Understanding Financial Adequacy: Capital and Liquidity Requirements for Investment Management Firms
Mar
22
9:30 AM09:30

Understanding Financial Adequacy: Capital and Liquidity Requirements for Investment Management Firms

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The FCA published its discussion paper DP20/2 A new UK prudential regime for MiFID investment firms in June 2020, setting out how it intends to implement its own version of the EU’s Investment Firms Directive and Investment Firms Regulation. This developed the thinking provided in its finalised guidance, FG 20/1 Our Framework: Assessing adequate financial resources, which all firms should have already incorporated into their governance arrangements. The FCA is now in the process of publishing a series of consultation papers, which provide more detailed guidance, together with draft handbook text.

If they have not already done so, firms need to plan their transition to the updated regulations. Indeed, the next version of most firm’s capital (and liquidity) adequacy assessment should follow the new approach, rather than the old ICAAP approach, since this will ensure compliance with both the new regulations and the FCA’s current guidance. Firms should also be aware of the FCA’s five new transition provisions, which include: own funds requirements, the collection of data and the calculation of Pillar 1 requirements.

Although the underlying principles of ensuring adequate capital and liquidity resources remain the same, there are significant differences in the conceptual approach since the new regime is designed specifically for investment firms, rather than being adapted from the regime for credit institutions. In particular, there is an entirely new approach to the Pillar 1 own funds requirement and new minimum liquidity requirements for all firms. In addition, the approach to risk assessment under ICARA (the ICAAP replacement) must be undertaken using a new perspective based on harms to client and markets rather than through the lens of the EU Capital Requirements Regulation risk categories. This perspective must also be reflected in the firm’s strategic plans and risk appetite—indeed, it will be hard for firms to show that they comply with the new regulations unless these reflect the new approach.

While the FCA has provided detailed documentation, navigating the new concepts and understanding how these relate to the old approach is not a trivial exercise. Further, there are a number of areas that may have a negative impact on firms, depending on the nature and structure of their business model, and these need to be identified. This new course is based on a detailed analysis of the FCA’s new requirements and has been designed to explain capital and liquidity adequacy concepts in line with the new regulations; clarify the ICARA approach; and show how to move from ICAAP to ICARA. It will therefore be of interest both to those new to financial adequacy and to those looking to update their existing approach.

Key Learning Objectives:

  • Consider the main elements of an investment manager’s balance sheet and how these are related to capital and liquidity

  • Understand why firms do not “hold” capital, the true nature of capital and why it is required

  • Understand the reasons why firms usually fail due to illiquidity rather than insolvency

  • Be able to identify the key capital and liquidity risks facing an investment manager

  • Know the key differences between the ICARA and the ICAAP and how to meet the new requirements

  • Understand the changes needed to migrate from ICAAP to ICARA

  • Know how to address each of the key elements in the ICARA, including:

  • Harms to clients and markets

  • Risks to own funds

  • Liquidity risks

  • Viability of the business model and strategy (e.g. planning, stress testing, reverse stress testing)

  • Wind-down planning

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Investment Association "Enterprise & Operational Risk for Investment Managers"
Apr
22
9:30 AM09:30

Investment Association "Enterprise & Operational Risk for Investment Managers"

This is a unique course, focussing on operational and enterprise risk for Investment managers drawing on practical industry experience. 

Risk management is not about eliminating risk but about helping the firm to take balanced, commercial decisions and to drive efficiency. The principle aim of an operational and enterprise risk management framework and function is to help the business make the right decisions and achieve its strategic objectives.

A robust enterprise risk framework and well-resourced operational risk function helps to ensure continued financial strength and durability, to prioritise resources and to organise functions, teams and processes. This is achieved by providing Senior Management, and the Board, with an accurate view of the risk environment in which the company is operating, articulating the risk appetite and driving it through the decisions taken by the business at all levels. The quality of a firm’s enterprise and operational risk programme and its operational risk function is also a factor in clients’ selection and retention decisions.

The course is interactive and practical, with the opportunity for delegates to discuss their own approaches.


Key Learning Objectives

  • Understand the risk governance framework required for an asset management firm and how to implement the necessary elements.

  • Be able to express and document the firm’s risk appetite.

  • Understand the three lines of defence model and the roles that each part of the firm and individual staff members need to play.

  • Understand the governance and oversight arrangements required for outsourcing.

  • Be able to identify, assess and manage emerging risks.

  • Understand the key elements of a firm’s operational risk framework and how they interact.

  • Understand the approach to loss event reporting.

  • Understand Risk & Control Self-Assessment (RCSA) principles.

  • Be able to identify and quantify operational risk scenarios.

  • Understand the practical issues relating to operational risk workshops.

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Investment Association "Understanding Capital Adequacy"
Feb
18
9:30 AM09:30

Investment Association "Understanding Capital Adequacy"

This is a unique course, focusing on capital adequacy for investment managers and based on the Investment Association’s ICAAP guidance.

The Individual Capital Adequacy Assessment Process (ICAAP) and the stress and scenario testing (SST) of a firm’s capital is an important discipline that most managers and risk specialists in the sector should understand. The ICAAP and SST reports are the first documents that the Financial Conduct Authority (FCA) will assess before a Supervisory Review and Evaluation Process (SREP) visit and the quality of these will set the tone of the questions asked at the meetings. Further, the FCA will expect a firm’s senior management and board to understand the concepts and results of the ICAAP and the SST and to use them to manage the business.

The standards expected by the FCA are much higher than in the past and there is a high correlation between failed firms and the quality of their ICAAP and risk governance framework. Poor understanding of the ICAAP and SST can, at best, lead to higher additional regulatory capital requirements (at increased cost) and, at worst, the failure of the firm. In contrast, a good understanding can help to identify the risks to the business strategy and to optimise the use of capital.

Recognising the importance of the ICAAP, the Investment Association has produced detailed guidance for member firms and this course expands on this guidance and provides practical advice for implementation.

Key Learning Objectives:

  • Consider the main elements of an investment manager’s balance sheet and how these are related to capital

  • Understand why firms do not “hold” capital, the true nature of capital and why it is required

  • Be able to identify the key risks to an investment manager’s balance sheet and know how to embed capital management into business decisions

  • Know how to assess each key risk category in the ICAAP and how to choose an appropriate capital estimation approach

  • Understand the key principles, approach and drivers of Stress & Scenario Testing

  • Understand the key requirements of the wind-down and reverse stress testing processes

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