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    2023-12-15

MIFIDPRU 7.9 ICARA process: firms forming part of a group

MIFIDPRU 7.9.1G

1This section contains:

  1. (1)

    a requirement for individual MIFIDPRU investment firms to take into account group risk as part of their ICARA process;

  2. (1A)

    2guidance on the extent to which an investment firm group may operate an ICARA process on a consolidated basis;

  3. (2)

    rules and guidance on the extent to which an investment firm group may manage risks on a group basis and may operate a group ICARA process; and

  4. (3)

    rules and guidance on the extent to which the position of multiple MIFIDPRU investment firms may be combined with a single ICARA document.

Analysis of group risk by individual firms

MIFIDPRU 7.9.2R

1Where a MIFIDPRU investment firm is a part of a group, the firm’s ICARA process must take into account any material risks or potential harms that may result from the firm’s relationship with other members of that group or the group as a whole.

MIFIDPRU 7.9.3G

1The requirement in MIFIDPRU 7.9.2R applies in relation to:

  1. (1)

    any group, irrespective of whether that group is an investment firm group; and

  2. (2)

    any relationship that the firm has with any member of that group, irrespective of whether the other entity is an authorised person.

Consolidated ICARA process

MIFIDPRU 7.9.4G
  1. (1)

    1An investment firm group to which MIFIDPRU 2.5 (Prudential consolidation) applies is not normally required to operate an ICARA process on a consolidated basis.

  2. (2)

    However, on a case-by-case basis, 2the FCA may determine that a particular investment firm group should operate an ICARA process on a consolidated basis (ie, as if the overall financial adequacy rule applied to the consolidated situation, so that the UK parent entity and the relevant financial undertakings in the investment firm group were treated as a single MIFIDPRU investment firm). (2A) includes examples of such cases. 2 Therefore, in appropriate cases, the FCA may:

    1. (a)

      invite a UK parent entity to apply for the imposition of a requirement to operate a consolidated ICARA process under section 55L(5) or section 143K(1) of the Act; or

    2. (b)

      impose a requirement on the FCA’s own initiative on a UK parent entity to operate a consolidated ICARA process under section 55L(3) or section 143K(3) of the Act.

  3. (2A)

    2For the purposes of (2), examples of such cases may include where the FCA concludes that:

    1. (a)

      the individual ICARA process operated by a MIFIDPRU investment firm within an investment firm group, or the group ICARA process operated by an investment firm group, does not adequately reflect certain material risks that arise in the context of the investment firm group as a whole;

    2. (b)

      the operation of a group or an individual ICARA process does not enable the FCA to effectively supervise the compliance of the investment firm group, or any of the individual MIFIDPRU investment firms within it, with the obligations in MIFIDPRU 7, due to the structure of the investment firm group;

    3. (c)

      authorised persons (other than MIFIDPRU investment firms) within the investment firm group conduct a material amount of business and the individual or group ICARA process does not adequately reflect the impact of this business;

    4. (d)

      a MIFIDPRU investment firm within the investment firm group is materially dependent on a relevant financial undertaking (other than a MIFIDPRU investment firm) within the investment firm group for either revenue or services;

    5. (e)

      the financial resilience of the investment firm group could adversely affect the ongoing financial resilience of the MIFIDPRU investment firms within the investment firm group (for example, due to significant levels of goodwill); and

    6. (f)

      there are significant amounts of on- and off-balance sheet claims or liabilities (excluding own funds) between one or more MIFIDPRU investment firms and other relevant financial undertakings within the investment firm group, and they are not short-term or non-recurring.

  4. (3)

    Where the FCA decides to impose a requirement on a UK parent entity to operate an ICARA process on a consolidated basis, it will normally discuss its expectations around the operation of that ICARA process in further detail with the UK parent entity.

  5. (4)

    In appropriate cases, the FCA may specify that a particular entity (whether or not it is an authorised person) should be excluded from the consolidated situation. Where this is the case, the consolidated ICARA process should reflect the modified scope of the consolidated situation. The FCA may adopt this approach where, for example, the inclusion of the entity within the consolidated situation would result in a misleading assessment of the financial resources available to, or the harms posed by, the relevant investment firm group.

  6. (5)

    2An ICARA process operated by an investment firm group on a consolidated basis is in addition to the individual ICARA process operated by a MIFIDPRU investment firm within an investment firm group, or to the group ICARA process operated by an investment firm group.

