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Thresholds, indicators and OFAR monitoring

IFPR introduced the 'Overall Financial Adequacy Rule'(OFAR), where firms are expected to integrate the ICARA process and wind-down plans to measure residual risk. Firms must demonstrate the implementation of the regulation as an ongoing process integrated with their operations.

We can assist you with preparing a robust 'Regulatory Monitoring Tool'.

The 'Overall Financial Adequacy Rule' (OFAR)

Within the OFAR, you are required to hold sufficient capital and liquid assets to cover the following:

  1. Own funds threshold requirement
  2. Liquid assets threshold requirement

When calculating the thresholds your firm must consider the risks it incurs from ongoing operations ad the assessment from wind down. A successful method is to integrate the OFAR monitoring into your monthly management process, e.g. including capital and liquidity adequacy calculation in the management accounts.

Further, the rules introduce a new 'Early warning indicator' concept, defined as an amount of funds equal to:

  • 110% of a firm's own funds threshold requirement, or
  • Such other amount as the FCA may specify in a requirement imposed on a firm. 

Accordingly, at any point in time you will need to maintain 10% of own funds threshold requirement as a buffer and if your own funds fall below the indicator then you will be required to notify to the FCA about it along with the remedial actions that the firm will be expected to take immediately.

Projections and wind down costs

We will build your projections within your regulatory monitoring tool. This can be an extremely valuable tool for anticipating any capital or liquidity shortfalls in your business and ensuring that timely action is taken before nearing a regulatory deficit. Forecasting can also help you appraise new business opportunities with the assurance you will be meeting your regulatory requirements.

This also applies to your wind-down costing if indeed there have been significant changes to staffing or lease or any other supplier contracts that could alter your fixed cost base.


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