ICARA - INTERNAL CAPITAL ADEQUACY AND RISK ASSESSMENT

Regulatory Background

Under the new European Investment Firms Directive and Investment Firms Requirement (IFD/IFR) and its UK equivalent, the Investment Firms Prudential Regime (IFPR), investment firms are required to conduct an Internal Capital Adequacy and Risk Assessment (ICARA). Unlike the Basel Banking regulations, which focused on the banking sector and ICAAP (Internal Capital Adequacy and Assessment Process), the ICARA takes a different approach.

Starting Point:

• ICARA begins by analyzing the firm's business model and activities.
• It introduces activity-based capital requirements, the so called K-Factors.

Ending Point:

• ICARA focuses on outcomes rather than risk classes (e.g., market, credit, and operational risks).
• Concepts include risk-to-customers (RtC), risk-to-market (RtM), and risk-to-firm (RtF).

Ongoing Process:

• It ensures the firm's financial adequacy, covering risk management, forecasting, stress testing, recovery planning, and wind-down considerations.
• The firm's ICARA process meets the overall financial adequacy requirement (OFAR), even during economic stress conditions.

OFAR:

• OFAR establishes the standard for determining whether investment firms have adequate financial resources. It ensures that firms remain viable and allows for an orderly wind-down process if necessary.

• Firms need to regularly review and update their compliance with OFAR.

• It’s an ongoing process to ensure financial stability.

The firm holds sufficient capital and liquidity to cover its own funds and liquid assets requirements (OFTR and LATR)

The firm holds funds in excess of the firm’s Own Funds Threshold Requirement (OFTR).

Additionally, it has liquid assets in excess of the firm’s Own Liquid Asset Threshold Requirement (LATR).

Which harms and risks has been considered while assessing OFTR and LATR ?

Potential harms of he Firm’s activities has been assessesd considering consumers, markets, and the firm itself.

Risks due to changes in asset values

Potential risks from changes in the firm’s asset values have been considered.

Risks due to counterparty defaults

Potential risks, including changes in the firm’s asset values and counterparty failures, have also been considered.

The content of the ICARA document has been reviewed and approved by the Board. As part of its review, the Board has specifically reviewed and approved the key assumptions underlying the ICARA document.

The accounting reference date for this ICARA:

The ICARA document been reviewed and approved by the board on:

The ICARA is a key process and an essential part of a firm’s internal systems and procedures which ensures that the firm prudently runs its business. As part of its review, the governing has also reviewed and approved the key assumptions (e.g., scenarios and stress tests) underlying the ICARA document. Accordingly, the firm’s senior staff members have taken an active role in contributing to the analysis required under the ICARA process in respect of the business areas for which they are responsible.The following is a list of senior managers that were responsible for review and approval of the ICARA.

Name and Position

Name and Position

Name and Position

Name and Position