It is nearly a year since the ICARA regime was introduced in the UK by the FCA, replacing the ICAAP framework under the prior prudential regime.
The ICARA rules, applicable to MiFID investment firms, are designed to ensure firms identify and mitigate harms their activities may cause to customers, market participants, and themselves through a combination of internal controls and financial resources.
Effective ICARA processes include robust risk management and sound financial forecasting. Through stress testing (and reverse stress testing for complex firms), scenario analysis, and recovery and wind-down planning, firms can assess whether they hold sufficient capital and liquidity for business continuity and orderly wind-down if needed.
Findings from these ICARA processes should be documented in an ICARA report and reviewed, challenged, and approved by the governing body at least annually.
Although sensible in principle, the rules have created practical challenges for many investment firms, especially those not previously subject to ICAAP requirements. The UK investment firm landscape is diverse, and many firms have found it difficult to design, implement, and report ICARA requirements in ways tailored to their business model.
Compared with ICAAP, ICARA generally requires more input from front and middle office and consumes more resources across senior management, compliance, legal, and accounting. A holistic, business-wide approach is therefore essential.
The annual ICARA questionnaire submission is also an important supervisory data point for the FCA and, for many firms, one of the few direct regulatory touchpoints. Accuracy and quality matter.
Given the complexity, design and implementation often benefit from trusted external expertise. For many firms, an outsourced model can help manage both resource constraints and specialist technical requirements.
ICARA itself is a collection of related processes involving subject-matter experts across the business under governing-body oversight. Harmonising these components delivers stronger outcomes.
Firms can gain additional value from platform/process tools that support permissioned access, collaborative workflows, and active/passive reporting. This can also align well with adjacent obligations such as SM&CR.
Following FCA attestations this year expressing disappointment with the quality of regulatory submissions, it is reasonable to expect heightened scrutiny of ICARA and MIF007 in year one.
Reducing human error through automation and digitised workflows can improve data quality, reduce regime breach risk, and deliver time and cost efficiencies.
ICARA has arrived while asset managers are already facing headwinds, including rising costs and margin pressure. The added reporting burden makes resourcing decisions even more important.
For firms navigating these demands, engaging with an experienced third-party provider can be beneficial from both time and cost perspectives.
Centralis Governance, Risk & Compliance continues to support investment firms and asset managers operating under IFPR and meeting ICARA obligations through a people-led, tech-enabled methodology and automation-backed client portal.
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