Threshold Condition 4 (TC4)

The FSA do not make it easy to find Threshold condition 4 - you need to go to the COND section of the FSA Rulebook and then having clicked on COND2 you need to click on the link 2.4 To find Threshold condition 4: Adequate resources!

In a nutshell, a regulated firm must maintain adequate resources at all times to meet the minimum solvency requirements - and be able to prove that the senior management have their finger on the pulse. can you? Note that I deliberately did not simply state "Financial resources" as TC4 is much wider than simply pounds shillings and pence.

If the Regulated Business is part of a larger Group the FSA will take this into account - but there may be additional risks due to financial pressures placed on other members of the Group. How many small IFA's have the luxury of a defined benefits pension scheme - let alone one in deficit?

The FSA interpret the term 'Adequate' as meaning sufficient in terms of quantity, quality and availability. "Resources" includes all financial resources, non-financial resources and means of managing its resources - Capital / People and Risk Management.

Examples of early warning signs include:

Deterioration in credit scores

Any indication that a Firm is unable to meet its debts as they fall due - is there a danger that a former sales associate could complain due to no payment of commission?

In addition there are the more obvious ones - entering a CVA or IVA; becoming bankrupt or entering liquidation - either the Regulated Business or one caught by the "Close Links" rules.

The Rules also require Firms to have appropriate controls in place to identify and measure regulatory issues - have a look at COND 2.4.6G and SYSC 3.1.

If the Firm is Authorised to handle Client Money has appropriate due dilligence been undertaken regarding the probity of the Institution? I must admit, I thought that was the job of the FSA who after all are responsible for Regulating the Banks. If Client Money is held is it retained in a separate designated client account? Is the money safe and are you reconcilling your ledger balances at least once every 25 days? can you prove it?