Navigating ICARA: Key Priorities for Investment Firms in 2024

It has been two years since the Investment Firms Prudential Regime (IFPR) came into force and many firms will have now completed the second iteration of their ICARA. Director in fscom, Rick Seehra who is also a Prudential Risk Expert has published a paper which we link in this blog where he brings together his observations on good and bad practice from the second iteration of ICARAs and feedback received directly from the FCA.  

The purpose of this paper is to help firms understand how to develop their ICARA, from a  compliance exercise, into a practical risk management tool that adds real value to their business.   

The full paper ‘Foolproofing ICARAs for 2024’ provides useful tips on what to do and why and can be downloaded here. The key priority areas are summarised as follows:

Consolidation and Group Identification:

We have observed that a number of firms still have not correctly identified their Investment Firm Group or have not notified the FCA that they have one. Establishing the boundaries of an Investment Firm Group is not merely a regulatory box to tick; it has profound implications for risk management and capital allocation. By failing to correctly identify the group structure firms risk misallocating capital and overlooking interconnected risks, and can expect to be contacted by the FCA this year

Risk of Harms Assessment: 

We have seen that many firms grapple with identifying and quantifying risks, underscoring the need for enhanced methodologies. Many firms are still using Excel-based risk assessments but their limitations are exposed when there is a need to connect to other datasets and collaborate across functions. 

Quantitative Risk Appetite: 

Very few firms articulated their risk appetite in the first version of their ICARAs. While some  progress has been made, a significant number of firms still lack a quantitative risk appetite framework that aligns with their business objectives and risk tolerance. 

Early Warning Indicators: 

Early warning indicators must evolve beyond minimum thresholds. Many firms still use the FCA’s 110% threshold requirement however this is not effective in a fast-moving liquidity stress. The FCA has made it clear – firms should establish higher triggers than the 110% minimum to help anticipate and mitigate stress scenarios effectively.

Liquidity Risk Assessment: 

The majority of firms we have spoken to said they did not consider liquidity risk to be a significant risk to their business. However, liquidity risk remains a significant concern to the FCA as noted in their Dear CEO letter to wholesale brokers last year. A key priority in 2024, for firms who have not already done so, will be to revisit their liquidity stress tests in terms of breadth and severity.  

Operational Risk Assessment: 

Many firms struggle to assess and manage operational risk effectively, often due to inadequate oversight and visibility. The FCA has observed that group operational risk models are not always appropriate for use in individual firms’ ICARA processes. In 2024, investment firms must improve oversight of models and have clear visibility and understanding over their workings, assumptions and data feeds.

Recovery Options: 

Recovery options is one of the weakest areas we have seen across all ICARAs, limiting firms’ ability to recover from stress scenarios. Most firms have found it difficult to come up with a diverse menu of credible recovery options that would provide a benefit in a capital or liquidity stress. Few firms assess the credibility of their recovery options. In 2024, investment firms must broaden their recovery toolkit.

Stress Testing: 

Quality stress testing is essential for robust risk management. We often find that the quantity of scenarios is about right but the quality is usually missing, with firms often producing scenario testing that results in little or no losses. We also find that scenario assumptions are usually missing from ICARAs. In 2024, investment firms must enhance their stress testing capabilities by focusing on severe scenarios and by documenting key assumptions. 

Wind-Down Planning: 

Most wind-down plan horizons range from three to nine months which, in the FCA’s view, is usually not enough and firms risk having insufficient financial and non-financial resources to cover wind-down. Firms also tend to give insufficient consideration to specific group issues in their wind-down scenarios, particularly around operational and financial interconnectedness. 


It is clear that there is significant work still to be done across the industry to get full value out of ICARAs. By addressing these key priorities, firms can enhance their risk management capabilities, strengthen their resilience to emerging threats, and navigate challenges with confidence.  

Explore more insights and expert guidance on “Foolproofing your ICARA for 2024” by reading the full report here. 

If you would like to speak to Rick Seehra or any of our prudential experts, please get in touch. 


This post contains a general summary of advice and is not a complete or definitive statement of the law. Specific advice should be obtained where appropriate. 

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