Understanding IFPR: an in-depth guide to implementing MIFIDPRU and the ICARA process

This course aims to provide an in-depth guide to implementing the Investment Firms Prudential Regime (IFPR) for Investment Association members (and equivalent non-member firms) who operate MiFID investment firms.

The key challenge for firms is to ensure that they:

a)       have correctly understood the FCA’s requirements for complying with the MIFIDPRU regulatory handbook, and

b)      know the right way to apply these requirements in practice.

The IFPR regulations require firms to meet the Overall Financial Adequacy Rule (OFAR) at all times. This requires firms to have sufficient capital and liquidity to meet threshold requirements in both business-as-usual (BAU) and wind-down situations. In order to do this, firms must use their Internal Capital Adequacy and Risk Assessment (ICARA) process to identify the harms that could prevent compliance with the OFAR and to show how these harms are mitigated by both non-financial and financial resources. The FCA will assess the quality of a firm’s ICARA and the degree to which this is embedded in a firm’s business model and strategy should it undertake a supervisory review.

The course starts by providing an understanding of the core underlying capital and liquidity concepts and explains how own funds (capital) and liquidity requirements are calculated under both BAU and wind-down situations. From these, it is shown how to set the Own Funds Threshold Requirement (OFTR) and Liquid Assets Threshold Requirement (LATR). Guidance is provided on how to structure the ICARA results and the difference between a consolidation group and a group ICARA is explained.

A special feature of the course is a session dedicated to explaining the FCA’s requirements for business planning and stress testing. This will include an update on the latest FCA guidance on industry-wide compliance with IFPR and lessons learned from working with firms who have received feedback from the FCA.

Attendees will receive a PDF copy of the training material, containing over 300 slides of detailed text and diagrammatic content that can be used as a topic-based cross-reference to the MIFIDPRU handbook and other, relevant, FCA publications.

Note: this course was previously marketed as Understanding Financial Adequacy: Capital and Liquidity Requirements Under IFPR for Investment Managers and the majority of the material in this course is similar to that in the previous course, albeit that the content is continuously updated in line with current regulations and industry best practice

Key Learning Objectives:

• Consider the main elements of an investment manager’s balance sheet and how these are related to capital and liquidity
• Understand the own funds and liquidity requirements for investment managers
• Understand how the rules apply to investment firm group structures and identify where actions may need to be taken
• Be able to identify the key capital and liquidity risks facing an investment manager
• Know how to address each of the key elements in the ICARA, including:

1. Harms to clients and markets
2. Risks to the firm
3. Liquidity risks
4. Viability of the business model and strategy (e.g. planning, stress testing, reverse stress testing)
5. Wind-down planning

09:30 Welcome, approach and background

• Key regulations documents
• Application of new rules

09:45 Key capital and liquidity concepts

• A look at a typical investment manager’s balance sheet
• Capital class definitions
• Own funds composition requirements
• Quality and quantity of liquid assets

10:30 Classification of firms

• Classification of firms (SNI and non-SNI firms)
• Transition between classifications

10:40 Own funds requirements

• Initial Capital Requirement (ICR) and Permanent Minimum Requirement (PMR)
• Fixed Overheads Requirement (FOR)
• K-Factor Requirements (KFR)
• Total Own Funds Requirement

11:30 Morning coffee break

11:45 Guest speaker: Brian Thornhill, a Director in Deloitte’s Financial Services Risk Advisory Practice will address key issues relating to the stress testing of business strategies and models and provide an update on the latest FCA guidance.

12:30 Lunch

13:00 Additional own funds requirements

• Overall Financial Adequacy Rule
• Additional own funds requirements from ongoing operations and from wind-down
• Threshold requirement and intervention point

13:20 Prudential consolidation and Group Capital Test

• Investment firm groups
• Prudential consolidation
• Group Capital Test

13:45 Liquidity requirements

• Basic liquid assets requirement
• Core and non-core liquid assets
• Liquid assets threshold requirement
• Liquidity consolidation

14:15 ICARA process: Introduction

• Overview of ICARA process
• Identifying harms
• Risk mitigation
• The ICARA process for groups
• Reviewing and documenting the ICARA process
• Governance and senior management oversight of ICARA

14:40 Afternoon tea

14:50 ICARA process: additional own funds requirement for ongoing operations

• Identifying and assessing harm to clients/markets (e.g. operational risk, group risk)
• Additional risks affecting a firm’s capital (e.g. operational risk, credit risk, counterparty risk, concentration risk, market risk, interest rate risk, pension obligation risk)

15:40 ICARA process: additional liquidity requirement for ongoing operations

• Quality and amount of liquid resources available
• Quality and amount of liquid resources needed

16:00 ICARA process: additional own funds requirement for wind-down

• Meeting threshold conditions
• Intra-group dependencies
• Recognition of income during wind-down
• Calculating additional own funds required in excess of fixed overheads

16:20 ICARA process: additional liquidity requirements for wind-down

• Liquidity issue categories
• Calculating additional liquidity required for each category

16:30 SREP and FCA additional requirements

• The Supervisory Review and Evaluation Process
• FCA additional own funds requirements and thresholds

16:40 Disclosure and reporting requirements

16:50 Q&A session for any outstanding points

17:00 Course conclusion

This training course is run under the Chatham House Rule, for reference please see here

The programme should be of interest to both investment management firms and those providing services to such firms, in particular consultants, accountants and legal firms. It will appeal in particular to those engaged in Executive Management, Business Development, Investment Management, Institutional Relationship Management, Investment Operations and Administration, Finance, Risk, Compliance and Legal. It will also be relevant for specialists from organisations that support or provide services to investment management firms, such as Third Party Administrators, Consultants, Professional Services Advisers and Regulators.

Ian Davies

Ian has over 35 years of financial services experience and specialises in risk management and financial adequacy training and advice for investment managers. He established and chaired the Investment Association’s Risk & Regulation Committee and now runs idearisk ltd., providing training via the Investment Association as well as providing advice directly to boards and senior management. Over 700 people have benefited from attending one of Ian’s training courses, which are consistently well rated.

Ian is one of the UK’s leading experts on risk governance, financial adequacy and stress testing for investment managers, having developed and implemented ICAAPs for JPMorgan Asset Management, Schroders and Aviva Investors. In addition, he has managed the process for two successful regulatory SREP visits by the FCA, resulting in improved capital guidance in both cases. He has also advised clients on developing their ICARAs and helped them to prepare for their own FCA SREP visits. 

Brian Thornhill

Brian is a Director in Deloitte’s Financial Services Risk Advisory Practice and an affiliate member of the Prudential Committee of the Investment Association. He previously served as a prudential technical specialist and operational risk lead at the FCA and its predecessor organisation the FSA.  He currently leads Deloitte’s IFPR implementation and ICAAP / ICARA transition support, including risk management framework, stress testing, liquidity, wind-down planning and recovery planning arrangements, and serves as an SME on various industry forums and working groups.

IA Member £645.00 +VAT
Non-Member £795.00 +VAT

Pay using a credit card online, or if you wish to be invoiced please email your full details to: Training@theia.org

PLEASE NOTE: Full payment for the course must be made prior to the course commencement date.

• Any cancellation must be made in writing.
• For all cancellation received 15-30 days prior to the course start date, 50% of the course fee is still payable.
• No refund is given for a cancellation made 14 days or less prior to the commencement of a course.
• Transferring from one course to another is treated as a cancellation. You can substitute one delegate for another at no additional cost. In this instance, please give two business days’ notice.

This course will be delivered virtually via MS Teams.