Group ICARA process

MIFIDPRU 7.9.5R

1Subject to MIFIDPRU 7.9.7R, an investment firm group (whether it is subject to MIFIDPRU 2.5 or not) may operate a group ICARA process, provided that the following conditions are satisfied:

  1. (1)

    the group ICARA process is consistent with the manner in which the business of the investment firm group, and the risks arising from it, are operated and managed in practice;

  2. (2)

    any assessment under the group ICARA process of own funds or liquid assets that are required to cover the identified risks is allocated between individual firms within the investment firm group on a reasonable basis and that basis is properly documented;

  3. (3)

    each MIFIDPRU investment firm covered by the group ICARA process complies with the overall financial adequacy rule on an individual basis;

  4. (4)

    each MIFIDPRU investment firm covered by the group ICARA process maintains a separate wind-down plan for the purposes of MIFIDPRU 7.5.7R and applies the wind-down triggers on an individual basis;

  5. (5)

    the notification requirements in MIFIDPRU 7.6.11R and 7.7.14R apply in relation to each individual MIFIDPRU investment firm included within the group ICARA process, using the amounts determined in accordance with (2) to (4);

  6. (6)

    the management of any risks on a group basis takes place within one of the following entities:

    1. (a)

      a MIFIDPRU investment firm within the investment firm group; or

    2. (b)

      the UK parent entity of the investment firm group;

  7. (7)

    the governing body of the relevant entity in (6) has accepted overall responsibility for the group ICARA process and for ensuring compliance with this rule;

  8. (8)

    the requirement in MIFIDPRU 7.8.8R for the governing body of an individual MIFIDPRU investment firm to approve the content of the ICARA document applies to the governing body of the relevant entity in (7); and

  9. (9)

    each individual MIFIDPRU investment firm included within the group ICARA process submits data item MIF007 (ICARA assessment questionnaire) to the FCA on an individual basis, reflecting the position of that firm as it results from the conclusions of the group ICARA process.

MIFIDPRU 7.9.6R

1Except as specified in MIFIDPRU 7.9.5R, a MIFIDPRU investment firm that is included within a group ICARA process is not required to comply with the requirements in MIFIDPRU 7.4 to MIFIDPRU 7.8 on an individual basis.

MIFIDPRU 7.9.7R
  1. (1)

    1An investment firm group must not:

    1. (a)

      operate a group ICARA process if the FCA has directed the investment firm group to manage or assess the risks arising from its business on a different basis because one or more of the conditions in (2) applies in relation to that investment firm group; or

    2. (b)

      include within a group ICARA process any MIFIDPRU investment firm that the FCA has directed to manage or assess the risks arising from its business on a different basis because one or more of the conditions in (2) applies in relation to that firm.

  2. (2)

    The relevant conditions are that:

    1. (a)

      there is a material risk that potential harms arising in relation to the firm or investment firm group would not be adequately captured through a group ICARA process;

    2. (b)

      there is a material risk that a group ICARA process would result in excessive complexity that would interfere with the FCA’s ability to supervise the compliance of the investment firm group, or any of the individual MIFIDPRU investment firms within it, with its obligations under MIFIDPRU 7; or

    3. (c)

      the investment firm group previously operated, or the firm was previously included within, a group ICARA process that did not meet the requirements in MIFIDPRU 7.9.

MIFIDPRU 7.9.8R

1Except as otherwise specified in MIFIDPRU 7.9.5R, a group ICARA process must comply with the requirements in MIFIDPRU 7.4 to MIFIDPRU 7.8 as if the references in those sections to a “MIFIDPRU investment firm” are references to the investment firm group operating that group ICARA process.

MIFIDPRU 7.9.8AG
  1. (1)

    2As explained in MIFIDPRU 7.9.6R, a MIFIDPRU investment firm that is included within a group ICARA process does not generally need to comply with the requirements in MIFIDPRU 7.4 to MIFIDPRU 7.8 on an individual basis.

  2. (2)

    However, as MIFIDPRU 7.9.5R explains, an investment firm group can operate a group ICARA process only if each MIFIDPRU investment firm within it complies with certain provisions of MIFIDPRU 7.4 to MIFIDPRU 7.8 on an individual basis.

