency requirement), unless the firm subsequently determines that higher amounts are required.
1Where the FCA considers that it is appropriate to apply a requirement in connection with the general solvency requirement, it may invite a firm to make a voluntary application under section 55L(5) of the Act to impose a requirement on the firm to hold the level of capital or liquidity resources that the FCA has assessed as being required by the firm in order to meet the general solvency requirement.
1If a firm subsequently determines, as a result of its own assessment, that it needs to hold a higher level or quality of capital or liquidity resources to satisfy the general solvency requirement, it must hold that higher level. This is because the FCA’s assessment (or a requirement applied to the firm by the FCA) reflects an assessment carried out at that point in time and does not relieve the firm of its obligation to ensure that it is meeting the general solvency requirement at all times.
1A firm’s business model or operating model may undergo a significant change, with the result that the firm considers that the amount or quality of capital or liquidity resources specified in the guidance issued by, or the requirement applied by, the FCA exceeds the amount or quality of capital or liquidity resources that the firm requires to comply with the general solvency requirement. In this case, the firm:
should undertake its own assessment of the amounts that the firm now requires to comply with the general solvency requirement or, where applicable, to address the risks in relation to which the requirement was imposed; and