FCA has published the final report on its review into firms’ progress in implementing the ICARA process and reporting requirements under the IFPR.
The IFPR was introduced to streamline and simplify the prudential requirements for the MiFID investment firms that are prudentially regulated. The IFPR required all firms in the scope of the regime, around 3,500 firms, to complete the ICARA process. This process required firms to identify the risk of harm in their operations and assess appropriate resources to mitigate harm.
The report concluded that firms have made progress in understanding the requirements of the new regime and there has been a shift towards considering and seeking to mitigate the harm the firm can pose. However, FCA highlighted some key areas for improvement:
- Some firms did not apply sufficient consideration of cashflows and liquidity stresses. This led to an inadequate assessment of liquid asset requirements, therefore putting the firms at risk of running out of cash in stressed conditions and failing altogether;
- Most firms did not have adequately assessed internal early warning indicators and triggers for invention, meaning that firms are not able to take timely action to mitigate harm, particularly from firm failure;
- Across firms, there was little consideration of the role of group relationships which could lead to inadequate assessment of resources to support an orderly wind-down. Individual firms within groups may not have adequately planning for potential failure; and
- In some firms, there were significant failings in the application of capital models for operational risk, giving little assurance that the firms have adequate resources to mitigate harm.