Financial Resources

In assessing the adequacy of financial resources, a firm should consider the following (this is not an exhaustive list):

Cash flow – the impact of unallocated cash and legacy balances and
funding from client monies or from the firm’s own resources;
 Impact upon cash and liquidity on the regulated entity in relation to any
cash sweeps e.g., where the firm is part of a group;
 Credit control – the adequacy of credit control processes, including the
timely collection of premiums, monitoring of aged debt, application of
suitable bad debt provision and timely payment of premiums to the
market (particularly where a premium warranty or condition might
apply);
 Treasury management – the value and performance of any investments
made by the business, including, where relevant, how foreign exchange
exposure is monitored and mitigated;
 Acquisitions – firms need to consider the impact of any acquisitions on
their adequacy of financial resources and ensure this is considered in
the due diligence process;
 Changes to funding requirements that may be needed in order to
manage:
o Liquidity;
o Banking covenants;
o Crystallisation of group obligations; and
o Liabilities owed to third parties.
 Weaknesses in controls over client money and other client assets;
 Weaknesses in the firm’s risk assessments of the size and probability of
potential causes of significant stress to business models;
 The quality of other relevant systems and controls, such as risk transfer
arrangements, including terms of business agreements;
 The quality and adequacy of the firm’s professional indemnity insurance
in relation to its exposures;
 Various aspects of the firm’s financial statements and in particular, the
quality of assets, working capital requirements and the robustness of
cash flow forecasts;
 Where a firm is part of a group, the recoverability of intercompany
balances or, where several firms are under common control, amounts
due from connected persons; and
 The types of liabilities to which firms are exposed including;
o Pensions obligations which require funding and could impact on
the going concern of the firm;
o Contingent liabilities, such as E&O claim which could result in
material creditor balances arising;
o Mortgage debentures which create a fixed and floating charge
over all the assets of a regulated firm.