For many firms, the prospect of completing the ICARA process for the first time can feel daunting. It need not be. The key is to treat it not as a standalone document, but as a living, business-led framework that supports decision-making and embeds robust risk management across the firm.
Need support with your ICARA process?
C&G Regulatory Solutions offers expert advisory services to help firms design, review and strengthen their ICARA in line with FCA expectations. Get in touch now.
A Process for Firms, Not a Document
The ICARA process should pass a simple use test:
Is senior management actively using the ICARA to ensure the firm maintains adequate financial resources in line with its strategy and operations?
If the answer is “yes,” that’s a strong indicator the firm is fully engaged.
If, however, the ICARA is seen as:
- an annual tick-box exercise;
- the sole responsibility of control functions; or
- a file that gathers dust unless the regulator asks for it, then it’s unlikely to meet expectations.
What the ICARA Process Should Cover
A firm’s ICARA should address:
- All business activities, MiFID and non-MiFID;
- Potential harm arising from each business line, including to:
- customers,
- markets,
- other stakeholders,
- the firm itself;
- Material risks that threaten the firm’s ability to operate effectively or meet its obligations.
Understanding the ICARA Process in the Context of IFPR
The ICARA process is a core requirement of the Investment Firms Prudential Regime (IFPR), introduced by the FCA in January 2022. IFPR aims to simplify and streamline the prudential framework for MiFID investment firms, replacing the previous ICAAP regime for many firms.
Under IFPR, the ICARA replaces the ICAAP for most firms and reflects a shift in focus:
- From capital adequacy alone,
- To a broader assessment of risk, harm, governance, and recovery planning.
The ICARA process must demonstrate how a firm identifies, manages, and mitigates potential harms to clients, markets, and the firm itself, while maintaining adequate financial and non-financial resources.
Firms that approach ICARA as a regulatory formality — rather than as a business planning and risk management tool — risk falling short of FCA expectations under IFPR.
The ICARA requirements are set out in the FCA Handbook under the MIFIDPRU sourcebook, particularly MIFIDPRU 7. Firms should ensure they are familiar with these rules and the associated FCA guidance, including expectations around risk assessment, resource adequacy, and wind-down planning.
Keep It Proportionate
The FCA does not expect:
- An exhaustive list of every conceivable risk; or
- Complex modelling for straightforward business models.
A cumbersome ICARA is unlikely to pass the use test. Keep the ICARA process focused, practical and proportionate.
No Templates — For a Reason
The FCA will not be issuing standardised templates for the ICARA process or for wind-down planning. Each ICARA should reflect the firm’s unique business model, structure and risks.
Firms that previously carried out the ICAAP may be able to adapt elements, but the ICARA process places far more emphasis on potential harm to customers and markets, not just capital adequacy.
Make It a Team Effort
The ICARA process should not be left to the compliance or finance teams alone. Input is needed from all core business functions to ensure that key risks are identified, assumptions tested, and blind spots avoided.
Governance and Accountability
Governance remains central. Senior management is ultimately accountable for the ICARA process under the Senior Managers and Certification Regime (SM&CR).
That includes:
- Approving the ICARA in a documented forum;
- Challenging forecasts, planning assumptions and risk assessments;
- Overseeing wind-down planning.
Non-executive directors also have a key role to play — providing constructive scrutiny and recommending enhancements where needed. High-quality management information and meeting records are essential to demonstrate effective governance.
Testing the Wind-Down Plan
Most firms are familiar with business continuity testing — but the FCA also expects wind-down plans to be tested in practice. This includes confirming:
- Staff know their roles during a wind-down;
- Communication plans are effective;
- Any gaps or unrealistic assumptions have been addressed.
Data Quality Matters
The old adage “rubbish in, rubbish out” applies. But more subtly, firms should consider the relevance and timeliness of the data underpinning their ICARA.
If the data used is outdated — particularly in relation to the MIF007 return — the FCA may question whether the firm has an accurate understanding of its financial position and risk profile.
Useful Resources for the ICARA Process
The following resources can support firms in strengthening their ICARA process:
- Investment Firms Prudential Regime resource page
- FG20/1: Assessing Adequate Financial Resources
- Wind-Down Planning Guide
- TR22/1: Observations on Wind-Down Planning
- “Dear CEO” letter: Quality of Prudential Regulatory Returns
Firms should also monitor the FCA’s ongoing feedback via the IFPR newsletter following receipt of the initial MIF007 returns.
Final Thoughts
At its core, the ICARA process is about demonstrating that the firm:
- Understands the risks it faces;
- Has credible plans in place to manage those risks; and
- Maintains adequate resources to continue operating — or wind down — in an orderly fashion.
If your firm can articulate this clearly, realistically and proportionately, it won’t go far wrong.
ICARA Advisory Services for Regulated Firms
Designing and maintaining an effective ICARA process is both a regulatory obligation and a business-critical activity. At C&G Regulatory Solutions, we provide tailored advisory services to help firms meet FCA expectations with confidence.
We work closely with senior management and control functions to ensure the ICARA process is proportionate, practical, and properly integrated into the firm’s strategic decision-making.
Contact us to learn more about how our ICARA advisory services can support your firm.
