Update
The FCA has released a report with its observations on how firms are implementing the requirements for the Internal Capital Adequacy and Risk Assessment (ICARA) process and reporting under the Investment firms Prudential Regime (IFPR). The report will be of interest to all MIFIDPRU investment firms as well as the UK parent entities of investment firm groups that are in scope of the IFPR.
The FCA identified the following as the key areas for firms to consider:
- Insufficient consideration of cashflows and liquidity stress was sometimes applied, which leads to an inadequate assessment of liquid asset requirements.
- Internal intervention points were not structured in a way that would ensure actions would be triggered in a timely fashion to mitigate harm, particularly from firm failure.
- Wind-down assessments applied inadequate consideration of the impact of membership of a group.
- Significant failings in the application of capital models for operational risk were identified, giving little assurance that firms have adequate resources to mitigate harm.
Within the report, the FCA also provided examples of both good and poor practices from firms surrounding the ICARA process; these being: Early warning indicators, triggers and interventions, the assessment of liquid asset requirements, Operational risk capital assessments, Wind-down planning processes, the useability of the ICARA document and process and finally Data integrity. The key areas the FCA has listed for improvement are highlighted above, however, a non-exhaustive list of the poor practices identified are as follows:
- The ICARA document had no clear summary of the drivers of threshold requirements and the stresses used to support the analysis.
- Data points within firms’ regulatory reports being left blank.
- Wind-down plans not being updated for years.
- Severity and breadth of liquidity stresses considered were not aligned with the recent stress and volatility in relevant markets.
- ICARA assessments were not linked and integrated with each other.
- Where ICARA processes were completed on a consolidated basis, an ICARA process was not completed for each individual MIFIDPRU firm.
Thistle can assist your firm in this area in a number of ways, ranging from support in completing the ICARA process, initially understanding the impact of the regulations within IFPR on your firm and identifying operations within your firm that the FCA may identify as poor practice, to additional assistance with regulatory reporting.
Link: https://www.fca.org.uk/publications/multi-firm-reviews/ifpr-implementation-observations-concluding-report