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FCA: The ICARA and interacting with the regulator

Posted on: 22nd August 2022 | 3 min

The prudential regime for investment firms has been in effect since January 2022, and the impact of the new requirements around capital, liquidity and reporting and other areas has been felt by different firms to varying degrees. The ICARA has entailed a significant amount of output from firms who have already submitted theirs to the FCA, while other firms who have delayed their submission date need to decide how best to complete the ICARA. Some firms have considered an ICARA template; the reality is using such a tool does not necessarily reduce workload or cost, both financially and in time, for the firm itself.

The Wheelhouse ICARA Framework

The ICARA process encompasses various aspects of internal governance with a particular focus on risk management systems, processes and controls and a thorough assessment of the financial impact of potential risks compared to the financial resources available. Wheelhouse Advisors has developed a framework to encompass all firms that have an ICARA requirement. An ICARA template, while offering guidance for a firm, cannot deliver on experience.

Our framework is based on the following core areas:

  1. Financial Forecasts
  2. Material harms / risk matrix
  3. Scenario and stress testing
  4. Wind-down plan
  5. ICARA Document

Over 2022, we have run several workshops allowing us to incorporate feedback from firms on where they see roadblocks to completing the ICARA successfully and why an ICARA template does not satisfy their reporting and regulatory needs.

Wheelhouse Advisors, with the benefit of experience, have created a framework for our clients, with clear steps to work through, creating a financial forecast and risk matrix supported by stress testing and wind down planning, resulting in a comprehensive and factually accurate ICARA submission.

Key principles of the ICARA process

Before you can understand the ICARA process, you must consider the key principles. Some of these are summarised as follows:

Interacting with the FCA

The FCA has provided some guidance around when it would expect firms to proactively make a notification and those which might warrant FCA intervention. These are more defined than the ICAAP regime and include:

  1. Early warning indicator – if an investment firm’s capital resources fall below 110% of the ‘own funds threshold requirement’ it must notify the FCA laying out its recovery plans to restore back to a healthy surplus
  2. Threshold requirement breach – if an investment firm breaches its ‘own funds threshold requirement’ or ‘liquid assets threshold requirement’ it must notify the FCA laying out its recovery plans or decision to wind down, as appropriate
  3. Wind-down trigger – if an investment firm breaches is ‘wind-down trigger’ it must notify the FCA of its decision to wind down, unless the governing body of the firm presents a determination of an imminent and credible likelihood of recovery.

Supervisory Review and Evaluation Process

The FCA’s use of its Supervisory Review and Evaluation Process (SREP) may change, as it moves away from a minimum SREP cycle in favour of a more thematic or targeted approach, supported by enriched data collection. The FCA may take its own view of a firm’s ‘own funds threshold requirement’ or ‘own funds liquid assets requirement’, ask a firm to enhance its risk management processes, reassess its funding profile or require improvements to a firm’s wind-down plan.

Wheelhouse Advisors can guide you through clear steps that you need to take to complete your ICARA successfully, using our tested framework. We will ask you to review and approve each step of the process, with the conclusion being your firm fulfils the FCA reporting requirements succinctly and without undue pressure on your own internal resources. If you would like to understand in more detail how our ICARA template reporting and methodology works, please contact mchambers@wheelhouse-advisors.com


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