The Investment Firm Prudential Regime (IFPR), introduced by the FCA in January 2022, enhances prudential supervision of investment firms in line with the regulators objectives of maintaining market integrity, competition and protection of consumers. With this, investment firms are required to demonstrate processes that enable them to carry out the Internal Capital Adequacy and Risk Assessment (ICARA), the centrepiece of the new Prudential Regime.
Observations by the FCA
Earlier this year, after completing the first phase of their multi-firm ICARA reviews (the so-called ‘SREPs’) the FCA provided investment firms with feedback on their submissions. The regulator highlighted gaps in firms’ ICARA processes, as well as observing weak assessments on wind-down planning.
The FCA also reiterated the need for accurate, complete and consistent data to be included in submissions, having observed poor data quality in some instances.
What are the key challenges for investment firms?
At Aiviq , we see Finance functions battle with poor source data and manual processes when calculating values, such as K-factors (e.g. K-AUM, K-CMH, K-ASA), which are one of the key new requirements of the IFPR for non-SNI firms (i.e. firms that are not classified as small and non-interconnected, as defined by the FCA). These factors are designed to capture the risks that investment firms pose to customers, the markets, and themselves.
Furthermore, poor visibility of end-investors, the ‘decision makers’, that hold assets or trade via intermediaries (e.g. Wrap Platforms & Fund Supermarkets), combined with different calculation methodologies across Group, hampers the accuracy and reliability of client concentration calculations.
In order to determine client concentration or redemption risk, investment firms need access to Platform data as well as the facility to match AUM & flow to CRM data to identify their top clients. Embedded feedback loops between Finance and Distribution are also key for building and maintaining a single view of client.
What is the Impact?
As investment firms allocate more resources to contest with manual data processing, attribution and reporting, they are left with less time to carry out high-value activities, such as addressing existing gaps in IFPR reporting. This could include developing more robust wind-down plans or conducting comprehensive stress tests.
In recent months, Aiviq has seen an uptick in firms aiming to automate global financial reporting and data quality controls in light of emerging regulatory regimes like IFPR, citing increasing data volumes and the emergence of new datasets, for example in private markets, as catalysts for change.
How can Aiviq help?
Aiviq provides a global, rules-based software suite that builds a single, transparent view of client AUM, Flow & Revenue that supports over 160 enterprise use cases, delivered as a managed service. We aid Finance teams in automating K-factor calculations, assessing client concentration risk and ultimately facilitate investment firms’ IFPR submissions.
Our cloud-native platform removes reliance on key persons and manual processes, enabling skilled resources to address regulatory deficiencies or invest in more strategic initiatives like Financial Planning & Analysis (FP&A), including fund and client profitability modelling and growth forecasting.
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