30 January 2023 • Governance Risk & Compliance
It’s now a year since the launch of the Investment Firms Prudential Regime (IFPR) back at the start of 2022, which channels the EU-led initiative for simpler, more proportionate regulation for investment firms, overlaying the FCA’s drive to build financial resilience and mitigate further against risk of harm to consumers, investors and firms. The centrepiece of this, the ICARA process, which replaced the ICAAP regime for such investment firms, is a harms-driven approach identifying and mitigating threats to clients and other market participants, as well as firms themselves. This culminates in the submission of a questionnaire, to be done at least annually, the date for which was self-selected by each investment firm way back in November 2021. The window of leniency, which meant firms could push that date back, is coming to an end and the strict rule going forward is that periods between submissions of this ICARA questionnaire cannot be less than twelve months. With the very first ICARA questionnaire done and dusted, firms should now take the opportunity to reflect and revise that self-imposed deadline date based on their Year One experience.
As these regulations were new in 2022, firms were not sure of the complexity and exact level of work that would be involved. Mike Chambers, Head of Prudential at Centralis GRC said, “We noticed that some firms were possibly caught unawares back in November 2021, when the FCA sent out their IFPR set-up questionnaire requiring firms to fix their own deadline for the ICARA Process. Setting this annual delivery date without fully appreciating the full extent of the work and personnel required or the critical path on the timeline, will undoubtedly mean some firms would benefit from reassessing. This was especially, but not exclusively, the case for those firms which had not been subject to the ICAAP regime previously.” As a result, many firms may not have made the right decision, in retrospect, and found gathering the reporting information took longer than anticipated and pulled valuable hours away from other important business objectives.
Some firms added significant pressure by facing a hailstorm of irretractable deadlines all falling close together. Helpfully, the FCA’s rules allow firms to move their ICARA questionnaire submission date, but there’s a catch. It can be brought forwards but not pushed back. The best advice from Centralis GRC is that firms should consider carefully what the project will entail every year going forward. How much lead time will it require? What else is happening at that time? Mike provides a likely situation: “Firms with a December year end, for example, will find the year-end and audit procedures will likely dominate the workload of relevant personnel up until the end of April so if the ICARA reference date is aligned to the financial year-end, then perhaps a date in June would work best to ensure the time between data and submission remains reasonable. Alternatively, uncoupling the ICARA reference date from the financial year-end could be the best route to full deadline freedom, meaning firms can pick a deadline and necessary lead-up period that works best all around.” Firms should avoid submitting stale data and the self-selected deadline date is pivotal to ensuring this. Centralis GRC recommends bringing the date forward with careful consideration of who is available and what else is happening, since it won’t be permissible to push it back again later on.
If you would like to discuss your options, please contact Michael Chambers, Head of Prudential at firstname.lastname@example.org