Get help with IFPR

In this article we try to pull out the key differences in relation to OFAR (which seems timely, as it applies from 1st January). Future articles will focus on what is meant by ‘consideration of harms’.

Firms who are used to completing the ICAAP process (often after audited accounts are finalised) may fall into the trap of assuming that the ICARA is the same, and OFAR is set once a year.

The ICAAP was often treated as an annual process, ‘pulled out of a draw’ once a year and brushed off with new financial numbers plugged in, with detailed analysis of risks.

These final capital numbers from the ICAAP (often dictated by FOR) were set in stone for the year, until the process started again.

This is not the ICARA (the FCA would argue it was not the case under prior regimes).

Firms do need to consider whether they have sufficient prudential resource in order to meet their own funds threshold requirement and own funds liquid assets requirement. And they need to be considering this on a continuous process. This is OFAR.

The ICARA process is not designed drop a set of numbers into an FCA return or management report once a year. The ICARA (to borrow directly from the FCA) -

‘…is the collective term for the internal systems and controls that a firm must operate to identify and manage potential material harms that may arise from the operation of its business and to ensure that its operations can be wound down in an orderly manner.’

The ICARA is not a process that simply leads to the calculation and output of OFAR or the own funds threshold requirement and liquid asset threshold once a year.

OFAR always applies - it applied from 1 January 2022 (and invariably will be linked to the Threshold Conditions, the minimum conditions for authorisation i.e., appropriate resources). MIFIDPRU firms will be reporting their own funds threshold requirement and wind down trigger amounts and liquid assets threshold requirement and wind down trigger amount on a quarterly basis through the MIF001/MIF002.

The key message - OFAR is forever, not just for Christmas. I suspect the FCA will easily pick out those firms who fail to get this message from analysis of MIF returns submitted in 2022.

We would love to help you with IFPR implementation.

ComplyCraft have helped several firms move out of the IFPR regime (where suitable for their business model) and understand the possibilities for such firms.

For other MIFPDPRU firms we continue to help embed the relevant parts of the new regime. Whether that is helping with ICARA, risk management, reporting or designing bespoke policies and procedures.

As part of ComplyCraft’s IFPR toolkit we utilise a simple IFPR checklist. Approximately a hundred separate actions are outlined, with commentary.

This is not an exhaustive list, and should not be treated as such. The totality of IFPR runs into thousands of pages of rules and consultation papers. A checklist is no replacement for reading the Handbook. It may serve as a useful prompt for smaller firms to ensure they have considered key aspects of the new rules.

ComplyCraft are happy to provide this for free. We only ask that before we do, we spend 5/10 minutes discussing your current implementation plans, progress and get to know you a little better.

No hard sell. We just really like chatting compliance and would love to help you with IFPR implementation, and understand which areas concern you the most.

Please click the button below and we can provide the checklist free of charge with no obligations, and help with your IFPR project.

We offer a highly competitive IFPR toolkit consisting of the policies, procedures and templates likely needed to implement IFPR. This package includes training, and some time with our team of experts.

For the majority of smaller firms, we can help you implement IFPR (providing our templates, training and a few days of our time) for £10,000. A considerable saving from employing someone to do it for you.

It isn’t possible to drop in an ICARA template from scratch. That isn’t how the rules work. We can, and are happy to help you develop your ICARA (using our templates) and assist you in reaching an understanding of the potential harms from your business model and the impact of wind down.

Aside from offering our IFPR toolkit, we are happy to help as and when you need it.

Either to provide training, act as a sounding board, provide templates or develop and critique existing policies and procedures. Our staff are happy to get creative, innovative and work to reach solutions with you.

Please get in touch with us to discuss what you need and how we can help.

IFPR firms must understand the impact of the OFAR and threshold requirements to comply with the new regime.

OFAR - the Overall Financial Adequacy Rule requires firms to -

‘hold at all times adequate own funds and liquid assets to ensure that it can remain viable throughout the economic cycle with the ability to address any potential harms from ongoing activities and to allow its business to wind down in an orderly way’

This is continuous and applied from 1st January 2022.

All MIFIDPRU firms will be reporting their own funds threshold requirement and wind down trigger amounts and liquid assets threshold requirement and wind down trigger amount on a quarterly basis through the MIF001/MIF002 returns.

That is from May 2022 this year.

These are defined terms, and point to very specific calculations that will require a bespoke review of wind down calculations and risks of harm for each MIFIDPRU firm.

These calculations are unlikely to lead to the same output as calculations of the Fixed Overheads Requirement (FOR) or K factors.

IFPR firms should expect the FCA to conduct business model analysis to determine whether OFAR calculations such as the wind down triggers and threshold requirements provided in MIF returns are reasonable.

In other words, IFPR firms who have not done their homework to comply with IFPR from 1st January as required, or just those who are outliers, can expect to hear from the regulator

The FCA may well ask Senior Management to justify the approach taken, provide evidence of appropriate number crunching and explain conclusions reached for these defined terms.

Senior Management in MIFIDPRU firms need to understand IFPR and this new terminology. Avoidance is not an option.