The UK Financial Conduct Authority (FCA) recently completed a review of investment firms’ implementation of the Internal Capital and Risk Assessment (ICARA) process under the Investment Firms Prudential Regime (IFPR). The review aimed to assess firms’ progress in adopting the regime and planning for adequate financial resources and orderly wind-downs.
Key Observations
The FCA found that while firms made progress in considering potential harm and risk mitigation, there were some shortcomings:
- Some firms did not adequately stress test cashflows and liquidity, risking insufficient liquid assets in stressed conditions. This could lead to firm failure.
- Most firms’ internal intervention points would not trigger timely actions to mitigate harm from firm failure.
- Individual firms’ wind-down plans often lacked consideration of group dependencies and impacts. Firms may not have fully assessed resource needs.
- Many firms had issues with capital models for operational risk. This reduces assurance of adequate harm mitigation resources.
The FCA highlighted the need for regular liquidity stress testing aligned to market conditions. Firms should define internal triggers based on stresses to maintain a buffer above regulatory requirements. Wind-down plans should consider group and market-wide stresses. And operational risk models require governance to ensure appropriateness.
Good and Poor Practices
To help firms improve ICARA processes, the FCA summarised ‘good practices like:
- Setting internal early warning indicators and triggers based on stressed resource depletion
- Stress tests that were back tested against recent market stress events
And ‘poor practices’ like:
- Failing to distinguish liquidity and capital analyses
- Having unrealistic wind-down assumptions on timing and availability of resources
Firms should review the full list of good and poor practices to identify areas to strengthen their ICARA processes. Robust ICARA assessments are crucial for adequacy of harm mitigation resources.
How Complyport can Help
The implementation of the IFPR involves significant changes for many investment firms. Complyport can help firms efficiently adapt to the new regime.
Complyport offers an end-to-end modular solution covering the full scope of IFPR requirements – from trade capture to regulatory reporting. Our service is built on an integrated data model that connects trade details to the capital and reporting requirements. This enables efficient implementation and maintenance.
Key ICARA functionality includes:
- prepare the financial projections for the next three (3) years
- design and/or assess your firm’s Wind-down plan
- calculate the Overall Financial Adequacy Rule as per the provisions of MIFIDPRU 7
- assess the additional harms and the respective capital requirements allocation
- prepare the ICARA process report document
- complete the MIF007 ICARA questionnaire return
Our solution delivers audit-ready evidencing of calculations and processes. Complyport provides ongoing support services for validation, testing, and regulatory submissions.
The FCA will continue assessing ICARA through supervisory activities. Firms should consider the feedback provided and observations made to enhance their ICARA frameworks. This will improve confidence that firms can address risks to consumers and markets.
Get In Touch Now
Contact us today at jan.hagen@complyport.co.uk to ensure your firm efficiently adapts to the IFPR, utilising our end-to-end modular solution and expert support for robust ICARA frameworks and compliance.
About Complyport
Complyport is a market-leading consulting firm supporting the UK financial services industry for over 22 years. We specialise in providing Governance, Risk and Compliance services to support the regulated financial services industry to raise standards and thrive.
Complyport can assist with the preparation of a GAP analysis and impact assessment on the investment firm’s capital adequacy and risk management framework of the Company under the regulatory framework.
We specialise in supporting the UK financial services industry with compliance guidance, advice and best practice.
- Prudential support, IFPR, ICARA and financial resilience advice
- Financial Crime support and Forensics
- Compliance managed services and resourcing compliance personnel
- Skilled Person Reviews and Regulatory Investigation
- Consumer Duty implementation advice
- Operational resilience & Cybersecurity advice
- Financial Promotions guidance, support, and management software solutions
- CASS advice and protections of client assets
- Comprehensive compliance work-flow management software
Contact Thomas Salmon in our Regulatory Solutions team via email at: jan.hagen@complyport.co.uk to book a free consultation.