  3. (3)

    2The following table explains which provisions a MIFIDPRU investment firm must comply with on an individual basis in order to meet the relevant conditions in MIFIDPRU 7.9.5R:

    2Relevant condition in MIFIDPRU 7.9.5R

    Main rules and related guidance that must be met on an individual basis to comply with the conditions in MIFIDPRU 7.9.5R

    (3) – each MIFIDPRU investment firm must comply with the overall financial adequacy rule

    MIFIDPRU 7.4.7R and provisions relating to the overall financial adequacy rule

    (4) – each MIFIDPRU investment firm must maintain a separate wind-down plan and apply the wind-down triggers on an individual basis

    MIFIDPRU 7.5.7R to MIFIDPRU 7.5.10G

    (5) – each MIFIDPRU investment firm must comply with the requirements to notify the FCA of certain levels of own funds and liquid assets

    2MIFIDPRU 7.6.11R to MIFIDPRU 7.6.13G

    MIFIDPRU 7.7.14R to MIFIDPRU 7.7.15G

    (9) – each MIFIDPRU investment firm must submit data item MIF007

    MIFIDPRU 7.8.4R

    MIFIDPRU 7.8.5G

    MIFIDPRU 9.2

  4. (4)

    2The effect of MIFIDPRU 7.9.8R is that all the rules and guidance in MIFIDPRU 7.4 to MIFIDPRU 7.8 (except those specified in the table in MIFIDPRU 7.9.8AG(3)) apply at the level of the investment firm group.

  5. (5)

    2Where a MIFIDPRU investment firm is included in a group ICARA process in accordance with MIFIDPRU 7.9.5R, the firm is reminded that, under MIFIDPRU 9.2.1R and MIFIDPRU 9.2.3R (as applicable), it must still submit data item MIF007 to the FCA on an individual basis. Data item MIF007 will provide information about the firm that has been derived from that group ICARA process.

MIFIDPRU 7.9.9G
  1. (1)

    1Under MIFIDPRU 7.9.7R, if an investment firm group is operating a group ICARA process that is inadequate to address the potential harms arising from its business, the FCA may direct all members of the investment firm group, or individual MIFIDPRU investment firms within it, to apply the ICARA process on an individual basis.

  2. (2)

    In addition, a group ICARA process must satisfy the requirements in MIFIDPRU 7.9.5R on an ongoing basis. If any of the conditions in that rule for the use of the group ICARA process are not met, all MIFIDPRU investment firms covered by that group ICARA process must operate individual ICARA processes instead.

  3. (3)

    Under a group ICARA process, the risk management and analysis of the financial impact of the risks is carried out at the level of the investment firm group. Each firm in the investment firm group is then allocated on a reasonable basis the assessment of own funds or liquid assets that are required to cover identified risks. In addition, each MIFIDPRU investment firm in the investment firm group must comply with the overall financial adequacy rule on an individual basis. 2An investment firm group that wishes to operate a group ICARA process must therefore ensure that its risk management processes are sufficiently robust to satisfy the requirements in MIFIDPRU 7.9.5R and that there is appropriate accountability of the responsible governing body in accordance with the requirements of that rule.

  4. (4)

    The FCA considers that it is important that there is a proper analysis of how the overall financial adequacy rule and wind-down planning arrangements apply to each individual MIFIDPRU investment firm within the investment firm group. This reflects the fact that the solvency of firms must be assessed on an individual basis and legal entities must be wound down separately.

Combined ICARA documents covering multiple group entities

MIFIDPRU 7.9.10R

1Where an investment firm group contains multiple MIFIDPRU investment firms, the ICARA document for each firm may be combined within a single document, provided that:

  1. (1)

    to the extent that any risks are managed under a group ICARA process, this is clearly documented and explained; and

  2. (2)

    for any risks that are managed on an individual basis, and for any requirements that MIFIDPRU 7.9.5R specifies must always apply on an individual basis under a group ICARA process, the combined ICARA document clearly explains the position of each individual firm and how it complies with the relevant requirements.

MIFIDPRU 7.9.11G

1The effect of MIFIDPRU 7.9.10R is that even where an investment firm group does not operate a group ICARA process, a single ICARA document can be used to document the individual ICARA processes operated by multiple MIFIDPRU investment firms within that investment firm group. However, the single ICARA document must clearly explain how each MIFIDPRU investment firm meets the applicable requirements on an individual basis.