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FCA Lessons from the first year of IFPR Implementation


Published: 14 Mar 2024

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The FCA recently issued a concluding report. We look at the key issues affecting our members.

In November 2023, the FCA issued a report covering IFPR implementation observations: quantifying threshold requirements and managing financial resources.

We discuss below the key lessons for firms and practitioners as they look to improve upon financial soundness in the new year. 

  • Inadequate liquid asset assessments emerged as a critical issue, with some firms failing to consider cashflows and liquidity stresses adequately. This oversight left them ill-prepared to address immediate liquidity strains, highlighting the necessity for robust assessments.
  • Internal intervention points were found lacking in effective structuring, potentially delaying timely actions and increasing the risk of harm, especially in scenarios of firm failure. 
  • Failings in capital models for operational risk raised concerns about firms' ability to mitigate harm effectively. Deficiencies in applying capital models underscored the need for assurance regarding firms' resources to manage operational risks.
  • Consideration of group relationships in wind-Down Plans was a recurring theme, leading to incomplete assessments of resources required for orderly wind-downs. Neglecting group-wide risk appetite and governance further compounded this issue.
  • Lack of time-granular analysis of cashflows hindered the understanding of cash needs, particularly during wind-down situations. Monthly and quarterly analyses were deemed insufficient, highlighting the importance of shorter time frame assessments.
  • Failure to distinguish analysis of liquid assets from own funds hampered firms' ability to ensure adequate liquid resources for orderly wind-downs. The lack of this distinction could pose challenges in resource allocation and management.
  • Lack of adequately assessed internal early warning indicators hindered firms from taking timely actions to mitigate harm, risking their viability. Aligning internal intervention points with threshold requirements is crucial for effective risk mitigation.

These observations stress the importance of thorough assessments, timely actions, and a comprehensive understanding of risks and resources in IFPR implementation. Firms are encouraged to adopt best practices and continually enhance their processes based on regulatory guidance to mitigate potential harms to stakeholders and the financial system.

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