ICARA SUPPORT SERVICES

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INTERNAL CAPITAL ADEQUACY AND RISK ASSESSMENT (ICARA) PROCESS

The UK Investment Firm Prudential Regime (IFPR) applies to all Investment Firms authorised by the Financial Conduct Authority (FCA) under MiFID (the Markets in Financial Instruments Directive) as well as those Firms undertaking additional MiFID activities such as Collective Portfolio Management Investment Firms (CPMIs).

Under the IFPR, all Investment Firms are categorised either as SNI or non-SNI, depending on the regulatory activities they carry out and the threshold they meet as per the provisions of MIFIDPRU 1.2. In addition, depending on their classification, Investment Firms are required to comply with specific capital and liquidity requirements, internal governance and remuneration arrangements, disclosure requirements, concentration risk requirements and other prudential regulatory requirements in accordance with the relevant regulation.

Both SNI and non-SNI MIFIDPRU Investment Firms are obliged to comply with the internal capital adequacy and risk assessment framework (ICARA) in accordance with the MIFIDPRU 7 rules. As part of the implementation of the ICARA process, Firms are required to conduct business model analysis, stress testing, recovery, and wind-down planning as well as capital and liquidity allocations to ensure that they are in compliance with the prudential requirements as per the provisions of MIFIDPRU 7.
In addition, Firms may need to submit the ICARA process documentation to the FCA as part of a supervisory review and evaluation process (SREP). In case where weaknesses are identified by the FCA as part of the SREP, additional capital or liquidity requirements over and above the overall threshold requirements can be assigned to the Firm increasing the financial resources that they need to hold.

Furthermore, the ICARA process should not be treated by Firms as another reporting obligation, but as a living document embedded within the daily operations and business of the Firm. Essentially, aside from being a regulatory requirement, the ICARA is a vital component of the Firm’s risk management function. It should be updated at least annually or whenever any underpinning assumptions used for the preparation of the report change, hence ensuring that the real-life image of the Firm’s risk profile is reflected within the ICARA process documentation. The ICARA results should be communicated to the FCA via the MIF007 – ICARA Questionnaire Return on an annual basis.
Finally, all material risk takers within a Firm should be aware of the ICARA methodologies, assumptions and outcomes to ensure efficient implementation of the process in their daily operations.


HOW CAN WE HELP?

With our expertise on prudential rules for MIFIDPRU Investment Firms, we are positioned to understand and address the regulator’s expectations against the ICARA process. Our team consists of world-leading specialists in the field, supported by prudential specialists who bring extensive experience to every project.

Although the ICARA process rules are similar to all MIFIDPRU Investment Firms, the process for each Firm should be tailored to its risk profile and business operations, taking into consideration the actual harms that a Firm is exposed to, the wind-down cost and steps to be followed to ensure the orderly execution of the plan, as well as the recovery actions in place. In addition, the stress testing analysis should take into consideration the idiosyncratic risks of a Firm and other factors that may lead it to a financial distress.

Given our expertise, we are in a position to address all the above and assist your Firm with the ICARA process requirements. Specifically, we can help you with the ICARA, as follows:

  1. Development of a new ICARA process;
  2. Annual Review of your Firm’s ICARA;
  3. Provision of ICARA documentation template; and
  4. Delivery of a training session to material risk takers.
OUR EXPERTS

Our subject matter experts bring together a wealth of backgrounds, skills and expertise from the financial industry, legal sector and regulatory bodies:

Thomas Salmon-Complyport

Thomas Salmon
Solutions Executive

+44 (0)20 7399 4980
thomas.salmon@complyport.co.uk

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Kumar Ved
Managing Director

+44 (0)20 7399 4980
kumar.ved@complyport.co.uk

Option 1: Development of a new ICARA Process

This service includes the development and preparation of a new ICARA Process Report document and ICARA workings file (in Excel) by Complyport. More specifically, Complyport will:

  1. prepare the financial projections for the next three (3) or more years;
  2. design and assess your Firm’s Wind-down policy/plan
  3. calculate the Overall Financial Adequacy Rule as per the provisions of MIFIDPRU 7;
  4. identify the additional harms and the respective capital/liquidity requirements allocations;
  5. design and implement stress testing scenarios;
  6. prepare the ICARA Process Report document; and
  7. complete the MIF007 ICARA Questionnaire Return.

