FCA Findings on IFPR/ICARA Process

It was surprising to read the recent FCA paper on the interim observations around ICARA (Internal Capital Adequacy & Risk Assessment) under IFPR which came into force in Jan 2022. Whilst there must have been some investment firms who have taken the ICARA process seriously, the FCA’s paper feels as if it widely condemns many of the representative firms selected for review so far.

The FCA focused very much on Capital Adequacy, Liquidity Adequacy, and Wind-Down Planning, all key elements of running a prudent investment firm, which makes it all the more concerning that the findings are quite damning, suggesting that (at least until now) firms are not taking the ICARA process seriously enough.

The key headlines were:-

1. Lack of adequate assessments of threshold requirements for individual investment firms within investment firm groups
2. Absence of unified and integrated assessments
3. Inadequately explained reduction in risk capital
4. Lack of comprehensive own funds and liquid assets triggers and limits framework
5. Previous FCA feedback not fully acted upon
6. Insufficient governance and Board & Executive involvement in ICARA
7. Insufficient attention to wind-down plans
8. Stress backdrop is not always considered
9. Little consideration of group membership
10. Incomplete analysis of wind-down requirements
11. Inaccurate or incomplete data submissions

The FCA review continues, and further firms will be targeted in this review. Those firms who have already been involved will be contacted by the FCA. In time, a full concluding report around the FCA’s findings will be published. Investment firms need to take notice of these interim observations and apply themselves to ensuring that their own firm learns from the lessons of others for ICARA.

To read the full FCA paper click on the link here - IFPR implementation observations: quantifying threshold requirements and managing financial resources | FCA