What does the FCA require firms to do in terms of risk management?

The FCA emphasizes that firms must implement adequate risk management frameworks to effectively identify, assess, and mitigate risks they face. Well-structured risk management processes are essential in ensuring that firms can operate in a safe and sound manner, protecting not only their own interests but also those of their clients and the wider financial system.

This requirement stems from the FCA's commitment to promoting fair treatment of consumers and maintaining market integrity. By having a strong risk management framework, firms are better equipped to anticipate potential difficulties, such as financial instability or regulatory changes, and develop appropriate strategies to address these challenges. This proactive approach to risk helps to enhance the overall resilience of the financial industry.

The other options do not align with the FCA's focus on proactive risk management. Discussing risk with clients is crucial for transparency and informed decision-making. Investing in market diversification strategies, while potentially beneficial, does not specifically fulfill the comprehensive requirements of risk management laid out by the FCA. Similarly, hiring external auditors annually is valuable for certain compliance aspects, but it does not encompass the broader and more strategic focus on risk management frameworks required by the FCA.