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You are viewing the version of the document as on 2023-11-28.

MIFIDPRU 7.8 Reviewing and documenting the ICARA process

MIFIDPRU 7.8.1R

1This section applies to a MIFIDPRU investment firm.

MIFIDPRU 7.8.2R

1A firm must review the adequacy of its ICARA process:

  1. (1)

    at least once every 12 months; and

  2. (2)

    irrespective of any review carried out under (1), following any material change in the firm’s business model or operating model.

MIFIDPRU 7.8.3G

1The effect of MIFIDPRU 7.8.2R(2) is that if there is a significant change in the firm’s business model or operating model, the firm should not wait until the next scheduled review of its ICARA process, but should carry out a review promptly. For example, if a firm launches a material new product or business line or merges with another business, the firm should, as part of its preparation for that event, analyse the impact on the firm’s ICARA process. Similarly, if a firm’s business undergoes a significant change due to external factors (for example, significant changes in the structure of a market sector), the firm should consider the effects on the firm’s ICARA process in a timely manner.

MIFIDPRU 7.8.4R
  1. (1)

    1A firm must notify the FCA of the date on which the firm will submit data item MIF007 (ICARA assessment questionnaire) in accordance with:

    1. (a)

      in the case of a non-SNI MIFIDPRU investment firm, MIFIDPRU 9.2.2R; and

    2. (b)

      in the case of an SNI MIFIDPRU investment firm, MIFIDPRU 9.2.4R.

  2. (2)

    The submission date that the firm notifies under (1) continues to apply unless the firm notifies the FCA of a change of the submission date in accordance with (3).

  3. (3)

    A firm may notify the FCA of a revised submission date for the purpose of (1), provided that the revised date will not result in the firm not submitting data item MIF007 to the FCA for more than 12 months.

  4. (4)

    The notifications in (1) and (3) must be submitted through the online notification and application system using the form in MIFIDPRU 7 Annex 6R.

  5. (5)

    The FCA may direct a firm to submit data item MIF007 on a different date from the date in (2) to ensure that the FCA has access to appropriate and timely information on the firm’s financial position.

  6. (6)

    If the FCA gives a direction to a firm in accordance with (5), the firm must submit data item MIF007 to the FCA on the date specified in that direction until the FCA directs otherwise.

MIFIDPRU 7.8.5G
  1. (1)

    1Firms may operate different internal arrangements for reviewing the adequacy of their ICARA process. When considering the timetable for a review, a firm should take into account the following 3 dates:

    1. (a)

      the date on which the underlying data used to carry out the review of the ICARA process was prepared (the “reference date”);

    2. (b)

      the date on which the firm’s review of the ICARA process is carried out (the “review date”); and

    3. (c)

      the date on which the firm will submit data item MIF007 to report on its review of the ICARA process (the “submission date”), as notified to the FCA under MIFIDPRU 7.8.4R.

  2. (2)

    When deciding on a submission date under MIFIDPRU 7.8.4R, a firm should consider the following:

    1. (a)

      the period between the reference date and the review date should be reasonable, taking into account the time that the firm is likely to need to carry out a robust assessment of its ICARA process to meet the requirements in this section and the importance of using relevant data for these purposes; and

    2. (b)

      the period between the review date and the submission date should also be reasonable, taking into account the importance of the FCA receiving timely information in relation to the firm and the time that is required for the firm to complete data item MIF007 accurately and completely.

  3. (3)

    A firm should design its internal timetable for the review of its ICARA process and the submission of data item MIF007 in a reasonable way, reflecting the importance of proper internal risk management. The FCA has provided firms with flexibility under MIFIDPRU 7.8.4R to adopt a review and reporting timetable that fits best with the firm’s internal processes. However, under MIFIDPRU 7.8.4R(5), the FCA may direct a firm to report on an alternative date if the FCA considers that the firm’s proposed review and reporting timetable would not result in the FCA receiving the necessary information in an appropriate and timely manner.

  4. (4)

    A firm may change the date on which it submits data item MIF007 by notifying the FCA in accordance with MIFIDPRU 7.8.4R(3). However, a firm is not permitted to specify a revised date that would result in the firm not submitting data item MIF007 to the FCA for more than 12 months. For example, a firm has a submission date of 1 April each year. The firm submits data item MIF007 on 1 April 2023. On 1 March 2024, the firm wishes to change its submission date to 31 December. The firm would not be permitted to change the submission date in this way, as the next submission date would be 31 December 2024, which would be more than 12 months after 1 April 2023. However, the firm could have notified the FCA on, for example, 1 December 2023 that it intended to change its submission date to 31 December. This is because the next submission of data item MIF007 would then have occurred on 31 December 2023, which would be within 12 months of the previous submission on 1 April 2023.

