Written on 05/12/2023

The new capital adequacy rules announced this month of November 23 introduce ICARA to IFAs.  ICARA is a small piece of the Mifid rules that IFAs are mostly exempt from. No longer!  ICARA now comes to town to ensure that IFAs hold more capital in this week's consultation paper.

IFA firms that were once Exempt CAD firms do know all about ICARA.  "The Individual Capital Adequacy Risk Assessment" ICARA is not especially onerous, but it is irksome that a term that was imposed by the EU is being imposed on IFAs seven years after the Brexit vote to leave the EU.  

We believe the impact will be minor, if just a little more bureaucracy in your FCA returns.  Those affected will have multiple complaints, reported either through the reg data returns or by FOS or PI.  You will need to reserve at a fixed rate against uninsured complaint liabilities (mostly the excess on your PI).   Arguably this will be the final nail to get rid of the DB firms with multiple complaints outstanding that have not been resolved, but larger firms and networks already implement these measures, so this brings smaller firms into line, and squeezes out one advantage they hold against the bigger firms. 

Members of IFAC can download from BAT this document that provides a summary of CP23/24 Capital deduction for redress: personal investment firms Consultation Paper.  This document is designed to provide high level information to relevant parties and ensure that everyone is up-to-date with FCA Guidance and Consultations.

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