On 27 November 2023, the FCA published the final report on its multi-firm review into firms’ progress in implementing the internal capacity adequacy and risk assessment (ICARA) process and reporting requirements under the Investment Firms Prudential Regime (IFPR).
The multi-firm review aims to assist firms in understanding and meeting the requirements and enhancing their processes.
The report highlights that most firms reviewed engaged well and showed that they were able to make the transition to the new regulations. However, there were areas for improvement, including improvements around group ICARA processes, internal intervention points, wind-down assessments, liquidity assessments, operational risk capital assessments and regulatory data submissions. In particular, the FCA noted that:
- Several firms applied insufficient consideration of cashflows and liquidity stresses, which led to an inadequate assessment of liquid asset requirements. These firms were at risk of running out of cash in stressed conditions, which could have resulted in firm failure.
- For most firms, internal intervention points were not structured in a way that would ensure that actions would be triggered in a timely fashion to mitigate harm particularly from firm failure.
- Wind-down assessments applied inadequate consideration of the impact of membership in a group, and individual firms within groups may not have adequately planned for potential failure.
- In some firms, there were significant failings in the application of capital models for operational risk, which the FCA said gave little assurance that these firms have adequate resources to mitigate harm.
In the report, the FCA also summarises good and poor practices, which it asks firms to consider along with how they can strengthen their processes. It says that firms should act now to consider the findings and assure themselves that they are meeting the rules and are mitigating harm from their operations.