MIFIDPRU 7.8.6R

1Where a firm carries out a review of its ICARA process in accordance with MIFIDPRU 7.8.2R(2) following a change in its business model or operating model:

  1. (1)

    the firm must submit data item MIF007 to the FCA within 20 business days of the governing body having approved the ICARA document resulting from that review in accordance with MIFIDPRU 7.8.8R; and

  2. (2)

    the requirement in MIFIDPRU 7.8.4R to notify the FCA of the submission date of data item MIF007 does not apply to a data item submitted under (1).

MIFIDPRU 7.8.7R
  1. (1)

    1A firm must document any review carried out under MIFIDPRU 7.8.2R.

  2. (2)

    The documentation produced by the firm to comply with (1):

    1. (a)

      may consist of multiple documents, provided that the relationship between them is clear, they are prepared on a consistent basis and they can all be provided to the FCA promptly if requested; and

    2. (b)

      is collectively referred to as the ICARA document.

  3. (3)

    The ICARA document must include the following:

    1. (a)

      a clear description of the firm’s business model and strategy and how it aligns with the firm’s risk appetite;

    2. (b)

      an explanation of the activities carried on by the firm, with a focus on the most material activities;

    3. (c)

      where the firm has concluded that the ICARA process is fit for purpose, a clear explanation of why the firm reached this conclusion;

    4. (d)

      where the firm has concluded that the ICARA process requires further improvement, a clear explanation of:

      1. (i)

        the improvements needed;

      2. (ii)

        the steps needed to make those improvements and the timescale for taking them; and

      3. (iii)

        who within the firm is responsible for taking the steps in (ii);

    5. (e)

      a clear explanation of any other changes to the firm’s ICARA process that have occurred following the review and the reasons for those changes;

    6. (f)

      an analysis of the effectiveness of the firm’s risk management processes during the period covered by the review;

    7. (g)

      a summary of the material harms identified by the firm under MIFIDPRU 7.4.13R and any steps taken to mitigate them;

    8. (h)

      an overview of the business model assessment and capital and liquidity planning undertaken by the firm under MIFIDPRU 7.5.2R;

    9. (i)

      a clear explanation of how the firm is complying with the overall financial adequacy rule, including a clear breakdown of the following as at the review date:

      1. (i)

        available own funds;

      2. (ii)

        available liquid assets; and

      3. (iii)

        the firm’s assessment of its threshold requirements;

    10. (j)

      a summary of any stress testing and reverse stress testing carried out by the firm;

    11. (k)

      the levels of own funds and liquid assets that, if reached, the firm has identified under MIFIDPRU 7.5.5R(1) may indicate that there is a credible risk that the firm will breach its threshold requirements;

    12. (l)

      the potential recovery actions that the firm has identified under MIFIDPRU 7.5.5R(2) and 7.5.6G; and

    13. (m)

      an overview of the firm’s wind-down planning under MIFIDPRU 7.5.7R, including:

      1. (i)

        any required actions;

      2. (ii)

        the anticipated timelines for actions to be taken; and

      3. (iii)

        any key assumptions or qualifications.

Senior management responsibility for the ICARA process

MIFIDPRU 7.8.8R
  1. (1)

    1The content of the ICARA document must be reviewed and approved by the firm’s governing body within a reasonable period after the review under MIFIDPRU 7.8.2R has been completed.

  2. (2)

    As part of its review under (1), the governing body must specifically review and approve the key assumptions underlying the ICARA document.

MIFIDPRU 7.8.9G
  1. (1)

    1Under COCON 2.2.2R, senior conduct rules staff members must take reasonable steps to ensure that the business of the firm for which they are responsible complies with the relevant requirements and standards of the regulatory system.

  2. (2)

    In particular, COCON 4.2.12G explains that senior conduct rules staff members should take reasonable steps to ensure that the business for which they are responsible:

    1. (a)

      has operating procedures and systems with well-defined steps for complying with the detail of relevant requirements and standards of the regulatory system; and

    2. (b)

      is run prudently.

  3. (3)

    The FCA considers that the ICARA process is a key requirement of the regulatory system for MIFIDPRU investment firms and is an essential part of a firm’s internal systems and procedures for ensuring that the firm’s business is run prudently. Accordingly, senior conduct rules staff members should take an active role in contributing to the analysis required under the ICARA process in respect of the business areas for which they are responsible and in embedding its requirements into those business areas.

  4. (4)

    Firms and senior conduct rules staff members should refer to the provisions in COCON, and in particular the guidance in COCON 3 and COCON 4, for further information on the FCA’s general approach to assessing compliance with the relevant conduct rules.

Record keeping requirements

MIFIDPRU 7.8.10R
  1. (1)

    1A firm must keep adequate records of the following:

    1. (a)

      its ICARA document; and

    2. (b)

      the review and approval of the ICARA document by the firm’s governing body under MIFIDPRU 7.8.8R.

  2. (2)

    A firm must retain the records in (1) for at least 3 years from the date on which the relevant document was approved.