Simplify Prudential and Liquidity Risk

The IFPR is a UK regulatory framework introduced by the FCA in January 2022 to streamline, strengthen, and simplify prudential requirements.

IFPR applies to such firms as MIFID investment firms, CPMIs, and holding companies of these 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 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 annually as the ICARA questionnaire, alongside maintaining ICARA documentation internally. 

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, wherever they are in the world. Our team has extensive cross-border experience.

K-factors are risk-based metrics used to calculate the capital requirements for non-SNI firms under IFPR. They reflect potential harm to clients (RtC), markets (RtM), and the firm itself (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

Only non-SNI firms need to calculate K-factors.

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). These include:

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

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

This refers to firms previously regulated under the Banking and Investment Firms Prudential sourcebook (BIPRU). This regime applied before 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)
• 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.

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

You can 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.