The FCA’s observations on the IFPR implementation and the ICARA process
28 Feb 2023 • Business Services • Financial Services • ICARA and wind-down processes • Preparation of Disclosures • Prudential Reporting and Advisory • Regulatory Reporting • Thresholds, indicators and OFAR monitoring • Transparency Reporting
On 27 February, the FCA published their ‘initial’ observations on how firms are implementing requirements on the internal capital adequacy and risk assessment (ICARA) process and reporting under the IFPR. Priya Mehta outlines the review here.
This is the first part of a multi-firm review and those firms who were included in this initial part of the review process have received written feedback letters. The FCA intend to follow up with them through their usual supervisory activities.
The IFPR introduced a requirement for all firms in scope of the regime to complete an internal capital adequacy and risk assessment (ICARA) process. Through the ICARA process, firms are expected to identify the risk of harm in their operations and provide appropriate resources to mitigate harm, whether as a going concern or when winding down. The FCA’s review was focused on capital adequacy, liquidity adequacy and wind-down planning under the ICARA process, as well as regulatory reporting.
Concerns
Key issued explained by the FCA are:
Insufficient consideration of firm-specific risk and harms in the assessment of threshold requirements of individual firms required by MIFIDPRU
Inadequate integration of the firm’s approach to managing financial resources to mitigate the risk and harms from its operations within the assessments made as part of the ICARA process
Lack of comprehensive own funds and liquid assets triggers and inadequate explanations where there was a reduction in risk capital.
Incorrect implementation of the ‘group ICARA process’ without an appropriate ‘Voluntary Requirement’ approval obtained from the FCA
Unsatisfactory governance and Board & Executive involvement in ICARA
Weak wind-down planning assessments in terms of scope and quantification, reflecting an incomplete understanding of the purpose of the exercise and of guidance previously provided.
Inconsistent and inaccurate data submitted in regulatory reports.
Reminder
The FCA have also taken this opportunity to remind firms of the following: