Simplify Prudential and Liquidity Risk

The Investment Firms Prudential Regime (IFPR) is a UK regulatory framework introduced by the FCA in January 2022 to streamline, strengthen, and simplify prudential requirements.

IFPR applies to MiFID investment firms, collective portfolio management investment (CPMIs), and holding companies of such groups. It covers capital adequacy, liquidity risk, governance, and reporting obligations.

ICARA stands for Internal Capital and Risk Assessment. It replaces the Internal Capital Adequacy Assessment Process (ICAAP) for firms under IFPR. ICARA requires firms to assess their capital needs, risks, and potential harm, and includes a wind-down plan as part of ongoing governance.

The ICARA is a core part of IFPR. It requires firms to assess their risks, determine adequate capital and liquidity, and document how they manage financial resilience. Firms determine their capital and liquidity threshold requirements as part of the ICARA process.

All UK MiFID investment firms and CPMI firms regulated under IFPR must complete an ICARA. This includes discretionary investment managers, advisory firms, and other entities subject to FCA oversight.

The MIF007 is a regulatory return submitted via the FCA’s RegData system. It captures key financial and prudential data and is typically submitted as the ICARA questionnaire. Firms must also maintain ICARA documentation.

ACA provides ICARA templates, workshops, scenario modelling, and stress testing support. We also assist with MIF007 preparation and offer annual reviews to ensure your ICARA reflects current business and regulatory expectations.

A wind-down plan outlines how a firm would cease operations in an orderly manner, ensuring minimal disruption to clients and markets. It includes financial forecasts, liquidity planning, and risk mitigation strategies.

Liquidity risk refers to a firm’s ability to meet its financial obligations as they come due. Under IFPR, firms must demonstrate robust liquidity management and forecasting to ensure they can operate and wind down safely.

Yes. ACA supports firms that are subject to IFPR prudential reporting requirements, regardless of location. Our team has extensive cross-border experience.

K-factors are risk-based metrics used to calculate the capital requirements for non-small and non-interconnected (non-SNI) firms under IFPR. They measure potential harm to clients, markets, and the firm itself, categorised as risk to client (RtC), risk to market (RtM), and risk to firm (RtF).
The K-factors are:

• K-AUM: Assets under management
• K-CMH: Client money held
• K-ASA: Assets safeguarded and administered
• K-COH: Client orders handled
• K-NPR: Net position risk
• K-TCD: Trading counterparty default
• K-DTF: Daily trading flow
• K-CON: Concentration risk
• K-CMG: Clearing margin given

Non-SNI firms must calculate the K-factors relevant to their activities.

This refers to an investment firm subject to the FCA’s Investment Firms Prudential Regime (IFPR) and regulated under MiFIDPRU (Markets in Financial Instruments Directive Prudential Sourcebook). Examples include:

• Investment managers
• Brokers
• Advisers
• Firms dealing on own account or holding client money or assets

MiFIDPRU firms must comply with rules on capital, liquidity, risk management, and reporting under the MiFIDPRU Sourcebook.

A BIPRU firm was an investment firm subject to the FCA’s Prudential sourcebook for Banks, Building Societies and Investment Firms (BIPRU) before the IFPR came into force in January 2022. BIPRU firms included:

• Investment firms with limited permissions
• Firms subject to Basel II-style capital rules

Most BIPRU firms have now transitioned to the MiFIDPRU regime, but the term may still appear in legacy documentation or transitional guidance.

A firm is classified as small and non-interconnected (SNI) if it meets all the following:

• Assets under management < £1.2 billion
• Client orders handled < £100 million/day (cash) and < £1 billion/day (derivatives)
• Total balance sheet < £100 million
• Gross revenue < £30 million
• Average assets safeguarded and administered, average client money held, or average daily trading flow is zero
• Does not deal on own account or provide underwriting/depositary services

Firms not meeting these criteria are classified as non-SNI and subject to more extensive IFPR requirements

The Fixed Overhead Requirement (FOR) is calculated as 25% of a firm’s relevant expenditure from the previous year, adjusted for allowable deductions such as discretionary bonuses, tied agent fees, and non-recurring costs.

The FCA’s proposed cryptoasset prudential framework is expected to introduce requirements covering capital adequacy, liquidity management, risk assessment, governance, public disclosures, and financial resilience. While the regime is broadly aligned with the Investment Firms Prudential Regime (IFPR), it also includes crypto-specific requirements relating to activities such as safeguarding, staking, and certain stablecoin business models. Firms should assess whether their existing prudential frameworks remain appropriate as the regulatory landscape develops.

The UK’s evolving cryptoasset regime is expected to place greater focus on financial resilience, governance, and operational sustainability. Firms preparing for FCA authorisation should assess whether existing capital, liquidity, and risk management arrangements remain appropriate as regulatory expectations develop.

As digital assets become increasingly integrated into regulated financial markets, firms may need to demonstrate appropriate financial resources, liquidity management, governance, operational resilience, and wind-down planning arrangements. Expectations will vary depending on the firm’s activities and regulatory status.

Regulators, investors, and institutional counterparties are placing increasing focus on governance, resilience, and long-term sustainability. Many firms are assessing whether existing capital, liquidity, and risk management frameworks remain appropriate as the UK crypto regulatory framework evolves.

The Permanent Minimum Requirement (PMR) is the minimum amount of capital a firm must hold under IFPR. It varies based on the firm’s activities:

£4 million

• Acting as a depositary for a UK UCITS (Undertakings for Collective Investment in Transferable Securities) or An authorised AIF (Alternative Investment Fund)

£750,000

• Dealing on own account,
• Underwriting/Placing on a firm commitment basis, or Operating an OTF (Organised Trading Facility without a limitation on activities, or
• Acting as a depositary for an unauthorised AIF

£150,000

• Operating a multilateral trading facility, or
• Operating an OTF with a limitation on activities, or
• Holding client money/assets, and
• Not dealing on own account, underwriting/placing on a firm commitment basis, or acting as a depositary

£75,000

• Reception and transmission of orders, or
• Execution of orders on behalf of clients, or
• Portfolio management, or
• Investment advice, or
• Placing without firm commitment, and
• Not holding client money/assets, and
• Not acting as a depositary.

Contact us to speak with a member of our Prudential Services team. We’ll help assess your needs and recommend the right level of support.