Managing our costs and financial resilience

As detailed in our Financial Resilience Report, we have moved from a target reserves policy to a retained liquid assets approach. As part of this, we have set minimum and target levels of liquid assets to ensure that we maintain sufficient funds to cater for our future needs and respond to emerging challenges.

Our model projects our financial performance over the next 5 years so that we can make relatively smaller adjustments, reducing the risk of sudden and material fluctuations in fee levels.This approach also allows us to make effective use of our retained liquid assets to pre-fund valuable initiatives where the full details of volumes and costs are unknown.

Pre-funding of new regimes

In 2022, this new approach will assist with the initial creation of new regimes. We will use our resources to fund the development of new frameworks and seek to recover those costs through future application and regulatory fees. There is a careful balance to be achieved at such a critical stage for new products so we will not seek full recovery from initial application fees. In the subsequent years, as the full costs and volumes of these new products becomes more certain, we will adjust the relevant regulatory fees to ensure that each regime returns the funds deployed as pre-funding and makes an overall positive contribution to our financial position.

Managing costs and fee levels

2022 will also see a material increase in our running costs in order to deliver our expanded regulatory remit and to deliver our strategy. As a result, we will utilise our retained liquid assets to reduce the immediate impact on fee levels and to support the delivery of operational efficiencies to reduce potential future increases.It is a combination of these approaches which allows us to be confident in our budget, despite the net cash outflow for 2022. We will continue to use this forecasting method to make effective use of our retained liquid assets and to ensure that we replenish these funds to provide for the future.