Please note that the deliverables of this service are the ICARA Process Report, ICARA Process workings file (including financial projections, stress testing, wind-down planning, additional harms identification etc.), and the Ready to Submit MIF007 ICARA Questionnaire Return.

Option 2: Annual Review of your Firm’s ICARA

This service includes the review and update of the Firm’s existing ICARA process report document and workings file (in excel) by Complyport to ensure that the ICARA process is in line with any regulatory changes or updates in the Firm’s model of operations affecting its risk profile as applicable. More specifically, Complyport will:

  1. review and prepare new financial projections for the next three (3) or more years;
  2. review and evaluate the applicability of the Firm’s existing Wind-down policy/plan
  3. calculate the revised Overall Financial Adequacy Rule as per the provisions of MIFIDPRU 7;
  4. assess the applicability of the potential harms identified in accordance with the Firm’s risk profile and business activities;
  5. update the capital/liquidity allocation assessments of the Firm;
  6. update the ICARA process report document; and
  7. complete the MIF007 ICARA questionnaire return.

Please note that the deliverables of this service are the updated ICARA Process Rreport, updated ICARA Process workings file (including financial projections, stress testing, wind-down planning, additional harms identification etc.), and the Ready to Submit MIF007 ICARA Questionnaire Return.

Option 3: Provision of ICARA documentation templates

This service includes the provision of the ICARA process report template and ICARA workings file template. Both templates are provided along with comments as guidance on how to complete them. Upon completion of the templates, we will review the workings file and ICARA Report and provide our feedback for the purpose of finalisation of the ICARA process.

Option 4: Delivery of training sessions to material risk takers

This service includes the delivery of a training session to your Firm’s material risk takers who should be involved in the ICARA process aiming to introduce the regulatory expectations and provide in-depth explanations of the methodologies, assumptions and outcomes of the ICARA process. Specifically, in this training session we are providing participants with:

  1. an overview of the ICARA process regulatory requirements;
  2. the main principals of the ICARA process;
  3. a description of the applicable methodologies with respect to the preparation of the report (risk management assessment, capital and liquidity stress testing, wind-down planning capital adequacy calculations and future capital planning and management actions);
  4. an outline of the content of the ICARA Report;
  5. an explanation of the additional requirements outcomes;
  6. an overview on how regulators evaluate the ICARA implemented in an Institution’s SREP.

Why choose Complyport?

Extensive Regulatory Expertise

With over 22 years of experience in the financial services industry, Complyport offers unparalleled expertise in regulatory compliance, ensuring your firm stays ahead of evolving regulations.

Tailored Compliance Solutions

We provide bespoke compliance solutions that are specifically designed to meet the unique needs of your business, ensuring that all regulatory requirements are met efficiently and effectively.

Senior-Level Guidance

Our team of seasoned professionals, including former regulators and industry experts, leads all engagements, offering deep insights and practical advice to help you manage compliance risks effectively.

Comprehensive Service Offering

From AML audits to risk management and regulatory reporting, Complyport provides a full spectrum of compliance services, allowing you to streamline your compliance processes and focus on your core business activities.

Client-Centric Approach

We prioritise open and transparent communication, building strong relationships with our clients based on trust and mutual respect. Our commitment to excellence ensures that we deliver high-quality services with courtesy, patience, and flexibility.

Innovative Fintech, Regtech, and AI Solutions

Leveraging cutting-edge fintech, regtech, and AI tools, Complyport enhances your compliance processes with advanced technology, ensuring accuracy, efficiency, and real-time regulatory updates. Our innovative solutions empower your firm to stay compliant while maximising operational efficiency.

key figures

Over

22 Years

Providing Compliance Excellence

Over

1,000

Successful FCA and EU Authorisations

Over

600

Active Firms Receiving Regulatory Support

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