FCA: The ICARA Framework and Risk
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:
- Financial Forecasts
- Material harms / risk matrix
- Scenario and stress testing
- Wind-down plan
- 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. These are summarised as follows:
Consideration of risk
- Consider and account for:
o the risk of harm posed to consumers and markets
o risks to own safety and soundness
• Credible and accountable wind-down planning
Consistent and holistic risk management processes
- The ICARA process is the centrepiece, encompassing:
o identification, monitoring and mitigation of harms
o business model planning and forecasting; recovery and wind-down planning
o assessing the adequacy of financial resources
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 firstname.lastname@example.org